By Jayaram Rajaram

When I was around 13 years old, my dad’s friend convinced my parents to attend an Amway recruitment event at a 5-star hotel in Bangalore. This Diamond or Platinum super-star from the USA was here to share a dream that would change their lives forever (Please ask yourself why someone who has ‘arrived’ would still be recruiting in a different country? Hello…market saturation and high-attrition in his country and the MLM business!). My parents went hesitantly and did buy into the system after a 2-hour hard-sell with video presentation of how this speaker had arrived and owned a yacht and a jet and blah blah. Along-with my parents a few uncles and aunts joined too.  Who hasn’t joined or been close to joining a network marketing business at some point in their lives? Fortunately they all just joined, bought the products and used them because all of them had good core businesses and jobs and didn’t rely on this opportunity to change their lives. Amway’s products are good and my mom still uses some of the cleaning products, though overpriced to factor in multiple levels of commissions (Like almost every MLM business, but thankfully she can afford them without ever recruiting anyone or earning any commission from Amway). By the way, my mom is also a part of and buys Tupperware because she loves the products. Now are these good companies? Yes, they have good products, and you can very well join if you need and can afford these products, BUT for those of you who want to join any MLM business, for the business opportunity STOP- and read on. The devil is in the compensation plan! Of late there are many many scams including juices, tonics, vitamins that promise better health and a dream financial opportunity. They all are no less than product-based pyramid-schemes.

Recently I came across a very interesting concept where a professional sales company would do all the selling for an approved 3^rd party MLM company that paid down to 15 levels (a 2X15 level matrix). At first it sounded great as the average person had a higher chance of success and the products of the approved 3^rd party business were good. But when I got down to doing the math I realized that MLM is intrinsically flawed! While more people at the top may succeed by recruiting a professional sales company to do the selling for them, the market will get saturated soon and many people will lose. Do you want the bad karma of getting people into a flawed system? See my simple calculations below to understand why MLMs are intrinsically flawed. I use a 15-level compensation structure that I recently came across, but even MLMs with 4-5 levels have intrinsic flaws (Just that more chains are possible):

*Numbers have been simplified for ease of understanding. Statistical errors may exist.

Even if a professional sales company is doing all the selling for you, only people who enter in the beginning will succeed in network marketing!

The founders of these companies say population is growing and common-sensically the pace of people-supply will be much faster than market saturation, but the above numbers speak a different story.

If you are not among the first 1709 people to join a 15-level compensation MLM opportunity, you will most likely not be able to build 15-levels for yourself. This means you start off at a disadvantage already.

The maya or illusion of easy passive income has intrigued me and many of us for years now. After a lot of research and trying out 100s of ‘Pre-launches and NEVER BEFORE Multi-Level Business Opportunities – both online and offline’ , I can tell you with conviction passive income through MLM is NOT possible for the majority (And I write this for the majority of the population, to help them stay solvent). Passive income is possible though, if you work and invest well in an asset portfolio and your primary source of income is a REAL business or job. Rental income, interest, sale of recurring membership fees for a service of value to retail customers and dividends from shares/ stocks/ bonds portfolios are the ONLY REAL passive incomes, and I would urge people to build these portfolios systematically. There are real home-based business opportunities where you buy and sell products and make money on product sales only and never ever have to recruit anybody ever. These are the real opportunities that could help you generate a supplementary or main-stream income; BUT you HAVE to work hard at building this business, and there IS NO SHORT CUT! You may fail at these businesses too, but at least they are REAL opportunities and give you a fair chance and you do not have to spoil relationships and put your loved ones through agony by forcing them into monthly mandatory purchases and in-turn forcing them to recruit others to stay in the race!  Also, good home-business opportunities are those where you will never be forced to buy a minimum value of products monthly or pay membership fees every month to stay qualified. You will only have to register or pay once and that too your investment would be insignificant and in stocks/products that you can sell or consume. After that you buy and sell at your convenience or whenever a real consumer sees value in your product and buys.

Many people would argue that market saturation happens even with non-MLM businesses. Eg. If there are 10 shops for a 100 people town selling the same or similar products wouldn’t the market be saturated? Yes it would, but the shopkeepers are not forcing others to join their business and buy every month and recruit more people. They are merely selling to consumers who need their products. One or 2 shops may go out of business due to market forces (which is the way of the world), but the same shop owners can start selling other or better products that their consumers need. In MLM, market saturation is not only faster, you will also notice that the products are being purchased and forced onto others in the business (Sometimes whether they need the products or services or not) for the gain of people at the top of the chain. Yes, smart people quit after a while and companies argue about the ‘buyer beware’ philosophy. This article is precisely to educate and say BEWARE, and study business opportunities well before joining, as 99.99% of MLMs do not work. These days there are bigger internet marketing scams that make you pay monthly fees for products otherwise available free, like wordpress blogs etc. These are worse because you DO NOT even get any product or service of tangible value. While their compensation structures are more complex and pretend to be fair, they too are no less than huge recruitment scams that will eventually get saturated and die.

Share this article with loved ones and people who are getting sucked into the next get-rich-quick scam or an MLM business thinking they can make it big. The financial and relationship costs of MLM and network marketing are really high, and believe me it’s better to stay away from it if you do not know how to just stick to buying the products when you need them or buying and selling to real consumers who need the products. If you wish to buy and sell products from an MLM company without recruiting, I would say go for it, as some of the companies have great products and don’t force you to achieve minimum monthly purchases (A good article in Forbes about some good MLM companies from a product perspective can be found at http://www.forbes.com/sites/chicceo/2012/09/27/is-mlm-a-bad-word/ and http://www.chic-ceo.com/featured-home-businesses) . I am sharing my thoughts to help people by exercising my liberty of free-speech. These are my opinions based on my research and every person is entitled to his or her opinion. People participating in MLM are not bad, and I do know many people earning through product sales rather than recruiting through enticing means, this is perfect and getting involved with companies to sell products and make a living is absolutely fine (Just don’t be forced to buy and lose money or force others to buy just for the business opportunity!) . Please read what Dr. Jon Taylor, an authority on MLM has to say about MLM http://mlm-thetruth.com/ , he has helped millions of people (especially in the US where network marketing is like a virus) stay solvent and take better business decisions.

Addition to Post (Counter-View):

A week after I published this blog post, I got an update from Robert Kiyosaki’s Facebook page, which I am a fan of. Ironically  it was his blog post about network marketing and MLM. I respect Robert Kiyosaki’s thought leadership as his book Rich Dad Poor Dad has had a tremendous influence on the way I think and do business. In his post he had a phenomenal counter-view about network marketing and says network marketing (Provided you can be proud of the products you sell, and it has a good retail market), is way better than working in regular pyramid companies. When I first read it, I was shocked, because what he said jolted me. But when I though about it, most traditional companies employ people for regular wages just to make a few shareholders rich. No matter how hard many employees work, very few go on to even achieve senior management levels. So he says the regular economy is actually the pyramid scam as everybody isn’t given a fair opportunity. His opinion is that only network marketing companies (Of course only genuine companies with real products that are of value even to retail customers who are not involved in the business) offer equal opportunities. Having read that post I tend to agree with him because people really can make money selling great products to retail customers and build their teams only when people voluntarily wish to partake in the business opportunity- Tupperware is a great example of such a company. In fact Warren Buffet has invested in an MLM (Network Marketing) company called ‘The Pampered Chef’. The Pampered Chef has lovely products of great value to anyone who cooks!

So, the world is full of contradictions and I reiterate just one thing- go ahead and pursue your dreams, but pick the companies / products you truly believe in (I for sure will continue to try out new opportunities whenever I find a company has products/services of real value- Whether MLM or Not).

Ask yourself the following questions before you pursue any MLM / Network Marketing Opportunity and you will do great:

1. Does the company I represent have a real product/service of value? (Stay away from pills and juices that claim to cure diseases please!!)

2. Will I need / want and buy this product even if I were not a part of this business opportunity?

3. Is there a real retail market for these products? i.e. will people who are not part of the business want and buy these products from me?

4. Can I make a decent supplementary income at least if I work at it, by doing retail sales and in a situation where nobody ever joins my down line? Note, selling is an art and you have to work at it. Even if you have the best product in the world you have to learn to sell it.

5. If it is a membership-based opportunity, will I pay this monthly membership even if there was no business opportunity attached? i.e. is the membership giving me access to tools / services that I and any retail customer would need anyway? Again can I sell this membership / service to retail customers and not only to other business opportunity seekers?

6. Can I run this business ethically without affecting my personal and professional relationships?

If your answer to all the above questions is a Yes, then go ahead and pursue the opportunity and feel great about what you are doing!

About the Author:

Jayaram Rajaram is the Managing Partner of Bril, a leading baby & children’s products company that works on a Mission to Make Living for parents and children through world-class products, services and opportunities. Jayaram is also the Managing Director & Chief Dreamer of ELSA a human development company that works on a Mission to Energize Lives through Systematic Action through its creativity programs for children and adults.

To find out more about Bril and ELSA please visit www.brilindia.com and www.brilart.com 

By Jayaram Rajaram

Two years ago I was having dinner with a first-generation founder and CEO of a company in the wireless and mobile application space. This person happened to be a friend of an acquaintance of mine. This acquaintance had invited me to meet this dashing CEO who was ready to scale great heights. I love meeting people, so I gladly accepted his invitation for dinner at an upmarket fine-dining restaurant in Bangalore.

After exchanging pleasantries, this CEO started off about how he hates family-businesses despite knowing that I came from a family business background. I decided to let him air his opinion as everyone has opinions and I love to get perspectives. I played on and asked him why he didn’t like family businesses? He started off by saying family businesses lacked professionalism and sons, daughters and grandsons and granddaughters of the founders took over whether they had the qualification to take over or not. There was no meritocracy in the system and heirs didn’t know the difficulty of starting off and the value of money etc. He spoke for a good 5 minutes on all that he felt was bad about family businesses and 2^nd and 3^rd generation entrepreneurs.

Once he finished and after giving him a patient hearing, I politely told him that I had two questions for him. With his permission I asked him (Jayaram Rajaram “JR”)  “How much money have you invested in your business?”

His response (1^st generation Founder-CEO “FC”): “USD 5 million”

JR: “That’s great. Where did you get this money from?”

FC: “I raised risk capital. It was a really tough process you know.”

JR: “That’s great. Did you invest any personal money in this venture?”

FC (Getting a little serious): “No, I’m putting in sweat and have run from pillar to post to raise this capital to pursue my dream. Unlike a 3^rd generation entrepreneur like you who has it easy and all set up!”

JR: “I get it. I can imagine that it would have been a hard process to raise this capital. By the way I would assume that as an entrepreneur you are drawing a very small sustenance salary considering your company is currently burning cash and is on investment mode?”

FC (Getting more serious): “Yes I have taken a significant cut on what I used to earn as an employee in the CXO cadre in my previous company”

JR: “I know it is a personal question , but to make this conversation more interesting may I know how much this sustenance salary would be and what your ownership is in the company?”

FC (Very uncomfortable now): “Hmmm I’ve taken a 50% cut from my previous Rs. 20 lakhs per month package (USD 36,000 approx) as an employee to support the startup. I own 45% stake in the business, considering I am a co-founder.”

JR: “I’m not even going to ask you about your perks. Now let me tell you why accountability is much better in family managed businesses”

So I explained to him that we as a family had personal money invested in the business, and most of us (Partners and family members) hardly took anything out by way of salary, and profits were normally reinvested into the business. Since it is our own money, we do have the privilege of being able to draw from our current accounts on need basis, but we do not have other people’s money to pay ourselves fat salaries or spend without thought when the business is making losses or going through tough periods. In fact any debt is based on asset collaterals that belong to us. In effect, if the business were to suffer financially, the family suffers. So, we couldn’t behave like today’s Pseudo Entrepreneurs and many (not all)  ‘Professionals’ who pack up, go back to employment or raise another round of risk capital and start another business with absolutely zero accountability. This silenced Mr. Founder- CEO and Pseudo Entrepreneur. It may be worthwhile to note that Mr. Pseudo Entrepreneur’s company went bankrupt and no longer exists as I type this blog post today. I do not believe in taking names and publicly embarrassing people, so I shall keep the individual’s and the company’s name confidential. My objective is to drive home a point to the entrepreneurial community and young aspiring entrepreneurs and not to pass judgement.  I also do not say failing is bad. Entrepreneurs DO fail many times before they succeed and that is GOOD, but what I question is the entrepreneur’s Value-System. Failing while trying to create value earnestly is very different from draining your own company of its resources and walking away with no guilt.

I’m not for a second saying that none of the 1^st generation entrepreneurs backed by venture / PE funds function with a solid value-system, but the numbers are dwindling. There are of course many 2^nd and 3^rd generation entrepreneurs eroding value big-time too.  Every B-School student wants to eventually become an entrepreneur. If youngsters think being an entrepreneur is cool and you make loads of money easily, I tell them to TRY AND BE A REAL ENTREPRENEUR. I tell them that they have to be ready to go through humbling periods of failure and literally be ready to be on the road with just their undies on. Real entrepreneurs start with their own capital (However insignificant it may be), real 2^nd and 3^rd generation entrepreneurs will have to learn not to be arrogant and realize that it is as hard to run a company that has been handed to you in crazy markets of today. I say this very humbly as I have failed many many times already and it hurts; but entrepreneurship is a way of life for me and I LOVE IT. I just love waking up and going to work, as my brand Bril is my baby.

I’ll sum up by saying VCs and angel investors should STOP investing in these pseudo entrepreneurs who pay themselves and their teams obscene salaries before the company turns a profit. These pseudo-entrepreneurs are no less than THEIVES who take away and erode value before adding any value. The situation is getting worse today because these PE funds are being handled by employees (Professionals) who are playing with someone else’s money! You get the drift? THERE IS ABSOLUTELY NO INTEGRITY OR ACCOUNTABILITY IN THE ENTIRE CHAIN!?!

I will leave you with a brilliant graduation speech by Prof. Deepak Malhotra to Harvard’s Graduating class in April 2012, that resonates brilliantly with my thought process (Make sure you pay attention and watch the video from the 17th minute to the 21st minute even if you do not watch the entire video).  Watch this amazing and relevant message for every young graduate and surely for current and future entrepreneurs.

 

About the Author:

Jayaram Rajaram is the Managing Partner of Bril (www.brilindia.com ) and the Managing Director & Chief Dreamer of ELSA Learning Private Limited (www.elsalearning.com / www.brilart.com ). Jayaram writes about his personal experiences that range from parenting to entrepreneurship & leadership.