On The Level

Building a large downline, however, should not be your sole goal. This important distinction will clue you in as to whether an MLM company is offering a legitimate opportunity--or an illegal pyramid scheme.

Pyramid schemes mimic multilevel marketing in that they compensate distributors on a multilevel structure, providing incentive to sell the business opportunity to prospects. The difference, however, is that pyramids focus primarily on recruiting new salespeople for your downline, not on selling products or services. In fact, in many cases there is no real product or service. Be wary of any ad, flier or e-mail message that says you don't have to do anything but recruit--recruit people like you to recruit people like them to recruit people like them, and so on.

"A scam almost always emphasizes just getting bodies into the system, instead of emphasizing the building of a large network of users of the product or service," says Marcia Smith, a Fairfax, California, entrepreneur who has 16 years of experience in MLM and is a leading distributor for Mannatech Inc., a company based in Coppell, Texas, that manufactures a line of nutritional supplements.

Do a background check on the company you're considering. Contact your local Better Business Bureau (or log onto its Web site at http://www.bbb.org) for a reliability report on the company. Consult the Multi-Level Marketing International Association by phone at (714) 622-0300 or by visiting http://www.mlmia.com to see if the company is a member in good standing. The Federal Trade Commission (FTC) in Washington, DC, has information on any complaints that may have been lodged about the company; contact the FTC at (202) 326-2222 or http://www.ftc.gov

This article was originally published in the July 1998 print edition of Entrepreneur with the headline: On The Level.