Multi-Level Marketing

One of my regular visitors asked me to write a post on multi-level marketing (MLM). His question: Is it a legitimate business?
Multi-level marketing is a system where people make money by getting other people to become “distributors” for a product. While some money may be made by actually selling the product, most money is made by creating layers and layers of people who are distributors working under your distributorship. You make the most money by the inventory and fees these folks pay as they sign up. The deeper the layers go beneath you, the more you can make. Some have called this a pyramid. Laws have been passed to limit the pyramid-ness of these businesses, but as always, businesses adapt to the new restrictions.
In a strict sense I guess you could say your distributorship is a business. It takes in money and spends money, and often the distributor incorporates to capture this activity.
In my definition of what makes up an entrepreneurial business, I think this is not a legitimate business.
First, it does not create real economic value. In this sense, it is not unlike the dot.com’s. Their only purpose was to raise money and cash in before that system fell apart. If you get in early you may be OK, but the late comers rarely do very well.
Second, for most of the participants it does not create wealth or even income in any significant way. I know there are exceptions, and even a few MLM companies that have found models that seem to last. But so many have come and gone, leaving people with garages full of product that will never sell.
Third, although each distributor is called “an entrepreneur” in many MLM models, they never have the chance to grow a real business that satisfies real customers by selling them a product over time that has value as their primary source of revenues. They also add no economic good through building employment. The distributorships never grow, evolve, and take form like a traditional business can and usually does.
OK, I know I have just opened a Pandora’s Box with post, but you asked…..