There are three types of authors of content: Those who have never done it, those who have done it and failed, and those who have done it and succeeded. Note: My use of the word author includes both written and spoken communication.

1. Authors who have never done what they’re writing (or talking) about. Newspaper, magazine and television writers and reporters rarely have done what they’re writing or talking about - their information comes from hearsay and as an “outsider looking in.” Many attorneys and professors often give advice on subjects they’ve never done. The majority of the books at the book store are from authors who have never done what they’re writing about. They can write (or speak) about it, but can not succeed at doing it.

Their advice is rarely sound because it’s based on invention, another person’s opinion, or hearsay. This problem is compounded when an author simply repeats something they heard from the media. Now there are two layers of people who can’t do what it is they are writing about, but think they know something about it. Authors who have never done what it is they are writing about, or who have never succeeded at it, cannot possibly place the correct importance on the subject! You can always identify authors who have never done it because their content is slightly off the main subject.

As an example, I read a web article claiming that MLM (Multi Level Marketing) success was mathematically impossible. Huh? That’s like claiming that it is scientifically impossible for a bumblebee to fly. Has it ever occurred to that author to just LOOK? The oldest MLM company is still growing!

2. Authors who have failed at what they’re writing (or talking) about.
When someone has failed at what they write or talk about, it is common for them to be critical of (inclined to find fault with) the subject and those who do it. Why? Because something about the subject is a complete mystery to them and they feel inadequate. They obviously couldn’t figure out some part of it -otherwise they wouldn’t have failed!

Take, for example, a person who wanted to be a real estate investor but failed at it. He will project his negative experience onto whatever he writes or says about the business. He’ll typically write about “what’s hard,” “wrong,” or “dangerous” about real estate. Why? Because he never figured it out and someone who succeeds at it proves his inadequacy on the subject of real estate. His worse nightmare is people succeeding at real estate investing. His negativity may focus on the aspect of real estate investing that caused him to fail; but more than likely he doesn’t know why he failed, so he tries to make EVERYTHING about real estate wrong - including anyone who does real estate. This can be extremely broad - a person who has failed at playing football can try to prevent their children from playing ANY sport.

Warning: on every subject there are more people that fail at it than people who succeed, so you may find much more negative information about your subject than positive information.

Do not take advice from authors who have failed at what they write (or talk)about - they are resentful and do not want you to succeed where they failed. Others’ success only proves their inadequacy. They may claim that they “only want to protect you,” but in reality, they only want to protect themselves from a sense of failure by preventing you from trying and succeeding.

3. Authors who have succeeded at what they write (or talk) about.
If an author has succeeded at what they are writing (or talking) about, they are a valuable asset to you and their advice is worthwhile. They know what is important and what is not important about the subject.

Please note that there is a vast difference between someone who has been successful at their subject and someone who has merely been “educated” about it.

Just because a person has studied a subject, doesn’t mean they can do it. A beautician can study all about hair - that doesn’t mean she can cut hair to her client’s satisfaction. A psychiatrist may have been able to listen to her teachers and may have been able to read the required text books and may have even been able to pass a state board examination on the subject - but can she fix another person’s problems? If she can’t, don’t take her advice! A student who has been educated on a subject has only proven that she can be a student successfully. She has not proven she can do the subject.

The person you should accept advice from on a subject you’re researching is the person who has gotten the results you desire. If you want to fail, take advice from someone who has failed; if you want to succeed, take the advice of those who have been successful.

The author of First Class MLM (this web site) has been and is successful in MLM. You can read more about the author here.

This web site is neutral. No one here is trying to bring you into an MLM (Multi Level Marketing) business; therefore, we’re not going to pretend everything in MLM is perfect. Nor do we have an axe to grind about the MLM industry. This site exists to help you evaluate the MLM business by giving you the facts about (MLM) Multi-Level Marketing - then you can make an educated decision about participating in MLM.

Recommended next page: What is MLM (Multi Level Marketing), anyway?

The person who recruited them is also your upline.

The below diagram shows that you can have many people “up the line” from you.These people are known as your “upline.”

Back to glossary

Sidelines that are in the same geographical location may work together as they are “on the same team.” Team meaning, they are in the same company promoting the same products.

Another diagram of sidelines

Back to glossary

Your downline also includes all distributors that any of your downline recruit.

The above diagram shows the lady in orange has recruited three people to sell products. The lady in green has recruited two people to sell products. Thus the lady in orange has a total of 5 sales people in her “downline.” The lady in green has 2 people in her downline.

Back to glossary

Chain Letter Scheme
An illegal scheme whereby someone writes a letter that attempts to induce the recipient to make a number of copies of the letter and then pass them on to one or more new recipients. To participate in the chain letter, recipients must send money to the sender of the letter. What makes this an illegal scam and not MLM is there is no real product or service offered to a consumer.

In a recent chain letter case brought before the Federal Trade Commission the document stated, “The FTC alleged the scheme is an illegal chain-letter; that the earnings claims were false; and that most participants would fail to make any money.”

Interesting…and inconsistent.

The below graphic was taken from a STATE lottery web page. The text below the graphic read: “Players now have 4 chances per week to become a millionaire!” I don’t know about you, but I would call that an earnings claim. It’s also proven that most people who put in their money will “fail to make any money.”

In addition, I’m finding it difficult to figure out where the “real” product is in lotteries - or in gambling, for that matter.

What was most fascinating were these two statements from the FTC’s web site concerning “foreign” lotteries:

1. “If you play a foreign lottery, you’re violating federal law.”

I think it’s obvious the government is after money for themselves - the only difference between state and foreign lotteries is that the US government can’t benefit financially from foreign lotteries.

2. “There are no secret systems for winning foreign lotteries. Your chances of winning more than the cost of your tickets are slim to none.”

Wow - can you believe that statement? Like the “chances” are any better in the USA!

MLM is not a chain letter and chain letters rarely use MLM to deploy their scams. But to the uneducated a chain letter can look like an MLM scam because one person is sending a letter to another, who would in turn send it to another, and each person “could” make money. This activity is illegal and unethical because there’s not a product that makes anyone’s life better.

See What is MLM? to differentiate between a chain letter and MLM.

Recommended next page: The History of MLM.

A Wholesale Buying Organization is an MLM business that recruits people to purchase products at wholesale prices from the MLM company. There is no emphasis on making a lot of money.

A Retail Selling Organization is an MLM business that recruits people to sell products to a consumer and also to recruit others to do the same. A lot of money can be made.

The main difference is the “sales pitch” and what the distributor’s activities are after the pitch.

If the sales pitch is about achieving wealth and time freedom, then that can only be achieved with a Retail Selling Organization.It has been achieved in a Wholesale Buying Organization, but requires approximately 5,000 customers purchasing the products to produce a $5,000/month bonus check.

If the MLM company is a Wholesale Buying Organization, the “sales pitch” should be about earning extra money. Notice that the pitch is NOT about wealth and time freedom. You can expect to purchase products at a discount and, after several others have joined, you may make enough extra money to pay for your products. After a few hundred people in your downline, you may be able to earn a car payment. After a few thousand people, a house payment. But a Wholesale Buying Organization is not the way to achieve wealth and time freedom.

Sometimes distributors in MLM companies mix these two organizations together. A distributor may be told to get customers to purchase products at wholesale prices by using a “sales pitch” about wealth and time freedom. This is the activity of a Wholesale Buying Club! Because there is no focus on getting and training new distributors, the “sales pitch” about wealth and time freedom is not accurate.

It may not be “illegal” to do this, but at a minimum it is misleading to suggest to someone that they can reach financial freedom doing wholesale consumption activities… unless you tell them it will require them to have thousands of customers.

The correct activities of a Retail Selling Organization are recommending that the new person purchase products (they should do this so they know they like the products), training them to get new customers, and finally teaching them to recruit and train others to do the same - these activities can and have produced “wealth and time freedom”.

If you see that your company is confusing these two organizations, you need to correct it with the people you recruit. Blaming your upline for not training you how to get customers does you no good. Just learn it on your own and then teach your downline. Soon you’ll be a top producer and everyone will want to know how you did it.

Summary:

If the “sales pitch” is earn wealth and time freedom = Retail Selling Organization. Activities are: Buy products for yourself and get trained on how to sell products and recruit others to do the same.

If the “sales pitch” is earn extra money and get products at wholesale prices =
Wholesale Buying Organization. Activities are: Buy products at wholesale and get others to do the same. Do not expect wealth and time freedom.

Do not confuse these two organizations.

In some ways we are similar. I, too, see problems with MLM. But in one way we are different - I believe the MLM industry can be helped.

In situations such as these there are at least two options: help “it” or harm “it.”

Let’s pretend you have a child and find he’s using drugs. Do you help him or harm him? I suppose you would want to help him. That’s the way I feel about  the MLM - Multi Level Marketing industry.

Personally, I believe there is only one fundamental problem in MLM - training (or lack therof).  The activities of the industry have slid away from real training. Today, the “standard training” is write a list of 200 people, call them, and tell them why you’re  excited. This is not training, and it often doesn’t work.

If you go back to the earliest MLM activities, beginning in 1945, you will find that a distributor didn’t sponsor another distributor until that person proved they could get 25 customers. This activity ENCOURAGED people to train their distributors to sell products.

Since the 1980’s, several MLM companies have focused exclusively on getting new distributors, who get other new distributors, etc. This activity bypasses training a new distributor to get customers. Add to that a general lack of communication skills and “get-rich-quick” hype and you have an industry that in many ways merits criticism.

However, to me the good outweighs the bad. The above-mentioned flaws are correctable and are within my scope and ability to correct. If you analyze the stock market industry, the mortgage industry, the medical industry, the entertainment industry, etc., you will find that there is bad in all of them. But you will also find that there is good in each of them.

When MLM - Multi Level Marketing is done in a first-class way, it isn’t the same
industry you criticize.

Therefore it is my intention to help the MLM industry, as I’m quite fond of it.

Kindly,

Tim Sales

The first famous pyramid scheme occurred in the early eighteenth century in France. What you’re about to read goes down as one of the greatest deceptions in history.

Near the end of King Louis’ XIV reign (1643 to 1715) the economy of France was on a steep  decline. The country was 3 billion livres in debt. Officials debated whether the government should just declare bankruptcy and start from scratch, but the politicians of the time feared revolution and looked instead for a more expedient solution.

Their first attempt to remedy the problem was to devalue the currency through
recoinage (the making of new coins). New gold and silver coins were issued
weighing 20% less than coins already in circulation but with the same face
value, and the public was ordered by law to make the exchange. The government
planned to use the extra gold and silver they saved from the new coins to pay
off the nation’s debt.

But the people of France weren’t to be fooled by devalued coins. They refused to exchange their gold and silver for currency that was intrinsically less valuable. This foiled scheme greatly discredited the government of France and worsened the economic depression.

After King Louis’ XIV death, the Regent Duc d’Orleans appointed Scottish economist John Law as Controller General of France.. (A Regent is someone who rules a country temporarily due to the absence of a Monarch.) Together the Regent and Law formulated a brilliant scheme to pay off the national debt.

First, the Regent of France authorized Law to establish a central bank under the name of Law and Company. (A central bank is a nation’s principal monetary authority: in the United States it’s known as the Federal Reserve, while in the United Kingdom it’s called the Bank of England.)

Second, the Regent authorized Law’s bank to issue bank notes (paper money)
INSTEAD of real gold and silver coins and decreed that the paper money would
be accepted for the payment of taxes. This gave Law and his bank notes a measure
of credibility.

Third, Law knew he had to gain public confidence in his bank notes for the
entire scheme to work. He immediately announced that all notes from his bank
were payable in coin, meaning that his bank notes could be exchanged for their
face value in gold or silver. This gave the appearance that the paper money was the same value of the gold coin! This was perhaps the greatest deception of the 18th century.

Because
of the discomfort of carrying coins around in their pocket, people preferred
to carry the paper currency. Therefore, the public would deposit their gold
and silver into the bank in exchange for a piece of paper. This practice is
just as common today - people put their coins in a jar because the coins are
too heavy to carry around. Once the jar gets full, they take it to the bank
(or even the local grocery store) and cash in their coins for paper money.

The entire scheme required people to believe in the credibility of Law’s bank
and his ability to redeem his notes in coins. Once that belief was established,
the paper money was literally “as good as gold.”

As more and more people cashed in their gold in exchange for paper, the bank’s
vault filled with gold.

Now I need to explain how banking began in order to complete this explanation.

In the early days, there was no such thing as credit. If you wanted to buy
something, you carried your gold or silver coins to the store and paid in coin.
People didn’t want to have their coins in their home or on their person when
traveling for fear of being robbed, so they would keep their coins in a bank’s
vault. As more and more people put their coins in banks, the bank’s vault would
fill up.

Banks recognized that at no time did EVERYONE pull ALL their gold out of the
bank simultaneously, so they loaned out depositors’ gold for short periods
of time. This was the birth of “credit & loans.”

John Law learned of “credit & loans” working in his father’s bank. Now,
for the first time we have “credit” as
a financial tool.

This is where the pyramid concept comes into play. Because of my divergence
into banking and credit, let me recap to ensure you’re still following all
of this…

The country of France wanted to pay its debt through recoinage, which failed.
Economist John Law, a man with extensive banking experience, encouraged citizens
to deposit their gold and silver in his bank in exchange for paper money. The
government added credibility to the paper money by declaring Law’s bank a central
bank and accepting the paper money as payment for tax debts..

The scheme worked… for a while.

The Law and Company’s bank received enormous sums of gold to store in its
vault. With all that gold in the vault the bank could issue loans…but the
loans would be made in paper money rather than in coin. This was the
magician’s act. The
real product, gold and silver, vanished and the fake product, paper money,
was now in the spotlight. This seems a lot like current times, doesn’t it?

THE
BANK BECOMES A PYRAMID SCHEME

The
Regent made Law’s bank a publicly-traded company and declared it the Royal
Bank of France. Now people could buy stock in the government’s bank as well
as receive credit in the form of bank loans. Over the course of a few years,
the bank issued over one billion livres in paper currency to the public.

Keep in mind that all of these paper loans and paper stocks were based on
the real product of gold and silver coins in the vault. You see, once the magician
got you to believe that the paper was as good as gold, he didn’t need to show
you the gold any more.

Businesses rushed to the Royal Bank of France to secure loans, with which
they expanded commerce both at home and abroad. Foreign countries could not
cash the paper money from France, so they required payment in gold and silver.
Slowly but surely, the gold and silver that backed the paper-money loans began
to drain out of France and into other countries. With the bank issuing so many
loans, the people of France began to suspect that the gold and silver backing
their paper money was disappearing. Depositors quietly began converting their
paper money to coins and transporting the coins to foreign banks.

By 1720 the scarcity of coin began to increase. The vaults, once filled with
gold and silver, were becoming empty, but the paper money was still being loaned
out. In an effort to stop people from converting their paper money
into gold and silver coins,
the government depreciated the coin’s value to 10% below the paper, and the
bank continued to limit the amount of coins any one person could receive. The
limit was 100 livres in gold and 10 livres in silver. The government was now
claiming that gold and silver was worth less than the paper!

In February of 1720 John Law made a fatal error. At his suggestion to the
Regent, a decree was issued forbidding anyone to hold more than 500 livres
in coin and prohibiting people from buying up precious stones, jewelry, silver
settings, and so forth. The penalty was a heavy fine and confiscation of the
holdings. The government was desperate to hold onto the gold and silver that
backed the currency loaned out and sold as stock. This enraged the public.

In May of 1720 the bank was out of gold and silver in the vaults and was forced
to stop making payments in coin. The bubble burst and the pyramid collapsed.

John Law, once a national hero, became the scapegoat for the entire crisis.
The government of France blamed him for the whole debacle and he was nearly
murdered by angry crowds.

To prevent another such crisis, most countries adopted the gold standard and
required that banks have sufficient gold to back the paper currency they lent
out.

However, today no well-established currencies (US Dollar, Pound, Yen,
etc.) are backed by gold or any other real product. Their
worth is based on “belief.” The governments can - and do - create money out
of thin air by simply printing more. The governments can - and do - devalue
their currency at will. This is no different then the famous financial scam
you’ve just read about.

Oops.

What’s the point is sharing this with you?

I want to show you that pyramid
schemes have nothing to do with MLM.

A scam is a scam because the person perpetrating it is trying to trick someone.
In what you just read, the government was trying to trick the people into believing
that paper money was the same as gold. The government’s intention was to create
money with no production or product.

The basis of legitimate business is products consumed by customers that make
their lives better. If you understand this at its fundamental level, you will
never fall victim to a pyramid scheme because you can recognize it for what
it is.

It’s fascinating

A company that creates a product must make that product widely known. Sales  organizations made up of individual salespeople were (and still are) the backbone of business.

The number of salespeople in the United States began to grow rapidly starting in the late 1800s.

1861: 1000
1869: 50,000
1885: 100,000
1903: 300,000

1860 - Traveling salesmen were known as canvassers, peddlers, hawkers and drummers. Some of these former peddlers created trained sales organizations.  Had it not been for their influence, many of the corporate names we’re all  familiar with today might never have been.

-Henry Heinz, a former peddler, created an organization of 400 salesmen to sell various vegetable products, like ketchup and pickles, to people who didn’t grow their own.

-Asa Candler, another former peddler, built a sales force to sell Coca-Cola syrup to restaurants after buying the formula from pharmacist John Pemberton for $2300 in 1886.

Out of these organizations came companies that allowed their salespeople to have their “own” business.

1868 - J.R. Watkins founded the J.R. Watkins Medical Company, one of America’s first natural-remedies companies where associates marketed directly to consumers.

1890 - David McConnel started the California Perfume Company, based out of New York. In 1906 he had 10,000 sales representatives selling 117 different products. The California Perfume Company changed its name to Avon Products in 1937.

1905 - Alfred C. Fuller was another former peddler who greatly influenced future sales organizations. Fuller started the Fuller Brush Company and hired 270 dealers throughout the U.S. to follow his business plan on commission only. By 1919, the Fuller Brush Company had made $1 million in sales; by 1960, $109 million.

1931 - Frank Stanley Beveridge was the former vice president of sales for Fuller Brush Company. He and Catherine L. O’Brien founded Stanley Home Products. Influenced by the economic hardships of the Great Depression, Frank and Catherine envisioned an opportunity for people to start their own businesses with minimal investment, selling products that people use everyday. This vision was obviously taken from the Fuller Brush Company. Stanley Home Products sold household cleaners, brushes, and mops. Some Stanley dealers began giving demonstrations for clubs and organizations rather than for individuals to increase sales volume. Other Stanley dealers quickly embraced this idea as a way to maximize the selling presentation. These dealers took the “clubs and organizations” concept into homes by having the home owner invite friends and family over….and the “party plan” was born.

Stanley Home Products became the training ground for many well-known company leaders. Mary Kay Ash, founder of Mary Kay Cosmetics; Brownie Wise of Tupperware; Jan and Frank Day, founders of Jafra Cosmetics; and Mary Crowley, founder of Home Interiors all received early training as Stanley Home Products dealers - again spurred by the Fuller Brush company.

1934 - Carl Rehnborg started the California Vitamin Corporation selling what today are known as vitamin supplements. In 1939 the company changed its name to Nutrilite Products Company, Inc.

1945 - Nutrilite contracted with Mytinger & Casselberry to become the exclusive American distributor of Nutrilite products. Mytinger & Casselberry created the first documented MLM compensation plan. It worked like this: A Nutrilite distributor bought his supplies at a 35% discount. (Ex: A distributor bought a box of vitamins for $13 and then sold them for $20 = $7.00 profit.)

To encourage the distributor to sell more, Nutrilite paid an extra monthly bonus of 25% on the total sales. 20 customers x $13.00 (wholesale value) = $260 x 25% =$65.00 profit.

Once the distributor proved that he could get 25 customers he was allowed to become a DIRECT distributor - which meant that he could find others who wanted to sell the Nutrilite products and then they would buy their products from him. In essence, once he proved that he could get customers he was “promoted” and allowed to find other distributors and to train them to get customers. As an incentive to train his distributors well, once he and his distributors amassed 150 customers, he received an additional 2% of the total sales volume.

This is not a pyramid - it’s a quota-based system of management. Those who sold the most boxes of vitamins got a higher reward than those who sold little.  The MLM compensation plan was simply an extension of the Fuller Brush Company rewarding production. With MLM (Network Marketing) , the company could motivate a sales person to not only sell more products, but to train others to sell more products as well.

1945 - Earl Tupper created a line of flexible, lightweight plastic containers with tight-sealing lids. He started selling his products through conventional retail outlets, but realized the products needed demonstration. Earl Tupper then teamed up with Brownie Wise (formerly with Stanley Home Products) and launched Tupperware Party Plan, now a world-wide billion-dollar company operating in 40 countries.

1949 - Rich DeVos and Jay Van Andel (high school buddies and business partners) returned from military service and became distributors for Nutrilite vitamin supplements in 1950. After a brief dilemma with Nutrilite in 1959, the two abandoned ship and formed the Amway Corporation. In 1972 Amway Corporation acquired Nutrilite.

1956 - Dr. Forrest Shaklee developed a method of extracting minerals from vegetables and used MLM (Network Marketing) to distribute his products.

1963 - Mary Kay Ash creates Mary Kay Cosmetics. By 1996, company sales were in excess of 2 billion dollars.

1975 - The FTC (Federal Trade Commission) filed suit against Amway corporation for operating a pyramid scheme.

1979 - An administrative law judge ruled that Amway’s multi-level-marketing program was a legitimate business opportunity, as opposed to a pyramid scheme.

Recommended next page: Pyramid history