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The statements were originally made hundreds of years ago about pyramids – and then some people applied the same concept to MLM – Multi Level Marketing.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)
  • 1,000
  • 10,000
  • 100,000
  • 1,000,000
  • 10,000,000
  • 100,000,000
  • 1,000,000,000
  • 10,000,000,000 (more than Earth’s population)

Is MLM a PyramidIf 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

  • 1(you)
  • 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.

bankcrisis.jpg

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?

Tim Sales

About the Author

Tim Sales

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.

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sean

Great article Tim!

Linda Stranger

Very eloquently explained, Tim. Thanks so much, this site is AWESOME!

Tom Brice

Hi Tim,
This is a Great article. I have tried similar explanations, But you really nailed it.
Thanks,
Tom.

Patti Roney

It’s amazing how many perceptions can keep people from their dreams! Thank you for carefully explaining this issue as this information is empowering and true!!!

Carmen

I’d put the simpler, McDonald’s analogy first and then launch into a more in depth explanation. I like to be able to ‘get it’ in the first paragraph and then read on further for additional information. Otherwise, I think it’s a great use of actual events/history to illustrate this point.

Christina Bieber

Thank You for all the research and simple explainations you provide. Tim you are the best!

Ambrose Ngu

This is great, Tim. It helps my network. Thanks again

Steve Stearns

Great Job Tim. I think some folks get overwhelmed by all the “stuff” in their life and they attempt to simplify by lumping a whole buch of stuff together as single thing without really analyzing what they put there. Many have buried MLM legitimate business in the closet with pyramid scams. Your article will help many to open up that closet and look again. Thanks

Joe Kresser

I like the way you are picking the myths and lies about our industry apart so that most everyone can understand it.
Joe K

Daryl L

Good Job Tim

javed Iqbal

Hi Tim,
After reading this,no one can get confused again about this objection. You are realy doing FirstClass efforts.
thnx.

Valencia Burton

What great information!
Thank you Tim.

Gavin Chapman

When the financials are sound and, above all, when an MLM company ‘makes life better’ for its customers, distributors and owners – ideally in that order of priority – it is in no more danger of ‘collapsing’ than the conventional model of business. In fact, the MLM business could well be far more durable than its conventional counterpart because, by design, it completely avoids the risky and wasteful costs of marketing and advertising; it pays ‘advertising commissions’ only after the sale has been completed. Was it Lord Leverhulme founder of what ultimately became Unilever who famously said, “I know half my advertising is wasted – trouble is I don’t know which half.”

Shirley K., California

My grandfather had almost enough money to buy a farm. He put another deposit in the bank the day before the banks failed in 1929. I was raised and taught by my family to watch how business operates. I am glad you used this history for illustration…the banks were a failure, my grandfather lost all his money, but he wasn’t a failure.

PJ Hollingsworth

You have such a gift for explaining things. Thank you.

Patty Jones

As long as someone is purchasing, we will have product. Convential business or mlm, direct sales.
I am often confounded by the sutpidity of very intelligent people.

Chuck P., Florida

We are all blessed to be able to benefit from your efforts.

JIMMY PHILIPPINES

There will be no collapse because many join in mlm company just to avail of the discounts offered by the company and with no plans whatsover to do the business. Many people are happy being an employee for the rest of their life and that is their choice we should be sensitive about that.

great article for Tim

Leo Rasberry

Great job tim keep pitching.

Justice O. Omorodion

Tim,I really appreciate your effort and your concerns about the life of others.

Keep it up!

Almight God, would reward you quadruple times…

Piotr

Great article Tim!
I’m in very old pyramid. It was started by The man named Jesus Christ he recruted 12 apostols they recruted tens of people, they turn in to hundreds, hundreds turns into thounsands… After 2000 years there is still lot of people to talk to…

Leoni from California

Many people do not understand MLM and this one way to let them know what it is all about. Thank you Tim for posting this article I appreciate it!

Efeosa from Kalamazoo, Mi

Hi Tim,
Amazing articule great job, I am indeed getting a lot of education from these.
Thanks for your efforts.

Pierre Fawcett

From Denmark.

Great article. Very well put. I do have a reverse kind of question though:
What happens if too many people join? Although we have a great product, at some stage or time the market for that product will be saturated. If we keep on enrolling more distributors they will be forced to compete amongst themselves within the MLM-company. The company will not collapse. But it won’t be good for the distributors, because they will have to divide the saturated market. Traditional companies can control the amount of distributors. Can an MLM-company do the same? If so – how? The company’s management can probably see when saturation sets in but what can be done about it?

JOHNSENO, cebu phil.

Fantastic!
Well explained. Saturation really is just a myth. There is no truth in it. People who claim about those things needs to study more about the mlm industry. They are missing the biggest fortune in their lives.

Dave From NJ

Hey Tim,

Like you said, the argument that an MLM could collapse when there are no more people on Earth left to join really IS ridiculous. However, in your article, although you mentioned some really GREAT reasons, you left out the MAIN reason WHY it’s ridiculous.
In the REAL WORLD, the Earth’s population is CONSTANTLY GROWING and “refreshing” itself. Every day, LOTS of new people are BORN, and every day LOTS of others DIE. So if you got a new customer for your product/service, or a new recruit into your business, you will at some point in time have to replace them with others, if they die. Nature automatically provides “new” people to talk to about your product or business. Why? Because NEW people are constantly reaching the age of maturity where you can actually talk to them about what you have to offer.

Hope this helps those who are concerned about the Earth running out of people or market saturation.

Dave Thompson

Tim,

Another Brilliant Explanation!

Dave Thompson
Nashville, TN

GCC

Terrific! Thank you so much. You have contributed a lot of information to us. Out of 100 % perhaps 30% only are interested to join in this kind of business so no saturation.

gogo54

Reacting to your 4 reasons:

#1 Pyramid schemes are illegal – MLMs are legal
Well that’s true, but you know… like casinos are legal, and that doesn’t make them a good business opportunity for the ones that play in them.
Conclusion: It being legal doesn’t mean it is a good business model

#2 The pyramid is not so even in MLM
The point of the even pyramid example is, that it shows, that not everyone is able to reach the promised profits. Like in your example that “6 just want to buy the product at wholesale” are a good example, who will never reach the profits. These 6 clearly make the growth of the MLM slower, but you’d still reach the critical point sometime.

#3 It has never happened
Well first of all you don’t know that. Let’s just say you haven’t heard of such thing in the MLM business. But OK… Earth has never run out of oil, as a matter of fact the oil consumption is growing. Does this mean we can keep consuming these amounts of oil forever?

#4 Running out of people doesn’t mean business will collapse
This is true. The problem is, that if you can’t recruit new people, you have no way of making your fortune being in this business model.

(#5 – a comment) Every day new people are born.
True. But if you look at the exponential growth in the theory (yes it is “just” a theory), the growth of population can be nowhere near the growth in MLM.

gogo54

“Now the math goes

1(you)
10 (get ten people)
2 (actually work)”

But you are not done with the math. Please continue, and you’ll find, that you still reach the billions pretty fast.

gogo54

Oh and when you give people new numbers that are supposed to be valid, then do the math for those numbers, too:
1
2 +8
4 +16 (the 2 who work recruit 2 active and 8 passive each) …
which is:
1st level 1 (2^0)
2nd level 10 (2^0*10)
3rd level 20 (2^1*10)
4th level 40 (2^2*10)

level n: (2^(n-2)*10)

level 30=2684354560 (2^28*10)

If we sum up all levels up to 30 (and not just considering the 30th level itself), then it is even more.

Aditya Sawdekar

Wonderful article Tim.

Succinctly explained and very easy to understand.

Thanks a lot.

pete cole

Tim

What about “satuation”. To my understanding there are two types, Total Satuation and plain Market Satuation. Self explanatory as to what Total Satuation of a market is, but in market satuation you do run out of people and to prevent collapse, you have to add new products, merge like Amway did with Quitar, or open markets in different countries. Please tell me if I am making sense. LoL

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