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Watch Your Step Are you in danger of committing one of the 7 most deadly mistakes known to networking marketers?

By Sean M. Lyden

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

The benefits of network marketing are attractive: You call theshots, avoid rush-hour traffic by working from home and earnresidual income that accumulates whether you're working,sleeping or playing. In contrast to traditional franchisingopportunities, which can require $35,000 to $100,000 or more instart-up capital, you can often buy into a network marketing (alsocalled multilevel marketing, or MLM) opportunity for less than$100. Also, the structure of MLM businesses makes it feasible foryou to get started while you're working another job, allowingyou to gradually grow it into a full-time operation.

But as with any investment opportunity, not all MLM offers aregood picks. For every person who makes it big in network marketing,there are several who give up their businesses after only a fewmonths. What are the pitfalls you should be aware of before yousign up, and how can you protect yourself?

With your financial future and business credibility at stake,it's important to make an informed decision. Here are the sevenmost common mistakes prospective MLM distributors make and how youcan best avoid them:

1. Falling For MLM Imposters

The most insidious of the MLM look-alike scams are pyramidschemes. They mimic legitimate network operations in that theycompensate distributors on a multilevel structure, providing anincentive to sell the business opportunity to prospects. The keydis-tinction, however, is that pyramids focus primarily onrecruiting salespeople, not on selling products or services. Infact, in many cases, there's no real product or service tosell.

"In a pyramid scheme, the focus isn't on the movementof a product or service to the general public," explainsJeffrey Babener, a partner in the Portland, Oregon, law firmBabener & Associates who represents many network marketingcom-panies in the United States and abroad. "It's a'deal on wheels,' in which people are encouraged to spend alot of money and find other people to do the same, who are thenalso encouraged to find others to do the same. The whole focus ison the movement of money-people making money from headhuntingfees."

How can you pick out a scam? Do a background check on thecompany you're considering. Contact your local Better BusinessBureau (or log on to the bureau's Web site at for a reliabilityreport on the company. You can also consult the MultilevelMarketing Inter-national Association (MLMIA) at (949)854-0484 or , or theDirect Selling Association at (202)293-5760 or , to see if the companyis a member in good standing. The Federal Trade Commission (FTC)will have infor-mation on any complaints that have been lodgedabout the company; contact the FTC at (202)326-2222 or

2. Expecting Instant Wealth

You've heard the stories of network marketing opportunitiesthat take people from the brink of bankruptcy to six-figure incomeswithin months. If you expect to do the same, cautions Babener, youcould be setting yourself up for disappointment. "Probablyless than 1 percent of the individuals who join an MLM company willmake huge money," says Babener. "It's no differentfrom any other endeavor."

What often happens with new distributors is this: You join acompany expecting to make $20,000 a month after six months, withlittle effort, because that's what you hear the superstars saythey've done when they give their testimonials at salesrallies. But after a few months in the business, reality sets in:You have yet to crack the $100-a-month barrier! Dis-couraged (and,if you gave up your day job, hungry), you decide to fold up yourMLM tent and write the opportunity off as a bad investment.

The problem here, however, isn't necessarily the failings ofthe network marketing company-it may be that you're just givingup too soon. Success in MLM, as in any type of business, takestime. As Babener puts it: "Individuals should look at [networkmarketing] just as they would look at holding stocks in the stockmarket. The true rewards come after long-term involvement, notshort-term."

3. Signing On In The Heat Of The Moment

This seems to be a no-brainer, but it's an easy trap foreven the most disciplined person. When you're sitting in asales meeting, dazzled by presentations given by ordinary peoplewho've made it big in the business, you can hardly help butdaydream about your own financial future. "Wouldn't it benice to knock out my $10,000 worth of credit-card debt in one fellswoop," you imagine. "New cars, nice homes, theopportunity for me to cut loose from my day job and call all theshots. How can I pass this up?!" You feel an adrenaline rushand sense of urgency bubble up inside you as the person who broughtyou to the "party" explains the compensation plan in aone-on-one follow-up session right after the meeting. With thepaperwork in front of you and pen in hand, you . . . STOP!

Just as with any investment decision, you must take time toevaluate network marketing opportunities. Seek objective feedbackfrom your attorney, accountant, spouse or friends. The opportunitymay very well be right for you, but confirm it with people youtrust before you sign. If it's legit, the offer will still bethere in a week or two.

4. Choosing The Wrong Product

As with any kind of sales position, your success as an MLMdistributor hinges on your belief in the com-pany's product orservice. Michael Sheffield, co-founder and chairman of the MLMIAand president of Shef-field Resource Network, an MLM consultingfirm in Tempe, Arizona, puts it this way: "Why would I join acompany that sells weight-loss products if I don't need to loseweight? Quite frankly, it ends up just being a money deal. But whenpeople who need to lose weight do so as a result of taking theproduct, they have their own testimony to share with others. Theirchances of being successful are a lot better because they'reright for the product."

5. Joining A Start-Up Company

Not all start-up MLM opportunities are bad investments. Someentre-preneurs make it big by getting in on the ground floor of ayoung, promising company. But if you're new to the networkmarketing industry, don't take the risk. Many MLM companies goout of business just months after start-up.

"The prudent person should look for a track record of abouta year or so," Babener advises. "That's not to saythat some people won't do very well [with a start-up company],but it's kind of like the advice 'Don't play thecommodities market unless you know what you're doing.'"

6. Selecting The Wrong Sponsor

Sheffield likens choosing a sponsor (the person who officiallysigns you to the business) to hiring an employee. "In reality,it's the reverse role here," he explains. "Youdon't work for the sponsor, [he or she] works for you-to assistyou in being successful in the business model."

What's the danger of committing to an unqualified sponsor?You miss out on the consistent one-on-one coaching and the trainingsessions you need to be successful in multilevel marketing."If [the sponsor] doesn't know how to be successful in thebusiness, then you've got to look above that person in yourupline if you want to find people to help you grow your business,and they may not have time to help you," Sheffield warns."If you're not an experienced multilevel distributor,choosing your sponsor can mean the difference between tremendoussuccess or predictable failure."

7. Neglecting To Assess If MLM Is Right For You

Many people sign on with a multilevel marketing company becausethey're attracted to the high income potential or the prospectof earning money from home. What they don't realize until afterstarting the business is that they weren't really cut out forMLM in the first place. As a result, they feel frustrated andembarrassed.

Before you invest, here are four questions that will helpdetermine whether MLM is right for you:

1. Are you a self-starter? With an MLM company, youwon't have a boss to tell you how many calls you need to makeor what time you need to wake up. To succeed, you've got to bethe tough boss who ensures the work gets done. Are you up for thechallenge?

2. Are you a people person? "Network marketing is apeople business," says Babener. "It's the only wayyou'll make sales and get recruits. If you're not a peopleperson, [MLM] isn't for you."

3. Are you a positive thinker? As with any type of salesendeavor, you'll face plenty of rejection in a networkmarketing business. Successful MLM distributors know how to put apositive spin on even the most negative circumstances to keepthemselves motivated and achieve their goals.

4. Are you comfortable with the MLM business model? Thisis the most critical question because, even if you're ago-getter and have a positive attitude, if you're notcomfortable conducting business through the network marketingdistribution method, you'll flounder in MLM. The high-incomedistributors are completely sold on network marketing and convincedthat it's the best way for them to do business.

The Bottom Line

While the upfront costs of MLM opportunities pale in comparisonto the capital requirements for buying into a franchise or startingyour own business from scratch, take your decision as seriously asif you were about to invest your life savings because there'smore at stake here than money. "The smart multilevel personwho looks at an MLM opportunity," says Sheffield, "isgoing to make sure the company is as solid as it can be and will dotheir due diligence because they know that their reputation andcredibility is on the line."

Inside The Pyramids

How do you distinguish legitimate MLM operations from illegalpyramid schemes? Here are five things pyramids do thatdifferentiate them from legitimate companies:

1. Promote the business opportunity as the"product." Always determine exactly what the product isbefore giving the opportunity a second look.

2. Require front-end inventory loading. For legitimateMLM companies, you pay a small fee to get into the business, andinventory is optional.

3. Require substantial cash investments. The red flag iswhen you're required to spend $500 or more to get into thebusiness opportunity. Most MLM offers initially cost less than$100.

4. Pay fees for recruiting. "A legitimate MLMopportunity will have compensation based on product sales and notrecruiting," says Jeffrey Babener, a partner in the Portland,Oregon, law firm Babener & Associates who represents manynetwork marketing companies.

5. Don't buy back. Says Babener, "Any plan thatdoesn't agree in writing to repurchase a reasonable percentageof unused inventory or sales materials for a stated time afterpurchase should be avoided."

Contact Source

Sheffield Resource Network, (602) 968-6199,

Sean M. Lyden is the principal and senior writer of TheProfessional Writing Firm Inc., a Kennesaw, Georgia, company thatwrites articles for consulting and advisory firms. He specializesin management, marketing and motivation issues. E-mail him

Sean Lyden is the CEO of Prestige Positioning (a service of The Professional Writing Firm Inc.), an Atlanta-based firm that "positions" clients as leading experts in their field-through ghost-written articles and books for publication. Clients include Morgan Stanley, IFG Securities, SunTrust Service Corp. and several professional advisory and management consulting firms nationwide.

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