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The Pitfalls of Direct-Marketing Business ‘Opportunities’ (or MLMs)

Home-Based Business

When we hear the phrase “Home-Based Business,” what comes to mind? There are many turnkey micro-franchise ‘business opportunities’ that we’ve all heard of: Amway, Avon, Herbalife, Mary Kay Cosmetics, Nu Skin, etc.

These businesses have a low cost of entry, and perhaps 80% of the work is already taken care of by the parent company. You’re simply a salesperson, and eventually, if you enroll other people, you become like a manager. But there are many skills that you won’t develop when working for a multi-level marketing or direct marketing business.

Direct Marketing

At some point in your life, you will likely have someone try to convince you to join a direct marketing business ‘opportunity.’ These usually involve some fee to become a wholesale member, allowing you to sell products at a profit and even signup other people, making money on their efforts.

Crisis Psychology and Decisions

In times of financial hardship, either individually or wide-spread economic crisis, people are more desperate and willing to take a gamble. These direct marketing companies are presented as a secure way to avoid financial hardship. Unfortunately, they often don’t deliver and frequently create a financial hardship for people.

The Appeal of Direct Marketing

Direct marketing has some appeal. You don’t need to have an advanced degree or education. You don’t need to have any special skills. You don’t need to make some product at home. You sell a product that’s already been produced and packaged for you. You don’t need to be a professional graphic designer to create attractive product packaging and brand identity for your business. That’s already been done for you. You don’t need to spend money on advertising to build brand awareness. That’s already been done for you. Most of these businesses involve having ‘parties’ or meeting face-to-face with people who want to see and try the products.

Achieving Success in Direct Marketing

Being successful takes a lot of work and a willingness to undergo much rejection. With much persuasion, you can get family members and friends to signup, but over time, their interests can change. So, losing distributors and customers over time (attrition) is a problem. You are usually not in a position where people are seeking you out, but instead, you are putting in much effort to convince people to buy and signup. So, becoming a pushy salesperson, and unwittingly seeming a bit desperate, is a requirement to grow your business.

The Promise of Great Riches

With these companies, there will commonly be a promise of great riches, and there are many examples offered of people who made it big, having a big house, a big pool, a big car, a big diamond ring, etc. But for every success story, there are many more failures. 

Encouraging Indebtedness

Overenthusiastic people will use credit cards or loans in an attempt to grow their business quickly. Usually there are incentives for singing up under a ‘fast track’ program that requires buying a certain level of product and getting others to signup quickly. This results in most people not taking the time to fully research the company or rationally consider the opportunity.

The Exaggerated Perception of Earnings

When calculating their earnings, most people don’t take their time into account and don’t fully calculate all the expenses they incur. Most of these types of businesses barely produce a minimum wage when you consider everything put into the business and the revenue it generates.

The Religious Cult Mentality

Once people become indoctrinated into the company mindset and philosophy, it is common for them to become a bit obsessed. This is particularly true for people who are naturally inclined to be this way.

Their friends and family might not say anything to them, but the continued talking about ‘the opportunity’ and borderline-manic over-the-top enthusiasm about the products can be off-putting.

Because of the sometimes cult-like obsession with such businesses, it is typically difficult for someone to be convinced to leave even if it is harming them financially and otherwise. There is pressure from others in the business, particularly those above them who rely on their labors.

Misleading Claims

Often, with health-related products, exaggerated claims are made based on anecdotal evidence. Usually these claims don’t come directly from company leadership. That would be illegal and result in government regulatory action. The claims come from overly enthusiastic “independent distributors” in the organization. Of those people, the company can fairly claim that they don’t have any control over them and that they don’t officially represent the company. When the products don’t perform as expected, people can feel deceived. This can erode trust and harm relationships.

Instead, Buy Local and Build Local

There’s nothing inherently evil about direct marketing companies or their products. Some of the products are quite good. Most of the people are good at heart and well-meaning. It’s just that there is great potential for problems and they can create a net-loss for many people involved, except for those at the top of the organization.

Direct marketing businesses can have a net-loss impact on local economies. The bulk of the business operation takes place at some corporate headquarters somewhere, and much of the money goes to pay for that operation. 

People in local communities who convince friends and family to buy from such companies will be sending their money elsewhere in exchange for expensive products. The higher-level skills will reside elsewhere. 

It’s better to buy locally, from locally owned and operated businesses, who have products and services that rely on locally sourced goods and resources. These put money back into the local community, which is essential in times of economic crisis. This helps people in your local community develop the higher-level and more complicated skillsets that build a stronger workforce.

Start Your Own Business

Instead of working to build the business of someone else, pursue businesses that are entirely yours. You do more of the work, but you reap more of the rewards. You are more democratically in control of the direction the business goes in. Want to add more products or services? You can get started on that today. You don’t need to wait for company leadership to approve such things. The money you earn from the value you create stays with you. For more about starting a business of your own, that you own and control, read “Recently Unemployed? Do This Immediately.”

By Greg Johnson

Greg Johnson is a freelance writer and tech consultant in Iowa City. He is also the founder and Director of the ResourcesForLife.com website. Learn more at AboutGregJohnson.com

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