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[@alux] How MLMs Make 1% Rich and Everyone Else Broke

· 6 min read
[@alux] Summarizer
Video Bot

@alux - "How MLMs Make 1% Rich and Everyone Else Broke"

Link: https://youtu.be/VI88QyuuqC0

Short Summary​

Here's the requested information based on the YouTube transcript:

Number One Action Item/Takeaway:

Be extremely cautious and do your research before joining any "business opportunity" that emphasizes recruitment over product sales, promises fast and easy money, and fosters a strong sense of community that discourages leaving.

Executive Summary:

The video exposes how Multi-Level Marketing (MLM) companies primarily profit from recruitment, leaving the vast majority of participants with little to no income, while the top 1% benefit enormously. Modern MLMs have rebranded as network/affiliate marketing or "social selling" related to crypto or forex trading, targeting men and promising fast money, but operate on the same flawed model. True entrepreneurship requires real work, innovation, and customer focus, not recruitment and empty promises.

Key Quotes​

Here are five direct quotes from the transcript that offer valuable insights or interesting data points:

  1. "That's why 86% of distributors make zero dollars in commissions and usually come away with a negative balance. 10% makes less than $100 a year. And the other 4%, well, they get to live like kings." (Provides stark data on the earning potential within MLMs)
  2. "MLM companies call this leveraged income, which basically means you earn money from the efforts of other people and not just your own direct work." (Explains the MLM income structure in a straightforward way.)
  3. "The majority of people who stay beyond one year in an MLM are stay-at-home moms, military spouses, and young people straight out of college...because these are the three groups most likely to need what MLMs really sell: identity, purpose, and community." (Highlights the psychological factors that contribute to MLM retention.)
  4. "They used information asymmetry to control what people saw. So everyone only heard about the small number of success stories over and over again and thought that was the norm." (Points out the manipulation tactic used by MLMs in the past.)
  5. "MLMs didn't disappear, they got exposed. And then a new group of internets savvy people took the same business model, changed the product in the language, and found a new generation to target with it." (Highlights the evolution of MLMs and their adaptation to modern trends.)

Detailed Summary​

Here's a detailed summary of the YouTube video transcript, presented in bullet points, excluding sponsor announcements and advertisements:

Key Topics:

  • MLMs (Multi-Level Marketing): The core subject, exploring how they operate, promise wealth, and their evolution.
  • Recruitment vs. Sales: The emphasis on recruiting new members as the primary income source in MLMs.
  • Financial Impact: The statistic that most MLM participants lose money, while a tiny fraction at the top profit immensely.
  • Psychological Manipulation: How MLMs create a sense of community, belonging, and identity to keep members engaged.
  • Historical Context: The origins of MLMs and key legal rulings (Amway case) that shaped the industry.
  • Decline of Traditional MLMs: The role of the internet in exposing MLM practices and shifting public perception.
  • Modern MLM Evolution: How MLMs have rebranded as "network marketing," "affiliate marketing," and "social selling" to target new audiences.
  • Crypto/Forex MLMs: Examples of modern MLMs selling courses and access to trading "signals," focusing on recruitment.
  • Red Flags of Scams: Warning signs to watch out for.
  • Entrepreneurship vs. MLMs: The difference between building a real business based on value and customer loyalty vs. a recruitment-based MLM scheme.

How MLMs Work:

  • Multiple Income Sources for the Company:
    • Initial product purchase by new distributors.
    • Starter kit costs (training manuals, samples).
    • Monthly fees to maintain distributor status.
    • Fees for workshops and conferences.
    • Sales to actual customers (least significant source).
  • Unequal Distribution of Profits: Most money goes to top-level employees and upper management. The majority of participants make little to no commission.
  • "Leveraged Income" Deception: MLMs claim you earn income from the efforts of those you recruit, but this relies on constant recruitment and isn't passive.
  • Two Main Recruitment Tactics
    • Advertising the promise of being your own boss and living on your own terms.
    • Creating an exclusive, friendly, and supportive environment that becomes difficult to leave.
  • Emotional Manipulation:
    • MLMs provide a sense of belonging and community, filling a void for those who are lonely or isolated (stay-at-home parents, military spouses, young adults).
    • Leaving an MLM means losing that community, which is a powerful deterrent.

Historical Perspective:

  • Origins in the 1930s: Carl F. Renborg's Neutralite (vitamin company) pioneered the model of direct sales and recruitment.
  • Amway's Impact: Founders Dvos and Vanandal were top distributors at Neutralite. The FTC's 1979 ruling in favor of Amway established a precedent, allowing MLMs to continue operating if they sold actual products.
  • Early Focus on Recruitment: Early distributors understood that recruitment was the key to profit and concentrated on that, before the market became too saturated.
  • Expansion into New Markets: As the US market became crowded, MLMs expanded into Latin America, Eastern Europe, and Asia.

The Downfall of Traditional MLMs:

  • The Internet's Role:
    • Online platforms allowed former MLM participants to share negative experiences and expose the financial realities.
    • MLM companies had to start publishing their earning statements.
    • Easy access to information and negative reviews made recruitment more difficult.
  • Regulatory Scrutiny: The FTC and other agencies have sued MLM companies for operating as illegal pyramid schemes (Herbalife, BMA, AdvoCare).
  • **The Internet Gives People the Power to Expose, But Also MLM's to Rebrand Themselves

Modern MLM Evolution:

  • Rebranding: MLMs now often call themselves "network marketing," "direct selling," "affiliate marketing," or "social selling."
  • Compliance Training: More emphasis on retail sales to actual customers and compliance training for distributors.
  • New Products/Services: MLMs now sell Forex and crypto education or automated bots using the same pyramid recruitment model.
  • Modern MLM's Recruit Men:
    • Focus on hustel culture and financial freedom.
    • Appeal to Alpha male image.

Crypto/Forex MLMs (Specific Examples):

  • I Am Master Academy (Now Iovia or IM Markets Live): Founded by Christopher Terry. Charges monthly fees for access to Forex or crypto "signals." Income primarily comes from recruitment, not trading.
  • Mirror Trading International (MTI): Ran by Johan Steyberg. Promised unrealistic daily passive profits through automated Forex and crypto trading. Was a crypto MLM pyramid. Steyberg owes billions in penalties.

Red Flags and Conclusion:

  • Red Flags: Monthly fees, push to recruit others, and the real money being in recruitment.
  • Real Entrepreneurship: Focuses on creating something people need, delivering value first, and relying on customer loyalty.
  • Modern Scams: These tap into the idea of fast money, being a laptop millionaire, and joining a tribe of rich, positive mindset type people.
  • Modern MLMs have Not Disappeared, Just Changed: They've rebranded and found a new generation to target, but the system is the same.