A Brief History of Network Marketing
I'd like to talk about the oldest profession in the world, tracing its roots back to the Garden of Eden. Now before you pick up stones to castigate me, allow me to explain myself. The subject of this article is "Network Marketing," which is interchangeably called "Referral Marketing," "Word of Mouth Marketing," "Multi-level Marketing" or simply "MLM." It is a first cousin of franchising, a younger sibling of "Direct Selling," and is in turn an older sibling to "Affiliate Marketing."
Grails
As MLM guru Tom Schreiter likes to point out, "most people do network marketing every day, they just don't get paid for it!" Thus, when the Serpent talked to Eve, and then Eve enticed Adam to sample the forbidden fruit, she was engaged in "belly to belly" Referral Marketing (and we've been paying the price ever since!)
Network Marketing is a method of doing business whereby a company markets its goods and services directly to the end consumer by means of an independent distributor force, as opposed to working with wholesalers who then stock their products in retail outlets.
So instead of spending advertising dollars up front to promote their wares in malls and supermarkets, its marketing budget is redirected into a commission bonus structure for the distributor force. Commissions are paid out after the sale is made, allowing the parent company to gain the leverage of a huge advertising budget, without the upfront capital outlay. In other words, the sale comes first, revenue is generated and commissions are paid out after the coins are in the coffer.
In fact, the Holy Grail of MLM is "leverage," both for parent companies and for their independent distributors. "Give me a lever long enough, and a fulcrum on which to place it" exclaimed Archimedes, "and I can move the world!" Leverage is why companies employ the multi-level marketing model, and leverage is what attracts hordes of prospective entrepreneurs to launch an MLM career.
Direct selling has a long history in the United States, and is usual associated with the door-to-door salesmen of Fuller Brush>, Kirby Vacuums, Watkins or Avon fame.
Similar to direct sales, MLM distributors get paid a direct commission by the parent company after each sale they make. In addition, there is an opportunity to earn indirect commissions, by recruiting other distributors and getting paid on their personal sales volume, and so on and so forth, down multiple levels or generations, in a snowballing effect. Hence the term "multi-level marketing."
"Is this a Pyramid Scheme?"
It is usually at this point in a pitch to a prospective business associate that a distributor might encounter the dreaded "pyramid" objection. The litmus test used to determine whether a program is a bona fide network marketing plan, or a pyramid or Ponzi scheme is simply to ask whether there is an actual, legitimate product or service being marketed, or if instead it's purely a money game without anything substantive, other than cash, exchanging hands.
In other words, would Grandpa Jones or Aunt Tilly buy the product or service just because it tastes good, makes them feel better, gives them real benefits, etc? Without any financial incentive?
Just as franchising had to face the US congress in the 1940's, network marketing had its day in court when the Amway Corporation won a landmark victory in 1979, which declared that its business model was not a "pyramid scheme" as long as it fell within the approved parameters.
As Tim Sales explains in his presentation Brilliant Compensation, "there's nothing wrong with a pyramid!" It's one of the most stable physical structures in architecture, as attested to by the Mayan and the Egyptian civilizations. Governments and corporations all employ the pyramid model. In fact, when someone asks me whether MLM is a pyramid I often reply, "Oh, you mean like Social Security? No, it's nothing like that!"
Multi-level commission structures are often employed by real estate brokers and insurance companies who may extend "override bonuses" to agents who refer other agents.
Professor Charles King, from the University of Chicago School of Business, and Tim Sales debunk the "pyramid myth" in their classic Brilliant Compensation lecture, which is considered the premier MLM apologetics piece to date.
Leverage: The Holy Grail of Any Business Venture!
As I said before, the name of the game is leverage. A traditional job is typically an inefficient way to gain the leverage need to create true wealth and "time freedom." There one must trade hours for dollars. Stop working, and you stop getting paid. Owning a company is a better way to leverage one's time and money. The following quote is attributed to America's first billionaire, the famous oil tycoon John Paul Getty: "I would rather have 1% of the efforts of a hundred men, than 100% of my own efforts." Some say Andrew Carnegie coined that phrase. But in either case, both men grew rich off its principle!
Network marketing, has been dubbed "The People's Franchise" because it allows average persons to work from home, and develop leverage in their spare time by building up a network of customers and distributors. MLM philosopher Jim Rohn would call this working full time on your job while working part-time on your fortune!
Network Marketing usually involves far less seed capital than traditional franchising. In theory, any average Tom, Dick or José can bootstrap his way up from nominal start-up fees (typically less than ,000) to complete financial leverage in a long-term passive, residual income stream. Now things don't always turn out this way, and often people will point fingers at MLM and say it doesn't work or it's flawed because only the top 1% make any money, or "you have to bug your family and friends," et cetera, ad nauseam. Yet, as my father has drilled into my head ever since toddlerhood, "Abuse doesn't take away the use."
Rock Star Income: My Personal MLM Saga
At this point I'd like to shift gears and get personal here. I'm going to share with you my own personal ups and downs in this fascinating industry over the course of the past 12 years.
For starters, I was introduced to the concept of residual income through my passion for music. When I was 14 years old my dear mother ordered a 6-string guitar for me from a Sears catalog. I'm sure she may later have second-guessed her decision, as she had to suffer through my learning process, including the eventual smashing of this guitar in utter frustration. By and by, though, I got pretty good and thereupon embarked on a prolific song-writing career.
While living in Texas in the early '90's I joined the Dallas Songwriters Association, and it was there I learned that the really "lucky" songwriters could earn royalties on their compositions for years or decades to follow. In reality, even though there's an element of luck in the music industry, "luck" is really nothing more than "preparedness meeting opportunity." I wasn't prepared to pay the price to make it big in music, and so I simply lived on as a legend in my own mind.
But around this time, a fellow grad student at my alma mater, the University of Dallas, approached me one day and asked: "How'd you like to make money every time somebody picks up the phone?" This was the question that launched my MLM career! I grasped in a flash of insight the beautiful entirety of this abstraction called "leverage," and I could see clearly that multi-level marketing was going to be my means to this coveted end.
I began attending standing-room-only hotel meetings with 800 eager entrepreneurs in the room, during which the speaker would point out that he had built an organization 10 times the size of that group. "Do you suppose any of those folks made a phone call today?" he'd ask? Dollar signs danced in my head as I tried to compute his override bonuses on all those ringing little ATM machines in homes across the country
When the actual process of building my network of customers and customer-gatherers moved more slowly than I had imagined it would, I made the common mistake of most rookies who do not understand the growth curve and thus panic during the incubation period: I jumped ship, and found another telecom program without 0 start-up fees. I had seen this fee as a barrier to entry.
Over the next year, using the internet as a marketing vehicle, I referred a handful of customers and distributors and eventually developed a personal organization of over 1,000 customers on whose monthly phone bills I was paid a small percentage. This was back in the days of 15 cents a minute long distance calling!
But I soon learned my first big lesson about MLM: developing a business around a commodity was like building a house of cards. Once long distance rates started dropping, profit margins became razor thin. At one point, Excel Communications, a Network Marketing company based in Dallas, Texas, had grown to be the Number 4 long distance carrier in the US. Their top distributor was earning a stratospheric .2 million per month. Excel went out of business about 5 years ago, and with it vanished the hopes and dreams of millions of distributors for that elusive "long term residual income."
The problem, as I later learned, is that because of small profit margins, Excel relied heavily on "coding bonuses" that were generated on the 0 startup fee to become a distributor. To me it became a case of the emperor having no clothes. Only a fraction of the top earner's checks could have been considered true residual income, based on long distance call volume. In my humble, but accurate opinion, Excel was a thinly veiled Pyramid Scheme that managed to fly under the FTC radar, until its eventual collapse several years go.
Sizzle vs. Steak: How to set yourself up for Long Term Residual Income
Because I'm a high-tech, gadget kind of guy, I had turned my nose up at marketing nutritional products. But in reality, this arena is where the bulk of Network Marketing volume is derived. I learned another valuable lesson at this point: nutrition and supplementation is a very stable market, and many of the older, well established companies such as Shaklee, founded in 1956, Herbalife (1980) and even Amway (1959) have a wellness component as their flagship product.t.
On Shaklee's corporate web site (www.shaklee.com), the following quote is found:
When everybody else was spending their marketing dollars on advertising, Shaklee invested what would amount to billions of dollars in rewards for people who spread the word. Not to mention millions of dollars in research and development.
MLM companies that sell nutritional products are able to allocate more of their operating budget into research and development, and thus often create a superior product. A top grade product usually costs more, which in turn requires an education process that is hard to get from a 30 second advertisement. Enter "word-of-mouth referral marketing." People who have great product experiences tend to want to share those experiences with their "warm market" (i.e. friends, families and neighbors).
As I said earlier, most people do network marketing every day, they just don't get paid for it! I met a gentleman recently who told me that after he moved into a new development in Simpsonville, South Carolina he referred 19 of his friends to that community. They all bought homes based on his recommendation! I asked him whether the home builder had sent him a check to thank him for the roughly .5 million worth of business he sent their way, and with a resigned shrug he simply said "No.
MLM allows that natural human tendency of sharing good news free rein, with great financial rewards to boot.
A good product can generate excitement, emotional attachment and above all, stability, for years, even decades. In contrast, all dial tones pretty much sound the same, so it's hard to get attached to a commodity-like product or service. Ironically, when Excel collapsed they sold their database to the Shaklee Corporation and encouraged their distributor force to rebuild their networks within Shaklee's venerable, stable brand name.
I have a good friend who is the top distributor in a nutrition-based company. His motto is "Build it once, build it big, build it for life!" It's crucial for anyone considering becoming a home-based entrepreneur in the MLM arena to carefully investigate the company he wants to get in bed with. The management and vision behind a company are as important, if not more so, than the type of compensation plan or even the product itself. Once the hand is on the plowshare there should be no looking back, no jumping ship. Explosive growth usually occurs after a certain tipping point, and great patience and trust is required to keep pushing past this point.
"Get There Firstest, with the Mostest!"
Timing is another crucial element. The mavericks in this industry are the ones who get in early and help build out a company distributor force in its unstable, start-up phase. Those who back the right horse are usually the stuff of MLM legend, who go on to earn ongoing royalties of ,000 to 0,000 a month or more for decades thereafter.
I've polled several top networkers about the best time to get into a well-researched MLM opportunity, and the consensus is usually some time in the 5 to 10 year mark. Prior to a 5-year track record there could be a pretty high level of risk. After 10 years a company is usually pretty stable in it's original market, and thus harder to penetrate and build locally, at least with any kind of double-digit monthly growth momentum. At this point companies usually count on international expansion to help continue expanding their revenue base.
Six Inches Away From Success
Back to my own story, now. As I became more and more intrigued by the leverage element of MLM, I became a voracious reader. There's a saying that "leaders are readers," and I began to soak it all up. While I still held down a traditional "J.O.B" I began to turn my vehicle into a rolling learning center. Incidentally, residual income snobs like me always say J.O.B instead of "job" when referring to the unhappy fate of linear income wage slave cubicle convicts. It's an acronym for "Just Over Broke" or "Journey of the Broke."
While at my place of employment, I could not wait for 5 o'clock, when I could merge onto the parking lot also known as 635 LBJ Freeway in Dallas and escape into my world of MLM dream-building, listening to hours and hours of recorded motivational talks by MLM deities such as Tom "Big Al" Schreiter, Kim Klaver, Mark Yarnell and Randy Gage
A third major lesson I learned is that to be successful in Network Marketing you have to change your mindset. Just as new wine should not be poured into old wineskins, so the idea of making a living as a home-based entrepreneur has to eventually crowd out and completely eliminate any desire for the false security of a steady paycheck. At one meeting I attended the speaker said, "Go and hold your head under water for 3 minutes. When you want success as badly as you want air, there'll be no stopping you in this industry!"
Most people are only 6 inches away from success! I'm talking about the grey matter in your cranium. You have to see yourself as a 6- or 7-figure earner first, before you can actually cause that to happen
Fortunately, you don't have to become a superstar to have genuine success in Network Marketing. It's been said that having 0 a month in passive income would make a huge difference in most people's lives. The bulk of network marketing organizations is made up of part-timers and bread-and-butter product-users. As in any other area of life, the Pareto Principle applies. 80% of the money is going to be made by the top 20% of all distributors. MLM is no different in this regard from real estate sales, car sales, insurance sales or even traditional business models.
Another paradigm shift I had to face is that most people are like ropes. You can't push them, only pull them by the "law of attraction." My distributor organization is an all-volunteer army, and so leadership in Network Marketing involves being a good coach, mentor, teacher and inspirer.
In contrast to working one's way up a corporate ladder, MLM is definitely a level playing field. Chances are, corporate VP's do not earn more than the CEO, but in MLM I can sponsor someone who goes on to build a bigger check than I do. How this is possible is explained in great detail in Tim Sales' Brilliant Compensation video.
In fact, ask any distributor with a large organization (let's say 5,000 distributors or more) and they'll tell you that 80 to 90% of their business comes from the efforts of 2 to 4 people at most. Tom Schreiter says that if your organization has one leader, you'll be financially free. If you find two leaders, you'll be rich. If you find three leaders, you probably miscounted!
This is most definitely true in my case. A little over 4 years ago, around the same time I moved my family from New Hampshire to the Carolinas, I was introduced to a product quite offhandedly, by a friend who told me in passing about a bad case of poison oak he had just managed to get under control by means of a juice made from the mangosteen fruit. I jokingly asked him if a mangosteen was a "Jewish mango," but I stopped laughing and became intrigued when I saw his results with my own eyes. I asked him to send me some information on this newfangled product, which had only been on the market for a little over a year, and I did some research.
A 12-year "Overnight Success Story" in the Making
Being attuned and open to new opportunities, I realized that this company and this product is what I had been preparing to find over the course of my ups and downs in this industry. Remember, "Luck is when preparedness meets opportunity," so after 8 years of looking I "got lucky" and became an overnight success.
I got out my rolodex and began contacting key business associates from my previous MLM experiences. My initial efforts rapidly began to snowball, because all the magical ingredients had finally come together for me: timing, great management, a killer unique product and a fantastic compensation plan.
In my opinion and experience, opportunities like these come along maybe once a decade, and I am very grateful I paid the price and stayed in the game long enough to be rewarded for my network marketing efforts!
Today I have an organization of over 25,000 independent distributor/customers, which produces a monthly sales volume of around 0,000. This amounts to an .4 million dollar business I operate in shorts and a t-shirt, from a spare bedroom, which continues to grow and thrive whether I work it or not. I couldn't stop the growth of this business if I wanted to!
In a recently published book called "Beach Money," Jordan Adler said something that really hit home: When you have a residual income, the more work you do the less you get paid! How's that for irony? In other words, if someone makes ,000 a month and works 20 hours a month to maintain that level of income, he's essentially making ,000 an hour. But if he can keep making that amount of money and reduce his monthly workload to say 5 hours a month, he just gave himself a 400% raise and is now making ,000 an hour.
My goal is to get to ,000 an hour! I guess that means I better work a little less this month! Oh well, it's time for a nap anyway. What good is leverage if you can't take a good nap whenever the mood hits you!
I hope that you are now attuned to the wide world of opportunity and excitement that Network Marketing can afford you. There is so much more I left unsaid about this beloved industry in which I have found a permanent home, but suffice it to say that after all the hard work, ups and downs, failures and successes, I can truly say to you: It's well worth it! I hope that all of you find your own Holy Grails, and I wish you all the very best.
Chasing The Holy Grail - How To Achieve Leverage In Network Marketing
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