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My Letter to Seattle P-I Re: Network Marketing

Dear Seattle-PI Editors,

Warning your readers about scams and frauds provides your readers a great service (State warns job hunters: Be alert for scams - 1/26/09). Condemning an entire industry during the course of this warning, however, serves no one and keeps Seattle P-I readers ignorant of an amazing opportunity for both personal and professional development.

In the article linked above characterized the entire Network Marketing industry (also referred to as Multilevel Marketing or Direct Sales) as comprising nothing but “con artists”. The article’s author wrote, “Con artists are placing ads online and in newspaper classifieds offering the chance to earn extra income by working at home.” This may have been an honest mistake; nothing more than a poor choice of words by the reporter. However, it plants in the reader’s mind the idea that everyone who offers a home-based business opportunity in the Network Marketing industry is a “con artist”. Nothing could be further from the truth. Millions of entrepreneurs are building strong home-based businesses in Network Marketing everyday. It is as legitimate an industry as Retail Selling, Construction or Automotive Manufacturing.

Network Marketing is a distribution method that effectively and efficiently moves products directly from the Manufacturer to the End User. Some well-known companies using this method of distribution are Amway, Herbalife, Nuskin, Mary Kay and Usana Health Sciences. In America there are well over a 1,000 companies that use Network Marketing to move products to millions of people every year. According to the Direct Selling Association, Network Marketing moved approximately $30.8 Billion in goods and services in the United States in 2007. Worldwide this figure rises to approximately $110 Billion. Furthermore, in 2007, 71% of individuals involved with Network Marketing had some college, were college graduates or had a postgraduate degree. I certainly hope American colleges and universities are not in the practice of producing “con artists”.

Donald Trump and Robert Kiyosaki, bestselling author of Rich Dad Poor Dad, both endorse the Network Marketing industry for people looking for additional streams of income. In the book Why we want you to be Rich, Kiyosaki wrote, “I recommend the [Network Marketing] industry for people who want to change and get the necessary skills and attitude training to be successful [business owners]”. In that same book Trump wrote, “Network marketing has proven itself to be a viable and rewarding source of income, and the challenges could be just right for you.” Furthermore, in 2003 Warren Buffet acquired Pampered Chef, a Network Marketing company with about $740 Million in sales in 2003. Are these powerful business leaders endorsing an industry full of nothing but “con artists”?   

Network Marketing is not for everyone. It requires hard work and the willingness to learn and operate outside one’s comfort zone. I came into the industry after the General Contractor I worked for laid me off in October 2008. In just a few short months, I have gained skills I never would have learned in my previous career. It has already paid significant dividends in my own personal development and I know I will have the opportunity to help others be successful.

Are there some involved in Network Marketing who will take advantage of people? Of course. Is any industry, however, comprised entirely of saints? Are there not individuals in the automotive industry who would take advantage of their customers? Have not more than a few people felt “conned” by the banking and mortgage industries? What about the energy industry; ever hear of Enron? There are bad apples in any business, but they do not invalidate the industry itself. People should be aware of unscrupulous activity no matter what the industry is, and when they decide to pursue a business opportunity, they must do their due diligence.

Network Marketing requires due diligence, hard work and persistence. For those willing to put in the time and effort, however, it offers the freedom and opportunity that no J-O-B ever will.

Most Sincerely,

Daniel Crandall, M.A.

Independent Associate - USANA Health Sciences

http://dpcrandall.usana.com

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When I write "Network Marketing", what's the first thing that comes to mind?

 For a lot of folks the first thing is "Pyramid Scheme" or "Scam".
 
When I write "Traditional Brick & Mortar Business" what is the first thing that comes to mind? Is it "Pyramid" or "Scam" or maybe "Unfair"? No? Maybe it should be.
 
Here is an organization chart for a common, brick & mortar business:

That, my friends, is a pyramid, and there is a good reason why a typical business looks like this. Leverage. A typical business leverages people in order to create profits for the company. And there is absolutely nothing wrong with making a profit. There is a problem with this model, however. The only person who truly benefits from all that leverage of human capital is the Business Owner, the person a the top of the pyramid. No one, absolutely no one, in the organization can leverage those below them in order to make more money.

When more staff are hired, does Junior or Middle Management make more money? No.  More than likely, those folks in Junior and Middle Management start to worry about their job security. Which one of those new staff members is going to take their place? No one, except the Business Owner, can leverage another person in order to improve their economic situation. What I mean by this is: Everyone beneath Business Owner gets paid for working X # of hours, and only X # of hours, during each day. No more. No less. The Business Owner, however, gets paid for working X # hours PLUS all the hours everyone else is putting in. If you are working for Microsoft or Philips Petroleum or Nabisco or Sprint, that is a lot of hours.

A typical Network Marketing business has exactly the same structure, but everyone is able to leverage everyone else in order to increase their income. For example, when I bring in a new associate to my organization, say Tom, I will get paid for the time I work and for the time Tom works. And when Tom brings in a new associate, say Sarah, into our ogranization, Tom will also get paid for the time he and Sarah puts in, and so on.

Furthermore, there is every likelihood that someone, say Frank, who is beneath Tom can make more money that Tom makes even though Frank came into the business after Tom. That will never happen in a traditional, brick & mortar business. You know what I call that?

I call that: Fair. If Frank works harder than Tom and creates more business than Tom, shouldn't Frank be paid more than Tom? But if a Junior Manager in the model above, works harder than a Middle Manager, will that person every earn more than the Middle Manager? Maybe. IF that Junior Manager gets promoted. But what if that Junior Manager isn't well liked by Upper Management? What if that slacking Middle Manager also gets promoted? A lot of ifs come up that will prevent a hard worker from getting justly compensated.

If you don't like the way I've explained this, then I ask that you spend about 20 minutes with a short video titled "Brilliant Compensation" and listen to a Harvard Ph.D. explanation. Then tell me that Network Marketing is just a "legal Pyramid scheme", but the brick & mortar business you probably work for (and whom you hope won't lay you off in before Christmas) is not.

BTW, no one, and I mean no one who took up Network Marketing was ever laid off from their business. They may have quit, but no one was ever laid off. Think about that when the boss calls you into his office, asks you to sit down and begins with "I'm sorry to tell you this, but I have some bad news."
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