MLM Start Ups: Are They Strangling The Industry

By Len Clements © 1995

In Economics 101, they teach you about one of the most basic principles of economics — supply and demand. Here’s a little economics lesson as it pertains to MLM. I promise I won’t bore you.

A little over four years ago I did a survey of MLM companies to try to determine the true number of MLM distributors in the U.S. I came up with 6.1-million, and I counted a lot of people twice, I’m sure. About six months ago I did another rough count and came up with 6.5-million. A 6.6% increase. However, the estimated number of MLM companies went from around 200 to 350. A 75% increase! The result? The average downline decreased in size by 39%.

For most of 1992 to early 1994 I offered my services as an MLM consultant, specializing in comp plan design. Most of my 13 clients have been start ups. I no longer offer that service, except for casual phone consultation. And even then, I play the role of Devil’s Advocate almost exclusively. You see, I can no longer in good conscience support or assist people who are about to add more to the supply of MLM opportunities in an industry where the supply is already far outstripping the demand.

MLM Veteran Art Meakin once suggested to me that the minimum number of distributors necessary to maintain an MLM operation on a base level (just keep them in business) was about 4,000. I concur with that number. So far, in the first 17 days of 1995, I have also been in contact, directly or indirectly, with about 12 MLM companies who plan to launch this year. And again, I’m not even close to being one of the major players in the MLM start up consulting business. I expect the Alf Whites, Debbie Ballards and Doris Woods of the industry are getting many times more business in this area than I am (especially Debbie, since that’s where I’m referring everybody). So it looks like if I were to estimate that 400 companies will try to launch this year, I might be a bit conservative (like, triple that maybe). So if those 400 companies need at least 4,000 distributors, they will need 1.6-million new distributors to join MLM this year just to barely survive. Let me put this in perspective.

There are 2,000 people laid off from their jobs each day in this country. Even if that number were to double, and every single oneof them were to join one of those 400 new MLM companies, every single day of the year, we would still need to find another 140,000 new distributors just to keep those companies in business — and that’s not even counting what we’ll need to replace all of those who leave the existing 350 companies, let alone allow them to grow.

It pains me to say this, but the estimated number of distributors in MLM was also 6.5-million last year. In fact, I suspect this industry may have suffered a slight net loss in 1994. Every year for the past several years there’s always been one or two major forces in MLM that successfully bring in tons of fresh blood in to the industry. Nu Skin in 1991. Melaleuca in 1992. Quorum in 1993. And there were others. But who in 1994? Kaire boasted big numbers, but that’s all they were — numbers. They did well in ’94, but not 120,000-plus as they claim. Alliance USA started off with an explosion — but blew up later in the year. USANA also did well in ’94, but considering the murderer’s row they’ve got for a line up (Allen, Tracy, Waitley, et. al.) they should be approaching 100,000 distributors by now.

Why didn’t it happen? Why was there no blockbuster company in 1994?

Instead, we saw past powerhouses like Matol and Quorum take major hits. Up-and-comers like Vaxa and Reliv have stumbled as well. Perhaps the hottest property of 1994 was a blatant money game called Marathon!

Nope, 1994 was not a great year for MLM.

So… Let’s throw in another 400 more companies and spread those 6.5-million distributors even thinner. That should help.

But seriously. What’s the answer?

If it’s done right, 1995 has the potential to be one of the greatest years in MLM history. This will be network marketing’s Golden Anniversary. When will we ever have a better chance to receive positive recognition from the media and expose the good side of this industry to the masses? Hopefully massive numbers of those masses will join us en masse. We’re going to need them.

When I broached the subject of more tangible solutions several issues ago, I suggested there should be some kind of regulation of the number of MLM companies. Imagine — if there were half as many companies the average downline would be twice as big. Or at least some strenuous screening process. Or how about requiring a $50,000 bond? That should take out the garbage.

When I first made these suggestions I caught some heat for being un-American. It was all a restriction of free trade. Fine. You can restrict it and thrive, or expand it and dive. We could constitutionally right ourselves right out of a business.

But it’ll never happen, of course. So it’s a mute point. We will continue to see ads telling us to stop wasting our time with “penny ante deal” and start our own MLM companies (because they “always make money”) for as long as there’s MLM publications that will take their money. And disgruntled, unsuccessful MLM distributors will continue to buy into the pitch and start MLM companies from their kitchen table. And large numbers of MLM companies will continue to launch with no clue as to what’s required to be legally set up in all 50 states — thus be operating illegally.

Why be an MLM company owner anyway? The whole beauty of network marketing was that you could start your own businesswithout all the headaches and challenges faced by most conventional company owners. No payroll taxes, no legal hassles, no office to staff, no product development, etc.. As an MLM company owner, you not only have to perform all the same chores as any other company owner, but you have twice as much to worry about!

The typical employee-company relationship is one where the employee relies on the company for their livelihood. They can’t just pick up and leave and go get another job anyplace they want. That’s not the case in MLM. The company relies on the distributor! And most distributors know it. If things aren’t perfect, your “employees” just might take one of those other ten job offers they’re getting every day. Imagine the pressure on the company.

I wouldn’t take the job of any MLM company president in this industry for any price. Well, hold on. Let’s not get carried away. Okay, it would have to be an awful lot.

And if I did ever start my own company, it would have a full-blown computer system with all the bells and whistles in place from day one, a full stock of inventory of at least 25 quality products — and a million bucks in the bank!

One company that tried to launch recently didn’t even have a computer. They were keeping track of their company genealogy with a big chart on the wall!

So what drives so many people, mainly ex-distributors, to want to start their own MLM companies? It can’t be the income. Many network marketers make far more than the owners of their company do. The income potential is at least equal. Perhaps it’s the idea that nobody is doing it right and they can do it better. Everybody believes they can create the “perfect” MLM company. Well, there are 275-million people in this country, so unless you want to start up 275-million MLM companies, it isn’t going to be “perfect” to everybody.

I think it’s the illusion that it’s so “easy” to start and run your own MLM company. Hey, just get some good software, whip up a few products, distributors run to you in droves and you’re rich!

Folks, do what I did. Before you ever decide to run your own MLM company, work out of the home office of one for just one month. The fantasy that this business is easy will be blasted from your mind with the force of a twenty-megaton thermonuclear explosion.

Unfortunately, very few distributors ever really get to see the inside of an MLM operation.

And apparently even fewer of them took Economics 101.

About Len Clements

Based in Las Vegas and Founder and CEO of MarketWave, Inc., Len Clements provides consulting, training & expert witness services for the network marketing industry. Since 1989, he has been a top producer, trainer, and consultant for multiple network marketing companies. As a well-respected icon in the MLM industry today, Len conducts Inside Network Marketing seminars throughout the world and is the author of several best-selling books and audio tapes including Inside Network Marketing (Random House), Case Closed, The Whole Truth About Network Marketing and The Coming Network Marketing Boom.