Network Marketing (NM) Companies are a popular entry point for many people considering starting a Home-Based Businesses. Formerly called “Multi-Level Marketing” (MLM), these companies are characterized by the Home-Based Business person, or Independent Business Owner (IBO) selling something (usually products, although some NMs sell services). The IBO gets paid commission on sales of the products with the company acting as a fulfillment center. The IBO gets paid (more substantial) commissions based on the number of other IBO’s he or she can recruit into the company (the downline). WikiPedia has a good write up about Network Marketing companies here.
Here at AllBusiness, there is a very good article that lists some of the things you should evaluate when considering any home-based business opportunity. But because of their unique structure of downlines, uplines, distributors, and sponsors, Network Marketing companies have additional considerations that should be reviewed.
One thing to consider with an NM company is that you don’t really ‘own your own business’ in the sense that you can choose what products or services to sell or take various independent directions in growing your business. (There are usually only two ways to grow an NM business; by building the downline and/or establishing multiple NM businesses). NM companies are more closely related to the franchise — a business structure that retains control on many operational and management aspects of the business in return for providing a branded, turnkey business. This is a trade-off you will make in a Network Marketing company and you’ll need to make sure this fits into your vision of ‘owning your own business’.
Is the Network Marketing structure of the company legal? Since the first NM company appeared in 1959, Network Marketing companies have fought various legal battles relating to the pyramid-like structure of the organization and in some cases relating to the products they sell. Here is an article written by an attorney (in plain English) that describes what you should look for in establishing the legality of the NM company.
In the past, IBOs have been required to sell the products to friends, family, extended family, church members, PTO members, etc. The IBOs circle of contacts (called ‘warm leads’) is always limited no matter how many people the IBO knows. These days, legitimate Network Marketing companies will have advanced Lead Generation tools in place and the company should be able to assist and direct you in this area. Make sure you won’t be stuck selling only to your warm leads and that there is a viable lead generation plan in place.
How far to Independence?
Ask your sponsor (the person trying to get you into the company) if he/she is making an independent living from the Network Marketing company. If they say they are, ask them to show you a copy of their prior year’s Federal Tax form (having them white out the sensitive things like Social Security numbers and Tax IDs). If the sponsor is not independent, is their sponsor? Try to find out how far up the chain you have to go to find someone who doesn’t have a day job. This will be a good reality check.
A legitimate Network Marketing company can provide a valid Home-Based Business opportunity in many cases. But due diligence is definitely in order and doing your homework before signing on the dotted line can save you disappointments and failure later on. If anyone has anything to add to this, please comment.