Have you heard of MLM or network marketing? MLM, or network marketing, can be a powerful home-based business vehicle, but it’s not generally well understood. It is riddled with misconceptions and an often tainted reputation from the general public.

If you have heard of MLM or network marketing before, do you think in positive terms or do you have a negative perception of the industry? When you hear someone like Donald Trump, Robert Kiyosaki, or Jim Rohn suggest that network marketing is a great home-based business vehicle for the average person, what reaction do you have? Which side of the fence are you on, and more importantly, why?

If you’re already involved in network marketing, are you sometimes embarrassed to admit it? What is it about your beliefs about network marketing that leads you to have these feelings?

In this article, you’ll get direct insight into MLM and network marketing as an industry, how it evolved, and where some of the misconceptions come from. This will allow you to put the feelings or perceptions you have about the network marketing industry into some context, from which you can assess whether or not your feelings and perceptions are valid.

Modern MLM and Network Marketing

MLM and network marketing is huge. It is a $100+ billion per year industry that offers an affordable way for the average person to start a legitimate business with the potential to generate very substantial income. It gives you the opportunity to launch a part-time business and turn it into a full-time (or more) income. And it requires the least amount of startup capital and ongoing operating expenses of virtually any legitimate business model.

Paul Zane Pilzer, a world-renowned economist and university professor, goes so far as to predict that over 10 million new millionaires will be created through network marketing over the next 10 years.

If this is true, why the hell would you be embarrassed or embarrassed to be a part of this industry?

Well, as I’ve already hinted, there’s a lot of history behind network marketing.

The early history of network marketing

Network marketing as a means of product distribution, which is really all it is, has been around literally forever.

You can go back in history and the establishment of trade routes and find examples of traders who distributed goods, food and furs, face to face, on behalf of various patrons. For example, the Voyageurs established fur trading routes and posts on behalf of the Hudson’s Bay Company. The Hudson’s Bay Company relied on the influence of Prince Rupert, who was a cousin of King Charles II, to acquire the Royal Charter which, in May 1670, granted the lands in the Hudson’s Bay basin to “Governor and Company of Adventurers of England trading with Hudson Bay”.

In New England, in the mid-1700s, the phenomenon of the Yankee peddler began, in which peddlers traveled from house to house across the countryside in their wagon, selling their wares.

From there, the concept of the door-to-door salesperson evolved. The Watkins Company was launched in 1868, selling a popular liniment. The late 19th century saw the rise of new companies that employed door-to-door salesmen to distribute bibles, books, spices, remedies, perfumes, tonics, and the like. California Perfume Company, which later became better known as Avon, was founded in the late 1800s.

The Fuller Brush Company debuted in the early 1900s and it was Alfred Fuller who is credited with transforming door-to-door direct selling into something different. Instead of positioning himself as a salesman selling brushes and focusing on the features of the brushes, he focused his attention on selling the benefits of his brushes to consumers.

The 1900s also saw the rise of vacuum cleaner companies and encyclopedias such as Electrolux, World Book, and Britannica.

The term “network marketing” is specifically a 20th century creation.

It is from this trend that the marketing term “belly to belly,” or warm market, as you may better recognize it, was coined.

A company called California Vitamins realized that many of its new sales recruits were, in fact, friends and family of its existing sales force. That led the company to recognize that it was easier to build a sales force with a lot of people selling a small amount of product than it was to find a small number of top salespeople who would move mountains of product.

And so California Vitamins devised a revolutionary sales compensation model that encouraged its salespeople to invite new representatives from satisfied customers, most of whom were family and friends. This allowed the sales force to grow exponentially. The company rewarded its representatives for the sales produced by its entire group—or network—of sales representatives. And so multi-level marketing was born.

The original party plan was the Stanley Hostess Party Plan, from Stanley Home Products. The focus of the party plan was to demonstrate the many uses and benefits of the products in the home. From Stanley’s original list of distributors emerged the founders of future marketing program giants like Mary Kay and Tupperware.

The introduction of the multilevel person-to-person sales program in the mid-1950s coincided with the emergence of another pair of new giants: Shaklee and Amway.

The advent of MLM

The term multi-level marketing, or MLM, became part of the industry lexicon. And the direct selling industry would never be the same again.

The popular notion that MLM companies are illegal pyramid schemes really gained traction in the mid-1970s when the US Federal Trade Commission (FTC) indicted Amway and its multi-level marketing structure as an illegal pyramid. .

From that court decision, the “Amway Safeguard Rule” set the legal standard for future direct selling, multi-level, and network marketing-based businesses.

The Myth of the MLM Pyramid

Amway and its multilevel structure were targeted by the FTC in part as a response to the proliferation of pyramid schemes in the 1970s. There was no underlying product or service. It was the rise of various high-profile schemes that led to a series of regulatory requirements and the ultimate goal of MLM as a structure. It also led to the unraveling of speculative or fraudulent schemes and legitimate direct selling activities.

The Amway Protection Rule identifies three key points that ensure the validity of the opportunity. It was the existence of these three points as part of Amway’s structure that led the court to conclude that the business was not an illegal pyramid.

So these are important criteria by which to evaluate any network marketing or MLM opportunity and establish if it is in fact legal rather than “one of those pyramid schemes”.

Does the opportunity require the retail sale of products or services before one can qualify for recruiting or sales commissions?

Does the opportunity have a mechanism to prevent inventory storage of physical products with no intent to resell them?

Does the opportunity offer reps who choose to leave a buy-back provision on unsold or unopened inventory or product?

The term “network marketing” became popular in the 1980s.

Ultimately, direct sales and network marketing are distinct subsets within the overall network marketing industry. Multi-level marketing is where the profit or commission from a retail sale is shared with an upline (or recruiter). Bonuses are also generally paid based on recruiting activity, as long as the recruiting is accompanied by ongoing retail sales activity. In direct sales, you usually only pay a profit or commission on a sale to one person, so you don’t share the profit with the upline recruiter.

MLM and Network Marketing gain legitimacy

A number of well-known and respected authors and businessmen began to lend their public support to the industry. People like Brian Tracy, Robert Kiyosaki, Paul Zane Pilzer, Jim Rohn, and even Donald Trump began to speak openly about the merits of the industry and actually encouraged people to consider it.

At the same time, network marketing has become a proven and preferred method of product distribution for some of the largest companies on the planet. Corporations came to the conclusion that network marketing, as a distribution channel, offered many advantages, one of which is lower cost.

Commissions are only paid on the sale of products or services, and the structure allows companies to offload much of the time and training requirements onto their reps, who are encouraged to train the new rep they recruit. Therefore, it is a very cost-effective distribution method for a business to use.

Particularly for new product launches, network marketing distribution allows companies to avoid costly traditional advertising campaigns.

Soon enough, telecommunications companies, travel companies, satellite providers, financial services companies, and many other industries joined the party. Today, there are literally thousands and thousands of network marketing based businesses operating all over the world.

MLM Network Marketing: Is It For You?

You now have a much broader understanding of the MLM/Network Marketing industry and the history from which it has evolved.