MLM companies

UPDATE 23/4: I just got approached by another stranger to join the same “Amway” team I had rejected the previous time, two days after I wrote this. What a coincidence.

A pyramid scheme?

Several weeks ago, I was approached to join Amway once again. It caused me to rethink my take on multi-level marketing companies. I was first introduced to Amway about 4 years back, which I rejected and thereafter, repeated invites to join this travel MLM called World Ventures as well as Amway too. I asked myself, is this a prevalent issue in Singapore? Or is it just me attracting these people. And why did I reject so many invites?

Then I came across this local blogger Grace, who is quite against MLM companies and she posted many articles on her views. Here’s one article written over a year ago.

http://workingwithgrace.wordpress.com/2013/01/13/5-reasons-why-i-refuse-to-join-world-ventures/

Although there are other MLM companies in Singapore, the other one I know being Sunrider, Amway and WV are the more “successful ones”. Now I have to say that Amway and World Ventures are two very different MLM companies. Just a small background on each of these two companies’ model based on my limited knowledge, and then my take on each of them.

Amway

Amway sells manufacturers’ products directly to consumers, thereby bypassing the costs of advertising and marketing, distribution and retail. What that implies is that your household goods (they specialize in household goods if I am not wrong) are cheaper than the ones you get outside.

I apologise in advance if the terms I used or my depictions are incorrect.

The person who approached you may start off by asking if you are interested in a business venture, or a wholesale distribution business model. He or she may say that they are qualifying candidates for business partners and appear noninvasive to respect your wishes, although some will try to continually persuade you. One  advice: The chances of a stranger or an acquaintance with an awesome start-up idea approaching you for collaboration is slightly above zero. It will most likely be an MLM model.

So how is money circulated? Well, based on the franchise model. Firstly, you pay a “franchise” or membership fee which is not very expensive. The person who recruited you into the company (your upline, not sure if “franchiser” qualifies) takes a cut off your purchases (I forgot how much, but it’s along the lines of 2 to 4%). Similarly, you take a cut from your “franchisees?” (downline), the people whom you have recruited. Then again, a franchise such as MacDonald takes a cut from earnings instead of purchases. Basically it works the same way as to profit-share.

I SAY AGAIN: I apologise in advance if the terms I used or my depictions are incorrect.

Here’s an illustration:

I’m not fully clear about the details of the entire compensation plan, but the great thing about this is that once you work your way to the top, your passive income grows gradually and eventually you will just be sitting down shaking your legs while money falls from the sky. Sounds tempting huh? Well, I could be exaggerating, but you get the idea.

Furthermore, you are kind of “obliged” to purchase the cheaper products from them. The quality of their products are definitely credible and up to standard. So why would you settle for a more expensive product in the market?

Seems quite a good deal right? So why did I reject so many times?

World Ventures

You may have seen Facebook photos of some of your friends with a banner showing “You should be here!” or “DreamTrips”. This company sells holidays. Claiming that their holiday packages are cheaper than the market, it seeks to draw membership by direct selling means.

Similar to Amway, you have to pay a first time membership fee of I think US$360 and then a monthly fee of about $50?? I’m usually kinda sensitive to numbers and can remember such details very well. When I’m unsure it means I really don’t give a shit. This membership fee is definitely way higher than Amway’s. So what you get to enjoy are cheaper holidays by paying these regular membership fees (Ironically, you are actually paying using this membership fees). To entice first time recruits to build up the pyramid, they offer to reimburse $300 (I think) if you manage to recruit 6 more people in the first month of membership. And for every person you recruited, you get a cut off their membership fee. See how cash flows in this company? There is only one direction, UP. Not to mention, you still have to pay for these “DreamTrips”.

I don’t claim to understand the market well to decide if these trips are indeed cheaper. If they are, good for those who are in the game. So why don’t I want to enjoy such a good opportunity?

Reason 1: I strongly disagree with the theories they used to entice people

If there are any reasons, this would be the top reason. First, the person who brings you in (likely your friend) will give you a short talk about life and financial goals, somewhat like the approach of a financial consultant. They will ask you what goals you want in the short term and long term, and how you are going to achieve them. Then, they will introduce the concept of the cashflow quadrant, invented by Robert Kiyosaki, author of “Rich Dad, Poor Dad”. I unabashedly admit that I idolize him a lot. This guy is super inspiring if you would read his books. Yeah anyhow, just Google the cashflow quadrant and you will understand. So these MLM companies claim that being “Independent Business Owners” put you in the B quadrant, something I strongly disagree with. To me, a business isn’t defined as such.

My definition of business is what is defined in business law. You own a business only and only if you own the entity which is registered with the authorities, in this case ACRA. Owning it meaning you have a share of it. It can be sole proprietorship or corporation or partnership whatever. My definition of business is very traditional. That is building it up from scratch and see the fruits of your labour. It can be a small cafe, a large MNC like Microsoft, or even a new fast food franchise. Actually I’m talking about start-ups or implied start-ups since the issue here is about being convinced to “do business”, not you taking over your father’s business or your uncle’s business. Yeah, I’m only interested in start-ups, GET IT. Basically as a business, you produce and sell, or buy and sell, and you have control over your company. Sadly, as “Independent Business Owners”, you can only control yourself. My definition of business is deeper than just selling and making everyone win.

I’m fine with an independent business that distributes Amway or its supplier’s products, as long as multi-level profit sharing is out of the picture. This is because they operate outside of Amway’s control (hopefully).

I am very angry when these people claim MLM companies offer you the chance to be “business owners”, and further use Kiyosaki’s theories to explain the rationale. I don’t care how you argue your way out, but even franchisees are employees of a franchiser. Why? Because you don’t have fucking control of the company! In case you hadn’t noticed, Kiyosaki’s emphasis is on control, control and control. “The wealthy may not own anything, but he controls everything”.  Let’s say you are at the top of your line, with steady passive income without having to do anything. Do you have any say in the company’s management? NO! Do you even care?? NO! Are you bounded by the company’s regulations? YES! Do you have to follow the rules of the game laid down by the company? YES! What if Amway or WV is not performing well, you can’t do no shit. You just sit and wait and let the company liquidate. And POOF, all your passive income is gone! Erm, unless like I said, you have an independent business that can still take supplies elsewhere and continue to operate (and no multi-level profit sharing).

This reason is enough for me to blow my top, because it insulted my values deep to the core. The only reason why it still carries the meaning of business is the upline downline thing that brings income to you even when you don’t sell.

Reason 2: Ethics

Comparing WV to Amway on the ethics scale, I would say Amway is much more ethical. This is because in WV, the circulation of money is highly dependent on membership fees.

Why is this bad? Because the company is sucking out the hard earned money of its members to pay the uplines. So the company’s profits come from its own people! What the hell right? This company cannot sustain if there are no new members joining, unlike a normal business, where it is still sustainable without new customers. Just imagine your current company demands a monthly “protection fee” from you. Ridiculous.

That said, if all 7 billion people in the world joined as members, then there won’t be any cash inflow already right? Doesn’t take a smart person to see this outline.

Amway is different in the sense it actually sells products that can be used. Even if there are no new members, the lowest downline still purchases usable, tangible toothpaste regularly using money earned from a full-time job. The highest upline can still enjoy passive income paid for by the lowest downline. I might be wrong on this though, but that’s the idea.

What I feel is unethical about Amway (also WV) is ironically, the method of selling which defines its scope of operation: Direct selling. There’s really nothing wrong with direct selling, but direct selling this MLM model to your friends really comes at the cost of offending the person. I can be totally genuine in helping a friend to save cost, but the act of direct selling to friends really pushes the boundaries of friendship. I feel that the fact that I bring a friend into this model is an act of betrayal, no matter how strong my argument is. The motive to earn from your friend is there, and you can’t run away from this fact. You are not just selling your friends a product, you are bringing him or her into this scheme (Okay, noting that I am already against the MLM model).

Other reasons

Another reason that have prevented me from joining Amway was the fact that my family is resistant to change in household products. I don’t make such purchase decisions and it might take 10 years to convince my parents to change. So what if I can save a few hundred bucks? We can afford it for the freedom to choose our products.

Also, I have never liked selling, much less selling to friends, let alone doing direct selling.

Most of my resistance stems from the basis of the MLM model. Why are they still legal in Singapore? Here’s an explanation of Singapore’s regulation on MLM companies:

http://www.mti.gov.sg/legislation/Pages/Multi-level%20Marketing%20and%20Pyramid%20Selling.aspx

It is perfectly understandable for Amway to operate on this basis, but WV cleverly camouflaged themselves as selling retail products: “WorldVentures passes the “pyramid test” primarily because the company does not pay commissions based on recruiting new Representatives. Rather, commissions are paid solely on the sale of retail products: the DreamTrips Memberships, Luxury DreamTrips Memberships, and the Leisure Travel Consultant package. These products are not sold at inflated prices and since they are not physically tangible items, Representatives do not carry any inventory.”

Come on la, 你们在骗谁?Ain’t selling memberships the same as recruiting new Reps? Yeah, you can argue otherwise, but you know, I know, everybody knows it is the same.

Final thoughts

My words are just based on personal opinion and they do not in any way, represent the voices of the majority. I do respect people who engage in MLM as it is not easy and it shows one’s passion and drive. I believe everyone has his or her own reasons to engage in MLM. It could be an option to financial freedom through passive income or it could be just to maintain a friendship. Whatever it is, I hope the people are happy doing it and do not harm anybody in any way, be it direct or indirectly. Quit the company if you are unhappy with what it entails. To clarify, MLM are definitely not scams, although I’m inclined to think WV is.

As for people who have yet to encounter MLM approaches, be open-minded and make the choice most relevant to you. For me, I am very sure I will never get into one and have never looked back at my rejections.

As far as my stand is concerned, if anyone read this and still tries to convince me, rest assured I will silently curse your 18 generations of ancestors and another 18 generations down your line using all languages I know and my comprehensive list of vocabulary only my army recruits have ever experienced. You can opt for a F2F one too. I am nice, but don’t toe the line.

Thank you for not disturbing me.

-Chun Kiat

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