Most of us would probably have been approached by our friends to start an “MLM” (Multi-Level Marketing) business together with them at some point.
Their pitch would probably have included something along the lines of achieving financial freedom within X number of years, drive a BMW in 2 years, achieving your dreams to travel the world and lastly, experience the joy of starting your own business and being your own boss.
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Are You Really Starting A Business?
To many, the prospect of starting and owning their own business surely sounds tempting. However, are you really starting a business if you were to join an MLM?
Let’s explore the different types of businesses that exists to see if joining an MLM counts as having “started your own business”.
- High-Growth Tech Start-Ups: The most popular type of business that the younger generation would like to start today is none other than high-growth tech start-ups that could end up being the next Facebook or Google. They come up with innovative products that often disrupt how things are done in a certain industry and aim to make life better for everyone. Clearly, an MLM would not fall under this category.
- Conventional Businesses: Include everything from restaurants, cafes, bookshops, advertising firms to factories. These all include building your own brand or licensing a franchise, building/hiring a team, negotiating with suppliers, managing employees and marketing your products.
- Trading/Middlemen Businesses: Import and export products or serve as a middleman between manufacturers/distributors and retail outlets and small businesses who serve the end consumer have also existed for a long time.
Self-Employment Vs Running A Business
So, which category does joining an MLM fall under?
Strictly speaking, it doesn’t fall under any of the above categories. While joining an MLM might seem like starting a middleman business which connects the suppliers (the MLM company) to end consumers, there is actually a huge difference between the two.
Ownership, Authority And Responsibility
Starting and running a business involves sourcing and negotiating with suppliers, determining and changing price points according to the margin you intend to make. It also involves hiring employees, abiding by labour laws and being responsible for their EPF, SOCSO and salaries.
Besides that, starting a business also makes you responsible for the marketing and distribution strategy for your products. By being your own boss, you have the flexibility to change the price point, negotiate for lower or higher commissions, change your marketing strategy entire or pay out bonuses as a reward to your employee or sales team as you see fit.
Lack Of Authority And Control
If you join an MLM, you would not have to do all of the above. You would not need to worry about employee salaries or changing your price point in response to constantly shifting market forces. However, you also don’t get the authority to change your team’s (downline) commission structure or offer additional discounts and coupons to increase your sales as you see fit.
When you join an MLM, the contract you sign is between you and the MLM company. Similarly, any recruits that you manage to bring in (your downline) will also be signing a contract directly with the MLM company, recording you as the referrer (so you get your overriding commission or bonus or whatever the MLM companies wishes to call it).
Risk Of Losing Capital
When you start a business, you are also often required to put your capital at risk. This is because you will often have to buy an inventory of products from your suppliers before you are able to sell them.
If you fail to sell off your inventory to consumers, you would have lost money on your investment (to buy the products from suppliers) or face cash flow problems if you aren’t selling them fast enough (due to your operational costs such as maintaining an office or paying your employees).
If you join an MLM, you wouldn’t have to face these problems. Most of the time, you can simply collect the products from the MLM company whenever you successfully close a sale. Hence, joining an MLM is actually very different from truly starting a business.
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Different Kinds Of Self-Employment
However, since you aren’t formally employed by the MLM company, that would make you a self-employed person.
A private tuition teacher or a freelance writer are considered self-employed. They too do not have to deal with inventory, capital risk or be responsible for paying any salaries. While many people don’t see that as truly running a full-fledged business, they can still be said to be running a little business of their own, one that involves selling their services or time for money.
However, the same cannot be said for people who join MLMs because while they are self-employed, they have no control or ownership over the price points or nature of the products they sell.
At the very least, private tuition teachers and freelance writers can negotiate and set their own rates. They can determine how much they choose to earn, offer discounts or change the quality or way they offer their services in any way they want whenever they want to.
If you join an MLM, you will not have the authority to do that.
Agency Vs Running A Business
A better profession to compare joining an MLM to is probably that of being a sales agent.
In many ways, joining an MLM is like being an agent for the MLM company to sell their products, from which you would get a commission. If you happen to have recruits under your belt, you will also get a cut of their sales. That is similar to the overriding commission sales managers get based on the performance of the sales personnel in their team.
Hence begs the question, would you consider a sales agent a business owner who is running their own business?
Probably not.
The Original Founder Of The MLM Company Is A Business Owner
If you happen to be one of the original founders of Amway or Herbalife, then there is no doubt that you are a business owner. That is because you were the one who conceived the idea of selling products through a Multi-Level Marketing network.
You would have had to negotiate with suppliers to get a decent price for the products that you are going to sell, manage inventory, prepare marketing materials and the direction of the company as well as the compensation structure for the Multi-Level Marketing network that you plan to build.
Amway and Herbalife are also formally incorporated as companies. That means that they have to maintain a proper set of accounts and be audited and taxed accordingly. As founders of these companies, you would also hold shares in those companies which you can sell to others for a price. Any decision that they company makes would also have to go the board of directors.
In fact, Herbalife is a public listed company on NYSE.
However, if you are just joining an MLM company through your friend, you will not own shares in the parent company or get to play any part in the decision making process of the MLM company you have signed for. In that sense, joining an MLM company is more like being an agent than owning your own business.
The Definition Of Business
Despite all that, there are bound to be people who will insist that joining an MLM makes one a business owner. It all depends on what people consider to be the definition of the word “business”.
If you understand owning and running your own business to be starting a company or enterprise from scratch, where you have ownership and control over your venture’s price points, product offering and marketing strategy among other things.
Then, joining an MLM hardly qualifies as owning and running a business.
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