It is a boom time for the sharing economy, and the employment landscape is changing faster than ever for potential job seekers. In the last 10 years since the release of smartphones, a unique combination of technology and entrepreneurship has expanded the person-to-person marketplace to a whopping Rs 682 billion industry, and it’s not stopping there. Analysts at PriceWaterhouseCoopers (PwC) predicted that it will grow up to 20 times bigger in the next 10 years. That’s a huge economic shift and presents both new challenges and opportunities for someone looking to make money in 2018.

One of the industry’s leading the charge in this new economy in India is multi-level marketing (MLM) or direct sales, a business model in which customers can sign up as independent representatives to sell products and recruit their own sales team. You may have come across some discussion about this business model online, or even been pitched by an MLM representative. If so, you may know that as with many aspects of the new sharing economy, emotions can run high on the subject. Some people like the MLM model and some people see no difference between legitimate MLMs and illegal pyramid schemes/chit funds. However, for anyone not firmly placed in either of the camps, the yelling from both sides can make it difficult to determine the truth about MLMs. So instead of yelling, let’s look at the facts.

The most often-repeated complaint about MLMs is that they are “illegal”. This perception is backed up by stories of MLM executives landing in prison after being charged with violating India’s laws on chit funds and money circulation schemes (the PCMC Act). “Chit Funds and Money Circulation Schemes” refer here to any kind of scam where people have to pay recurring fees and are promised future returns off of other people’s fees. These types of scams never survive long-term. If they’re not dismantled by the law enforcement, they invariably collapse after the cost of sustaining them outgrows the money coming in from new recruits. The people at the top can walk away with a lot of money, and the people in the middle just wind up getting ripped off.

It stands to reason that if MLM executives were found guilty of running chit funds, the MLMs are illegal and bad, right? Well, no … because they weren’t running chit funds. They were running legitimate MLM businesses. It just so happens that Indian law has not historically made any distinction between legitimate MLMs and chit funds or pyramid schemes. Globally, that’s not the case. The United States and the European Union, for example, have specific laws that define what is and is not okay for multi-level marketing. As long as companies operate by those standards, they’re free to do business and it is 100 per cent legal.

So, what makes a legitimate MLM different from an illegal chit fund? The short answer is products. And, circulation schemes are driven by money coming in from new recruits, legitimate MLMs make money from the sales of their products, just like any other business. In contrast to scams that crop up and disappeared overnight, companies such as Amway, Herbalife, QNet and Modicare have used a sustainable, sales-based strategy and have stayed in business for decades.

Of late, things have begun to change. The legal status of MLMs has started to become clearer and more defined, thanks to recent advisory guidelines for direct selling issued by the Ministry of Consumer Affairs. These guidelines provided much-needed clarification as to what, under Indian law, constitutes a legitimate MLM and how it should function.For anyone thinking of signing up with an MLM, this means two things. First, it establishes that legitimate MLM companies are not like chit funds as they’ are not illegal scams. Secondly, it gives those legitimate businesses a safe harbour. So, if you see a company fighting against those guidelines, they might be a higher risk than a company that readily adopts them.

The release of the guidelines does not mean that the air is totally cleared for MLMs. While they provide a legal framework for legitimate MLMs, just because something is not illegal does not mean it is favourite. Apart from the legality issue, the second most-often repeated accusation against direct selling businesses is that people lost a lot of money, sometimes their life savings, while pursuing dreams of “getting rich quick”.

The Internet has no shortage of posts portraying MLMs as predatory boogeymen, out to steal money from an unsuspecting public. To be fair, some of those complaints have merit as unscrupulous direct selling representatives can misrepresent the business opportunity, over-promise and under-deliver.This is another reason why it’s really important to distinguish between legitimate, product and sales-based MLMs from flash in the pan companies that are just looking to make some money overnight and disappear. But even the most legitimate MLMs do not guarantee success or riches. In order to properly address the claims that an MLM “stole” somebody’s life savings, it’s important to look a little more closely at what it means to become a distributor. One of the biggest advantages of belonging to a direct selling organisation is also what prevents a lot of people from being successful—the fact that you’re working for yourself. When a new distributor signs up, they don’t become an employee of the company and they own their own business selling the company’s products. If you’ve never been an entrepreneur before, this can be a really difficult task. Even among experienced professionals in a healthy economy, half of all new businesses expire within 5 years. Anyone who signs up to be a distributor with the expectation that they’ve just landed on easy street is setting themselves up for disappointment. Starting any business can be rough, especially in the beginning. First, you have to build a business plan and define your market and marketing strategy. Then comes the hard part: the actual selling. For anyone who has not had experience in sales, the first 6-18 months can be brutal. The constant grind and the emotional toll of consistent rejection can simply wear people out.

That’s why belonging to a direct selling organisation can actually make the startup process easier than opening up a new independent shop from scratch. You do not have to develop the products as they already have them ready to go. You do not have to develop the marketing from scratch because they can supply you with material and sales strategies. Most companies offer personal development courses that can teach you how to engage, sell and build your network more effectively. Despite those advantages, joining an MLM should always be viewed more as starting up a new business than joining an existing one. And as with any new business, there are going to be start-up costs. This is where the unprepared get into trouble.

The general rule for new businesses is to expect to lose money for the first 1-3 years. Fortunately, for those considering joining an MLM, the start-up costs are minimal compared to a traditional business, and the reward can be significant. However, issues crop up when ill-informed prospects decide that their business-to-be is a sure thing and bet their life savings on it. This isn’t a problem limited to the Direct Selling industry. It is a story that plays out over and over wherever new businesses are being established. Many entrepreneurs have to invest heavily in their start-ups and they see that investment vanish when the business goes under. Statistically, only a lucky few see their baby businesses grow up to be healthy, successful organisations that reliably produce profit for decades. There are many instances where hopeful business owners go bust as tragic and sad, but we don’t say that they were the victim of a scam. If anything, we say that they were the victim of their own lack of planning and foresight. In the case of MLMs, however, when a new entrepreneur fails it becomes very easy for them to turn around and blame the parent organisation. Many of them do exactly that— as loudly and publicly as possible — often garnering a lot of sentimental support in the process.

Is that to say there are never cases where companies set inappropriate expectations and/or take advantage of people? Absolutely not. There are bad actors in every industry and MLM is no exception. That’s why it’s essential that anyone considering an opportunity with an MLM does their research. While that’s true of any career opportunity, it is especially true for direct selling. What are the start-up costs? Are the products of high quality? What is the compensation plan like? Is the company well-established, or is it new and untested? In a conversation that’s historically been dominated by high emotions, that may be most important point presented here. Don’t just listen to the hype or act on surface-level impressions. When it comes to your career, knowledge is key. Find out the facts for yourself. Do your research. Listen to arguments from all sides but take their motivations into account. Everybody is out there trying to live their dream, and few succeed. Those that do are usually the ones with the talent and tenacity to stick with a difficult thing for a long time. Joining an MLM like QNet or Avon is not (and shouldn’t be) for everybody. But for those with drive, entrepreneurial spirit and an open mind, the rewards may well be worth the challenge.


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