Do MLM Companies Collapse Because No More New People Join?
The view that MLM (Multi Level Marketing) companies could “collapse” when no more new people are joining the business is a wild mathematical myth.
The statements were originally made hundreds of years ago about pyramids – and then some people applied the same concept to MLM – Multi Level Marketing.
Here’s the statement by the general counsel for the FTC (Federal Trade Commission) about pyramids and Ponzi schemes (not MLM):
Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth’s population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.” Debra Valentine, General Counsel for the U.S. FEDERAL TRADE COMMISSION
That statement is funny to me. Let me explain why…
The FTC states that in order for a pyramid (or MLM) to work it would have to continue to grow (new people recruiting new people) forever. But the problem they forsee is that there’s not enough people on planet Earth. Here’s a diagram to help you see what they’re trying to claim:
- 1 (If you recruit 10 people)
- 10 (and each of the 10 also get 10 people)
- 100 (now if all 100 each get 10 you’d have 1000…and so on)
- 10,000,000,000 (more than Earth’s population)
If it is a straight pyramid with no product at all and each person recruited had to pay money to join and NO ONE EVER QUIT, then yes, you would eventually run out of people – on a calculator!
But this is ridiculous to debate for four primary reasons:
1. Pyramids–like the fictitious example above–are illegal, so why are people wasting their time trying to discredit the MLM industry by comparing it to an illegal pyramid scheme?
2. Any person who has done MLM – Multi Level Marketing knows that what isn’t factored into the “math example” above is that when person 1 (you) recruits 10 people, not all 10 will do something! Imagine what happens “mathematically” when person #1 recruits 10 people but 6 just want to buy the product at wholesale, 2 joined because a family member asked them to but then do nothing else, and the remaining 2 people actually work. Now the math goes
- 10 (get ten people)
- 2 (actually work)
So MLM – Multi Level Marketing is not going to collapse because Earth runs out of people! Now you can see why I stated that this concept is funny.
3. The third reason this is nonsense is that IT’S NEVER HAPPENED! The oldest MLM company is still growing today, so this statement is all theory.
4. The fourth reason this is ridiculous to debate is because businesses don’t collapse because of “no more new people.” No more new people just simply causes businesses to not grow any more.
If people are joining an MLM business – selling products and recruiting and training others to sell products – and then suddenly there are no more people on planet Earth to recruit (insane idea), that would just simply mean that the business would no longer be expanding by new people. Where’s the collapse? All the customers who have bought the product and are enjoying the product are still buying the product: no collapse.
Where you get a collapse is when people suddenly pull their money out of something (like a bank or the stock market) because they’re afraid of losing it.
A franchise (like McDonald’s) recruits new franchise owners (like me and you) in a similar way that a person in MLM recruits another person. If a franchise suddenly stopped opening new stores it wouldn’t mean that McDonald’s would collapse. Maybe they wouldn’t be expanding at the same rate, but they wouldn’t collapse – they’ve still got customers buying their food.
There is a difference between a business collapsing and a business closing. There have been times when MLM companies have “closed” because of mismanagement of the business and/or unethical leadership, or because the government made a public allegation that caused people to stop participating in the business. But never has an MLM business or an illegal pyramid scheme collapsed because it ran out of people on planet Earth.
To show you a couple of examples of true scam-based collapses (so you can avoid them), let’s go back to one of the first large scams in recorded history, when during the mid-1600’s the government of France tricked the common people into turning in their gold in exchange for paper money. The government got the people to believe that paper was “as good as gold.”
With so much gold in the vault, the government began to loan paper money to businessmen. They loaned more paper money than they had gold to back it. The common people began to get skeptical that there could be that much gold in the small vault, so they began to cash in their paper money for real gold. Pretty soon there was so little gold left that the government devalued the paper money, meaning they would no longer give people (in gold) the full value printed on the paper.
Next, the government severely limited the amount of paper money one could cash in for gold. In desperation, the government finally passed a law making it illegal for any one person to hold more than a small amount of gold or silver. Government officials were trying to stop the public from buying up the gold the government needed in order to keep their scam going. This enraged the public and they demanded their gold back. By May 1720 the Royal Bank of France was out of gold and silver and the scam collapsed. You see, it takes people pulling their money out of something to cause a collapse.
Another example of a collapse caused by people pulling out their money is the bank crisis during the 1930’s. Most banks had their depositors’ money in the stock market and when it crashed in 1929, the money vanished. Reading the newspapers, people feared that their money might have gotten lost so they ran to the banks to withdraw it. But there was no money there to withdraw! This caused the collapse of 9,000 banks in the 1930’s. People who had entrusted their money by depositing it in a bank lost 140 billion dollars.
The stock market crash of 1929 is another example of a collapse caused by investors. suddenly pulling out their money. Many historians blame that crash as the cause of the Great Depression. If you look at how it is all intermingled you can see how that could be true.
Logically, if a bank invested “its” money in a company and the value of that company dropped by 90%, then the bank lost most (if not all) of its investment. Whose money do you think the bank invested? The depositors’! So the bank has to shut down its business. If a bank closed, every person who deposited their money in that bank lost it! That meant that people could not afford to buy the basics of life. When few people have the money to buy the basics, businesses and farmers stop creating the basics (farming, clothing, etc.). And when companies quit making the basics, they have to lay everyone off, which creates widespread unemployment. So I can certainly see how historians can blame the stock market crash as the cause of the Great Depression.
MLM – Multi Level Marketing does not collapse because no more new people are coming into the business. As we have shown, a business collapses when investors suddenly withdraw their money.
If someone is building their MLM business in a first-class way, they have customers who love the products. Then, there’s nothing in MLM that decreases in value.
Recommended next page: Is MLM – Multi Level Marketing a Ponzi scheme?
About the Author
Tim’s experience in building his own downline of 56,000 network marketers helped him develop his signature training series. A public relations ambassador for the network marketing industry, Tim has also dedicated his time to debunking the false information spread about the network marketing industry.