Are Online Businesses The New MLMs?

By Maggie Patterson

All opinions in this post are my opinions and mine alone.

You can view our full disclaimer here.

The online business industry loves to trash talk different business models, especially those that aren’t living the passive income pina colada dream with a high ticket course that brings in millions.

Case in point: The amount of judgement and vitriol directed at multi-level marketing (MLM) companies, and those that are involved in this business model.

I’ve been on the receiving end of my fair share of “hey girl” MLM pitches for everything from weight loss smoothies to mysterious business opportunities, so I get it. It’s laughably bad at times, and there’s a lot to poke fun at.

On the flip side, I find it hilarious that online business owners (who sell services, courses, mastermind, coaching and so on) say these things at all. There’s so much crossover between what’s going on in the online business world, and the way MLMs are run, especially when it comes to coaching.

As backlash to MLM grows, it’s time for us to recognize how many of the same unethical business and marketing practices are foundational to online business.

My Backstory: How I Ended Up Involved in Direct Sales and as #1 in Canada

When my son was born in 2004, I found myself with more photos than what I knew what to do with. Plus, I was blessed with a baby who’d sleep for 12 or more hours in a row at night. I had time on my hands, so I took up scrapbooking.

By 2007, I was heavily into papercrafts and scrapbooking. While I was freelancing and had a toddler, I also had a lot of nights on my own as my husband was working shift work. One of my fave product lines was sold through a direct sales company, and I signed up for their starter kit to get 12 free ink pads.

Unlike many people who get involved in MLMs or direct sales companies, I had zero intention of making money or selling the product. I just wanted my free ink pads.

Once I signed up, I still wasn’t planning on selling it, until a few friends started asking me about the products. So I decided to have a little “party” at my house to show them how to make cards using rubber stamps.

The rest is history. I quickly saw a way that I could make some extra money and have a little fun as a side business.

In typical Maggie style, I have no chill, and I quickly started building a business.

Within two or three years of joining the company, I earned my first incentive trip. I went on to earn five back-to-back trips. In the course of a single year, I went from being an unknown to the #2 consultant in Canada. Then, the next two years I was #1 in sales and ranked in the top three for leadership and recruiting. Also, I was in the Founder’s Circle which is the top demonstrators in the company a total of four times.

Thanks to that experience, I have not just an insight into how direct sales companies work, but a well-rounded view into the differences between the company I was involved with, and the bulk of the industry. I learned exactly what’s required to get to the top, and so much more.

In this essay, I’m choosing not to name the company, as to be honest, I’m not entirely clear on the legal impact of that under my demonstrator agreement. While I’m not associated with this company any longer, I have many friends who are, and I have a great deal of respect for each and every one of them.

It’s worth noting that this company is very clear that most consultants are hobbyists. They state that you shouldn’t plan to make a full-time income as a demonstrator, and that’s accurate for the majority of people who join the company and sell the products.

That’s a big reason that I was able to get on board with the company itself and how it was being run. Overall, my experiences with the company were positive, and I believe that it’s an example of how a direct sales company can be run in a way that’s not predatory.

I know my experiences within this industry were unique, and that the majority of people who sign up for MLM companies don’t make money, or even lose money.

In fact, I was reminded of this in 2017, when my former business partner and I decided to sign up for a trendy clothing MLM. (I know, I still am not sure WTF was going on there.) While we broke even in a matter of two months, we also chose to exit at that point due to quality issues and major concerns over how the company was being run.

Here’s how online business is more like MLM than anyone likes to ever admit.

The State of Online Business and MLMs Today

If 2020 taught us anything, it’s that even amidst a global pandemic, scammers are going to scam.

In the online business industry, few businesses missed a beat over the course of 2020. If anything, the market is making bigger and bolder promises, as more and more people start freelancing for the first time.

The minute the Coronavirus lockdown happened, there was a swift and brutal shift to “don’t stop marketing and selling” message across the industry, which is understandable given that people need to market and sell their offers to make money. However, there was little recognition of the fact that people were vulnerable given the state of the economy.

Across the board, it felt like the level of motivational, inspirational content simply amped up (this luxury lifestyle could be yours…), even while America was undergoing a racial reckoning in the Summer of 2020.

Meanwhile, 2020 was a banner year for MLMs, with 59% of companies reporting that Coronavirus had a positive impact. With record numbers of people out of work, MLMs were working overtime to recruit people, and to offer their products as their answer to COVID-19.

As a result, the FTC sent 16 letters to MLMs for how they were using health or earnings-related claims.

Overall, the size and reach of MLMs shouldn’t be underestimated. In 2019, it was a $35.2 billion industry in the United States. It’s estimated that 1 in 13 Americans have been involved with a MLM.

Both MLMs and the online business industry appear to be thriving in these uncertain times. During an economic downturn, they’re offering a way to own your own business and take control of your financial freedom.

The question then is, does either industry deliver on this promise?

How Much Money Are People Really Making?

Both online businesses and MLMs rely heavily on the idea that running these types of businesses can help you make meaningful, life changing money. Sadly, neither lives up to their hype.

An estimated 20 million Americans were involved in MLMs in 2018, and a 2018 AARP study found that 73% of people either made no money, or lost money.

The promises made by consultants recruiting for these MLM companies is that you’ll quickly and easily make money but that rarely comes to fruition. Once someone joins, these companies offer little to no support, and they often attract people who don’t have the underlying business skills required to be successful.

The reason I was so successful within network marketing was that I had business skills, including marketing and sales which were critical to being able to make it work. Those same skills are the reason I’ve excelled in the online business industry.

Unfortunately, it’s not uncommon for people to sign up for a MLM or start an online business without having any of these skills. The way the opportunity for both types of businesses are sold is that it’s easy to get started and that you can make money quickly.

Currently, there’s no data outlining how much money people are making with their online businesses. Yet, across the industry, there are relentless marketing messages about making six or seven figures. But based on my experiences, this is far from the norm in this industry.

That said, I searched extensively for data to help illustrate what’s going on with online businesses, with no results. Part of the challenge is that online business as an industry incorporates a wide range of businesses around the globe, and there’s currently not an organization or association aggregating that data.

A 2018 PayPal Canada study, which looked at online business including products and services, provides us with a glimpse at the type of money being made. For SMBs using eCommerce solutions, women-owned businesses were making $70,000 per year, and men-owned businesses were making $125,000.

Both MLMs and online businesses make big promises that don’t deliver for many. For most people, it’s a far cry from the six or seven figure business dream they’ve been sold.

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Passive Income is Where It’s At

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When it comes to making money, both MLM and online business share the focus on earning what’s called passive income.

Passive income is money that’s made without doing a significant amount of ongoing work. It’s desirable as little to no effort is required in order to reap the benefits.

In theory, the idea of passive income works. However, it’s often talked about in an overly simplistic way that doesn’t account for the upfront time and the financial investment required in order to get started.

In network marketing, passive income is earned through recruiting. The idea is that you recruit a team, and your team recruits more people. As the “upline” you’ll get a percentage of the sales of the team under you.

In this system, it’s those at the top of the chain who are truly profiting, and in many companies, it’s exceedingly difficult once the company is established to pull those kinds of recruiting numbers. The real money for top performers comes from recruiting, and once there’s market saturation, the ability to build a team that consists of 1000s of people is limited.

That was definitely my experience. The majority of my income was generated via my personal sales and bonuses based on those sales. While I did recruit and built a solid team, they were primarily hobbyists or discount buyers. Plus, I was unwilling to make ridiculous promises in order to recruit, or get people to promote to the next level within the organization.

My top-level upline had been with the company since it entered Canada, and had built a large team across the country. Even as a top performer in the company, I would have had to recruit at an unsustainable pace in order to even attempt to make the kind of income she was making from her team.

While online business isn’t about recruiting people in order to generate an income, there’s definitely a MLM type feel to how many companies are being run, especially in the coaching space. For example, there are many coaching organizations that teach you to become a coach. Then you’ll turn around and teach people to become a coach, and your clients will do the same.

The same goes with certifications. There’s a growing trend of people becoming “certified” by an organization, and once they’re certified, they’re then “licensed” to use that company’s methods and materials to create a certification for their clients. It’s essentially a MLM version of a coaching business.

Finally, as an industry, online business is obsessed with the idea of making money while you sleep. However, there’s very little discussion of what’s required to create business that can actually generate passive income.

I often tell my clients that there’s nothing passive about passive income as it requires time, knowledge and a financial investment to get to the point where you can make money while you sleep.

Ultimately, many times in the online business world, the way offers are priced and structured means that only a few at the top of the industry are getting rich, while so many people are being exploited, or downright scammed by the dream being sold. It’s set up in much the same way the upline at the top of a MLM team stands to benefit from the effort of their downline.

Lack of Expertise is Rampant

In the Internet age, one of the biggest problems across the board is that anyone can claim to be an expert. From influencers who are “experts on mental health” to people who’ve done something once and now want to teach it, all you need to do is open up your fave social media platform, and it’ll be in your face.

The expert economy has been heralded as the next big gig and is a massive industry. The only problem being that not all experts are created equal. There’s a major difference between a business consultant with years of corporate experience backing them up, and someone who’s fresh out of college, or let's say a doctor and someone with zero medical training suddenly being an expert on your health condition.

Case in point on the expert economy is how business coaching is booming as people teach you to start your very own coaching business. Even if they themselves have never run a business, they can teach you how to become a business coach.

Stop and think about that for a moment. How ridiculous is the idea that you can get business advice from someone about running a business, who’s only business experience is running their current business?

It’s reminiscent of the problems within MLMs where by purchasing a starter kit someone is suddenly an expert. This is concerning as the largest number of direct sales companies are in the wellness space. The Direct Sales Association reports that in 2019, 36% of companies were wellness-related.

There’s long been a challenge with the claims made by those selling MLM products, but the Coronavirus showed just how far this can go. The FTC warning letters sent out in April 2020 detailed claims, including one from Zurvita, “Want to join me in drinking Zeal to combat Corona Virus? Contact learn how to be your own Corona Virus Super Hero!”

Clearly, an unqualified, untrained individual shouldn’t be providing health and wellness advice, yet that’s commonplace with MLMs.

It’s not just related to Coronavirus. For example, I’ve seen people shilling weight loss programs based on essential oils that have no specific training in the health field. They used essential oils and a “clean” lifestyle to lose weight, so now they’re sharing that expertise with you.

Truth? This is downright dangerous as your health, well-being and security are put in peril by people in MLMs and online businesses that will do anything they can to make a buck.

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It’s All About Empowerment

Another shared trait of MLMs and online businesses they’re selling is empowerment, and they target primarily women.

74% of direct sellers are women, and an estimated 50% of online businesses are owned by women.

Women flock to these business models as they’re flexible. They offer a way to build a business on your schedule, and to be a #ladyboss. Plus, they tap into the isolation and loneliness that many women experience and provide them with connection and community.

Between February and October 2020, a record 2.2 million women left the workforce in the US. With a low barrier to entry and the promise of empowerment and extra income, both business models may seem particularly promising to many women as they look for ways to make up some of their lost income.

The only problem is that these business models often aren’t what they seem and they exploit many women’s vulnerabilities.

With MLMs, the low success rate of these business ventures is well documented, and the tactics taught to build a business are questionable at best. Here in the age of social media, there’s a focus placed on social selling, where you use platforms such as Facebook to aggressively sell your products.

What’s sold as empowerment in the form of “build your own business” quickly pushes women into working over their family and friends in order to grow said business. A Washington Post article outlined the social cost of these business ventures and how they hurt female friendships by using high pressure tactics to get people to attend events, buy the product or join the company.

One of the big reasons I ultimately left my direct sales business is that I wanted to focus on building a business in which I was in complete control of. I didn’t want to have to rely on my customers to invite people to their event, or for my team to sell a certain amount in a given month. Also, I didn’t want to be bound by company policies or changes in the compensation plan.

For me, those things were disempowering as I didn’t feel like I really owned my own business.

On the surface, it would seem that online business is more empowering than MLM for that reason, but many of the same problems exist. First off, when you start an online business, you’re starting at square one. Many of my friends involved in direct sales would tell you they benefit from their association with the company, so it’s important to not make blanket assumptions about which business model may be more empowering.

Especially as many of the strategies and tactics taught by what I call celebrity entrepreneurs are downright predatory. As an industry, the status quo is anything but empowering as it pressures people to continuously invest in coaches, courses and masterminds, and to go into debt to make their dreams happen.

Ultimately, the name of the game for both industries is preying on your hope and your desire to do better.

Using Toxic Positivity to Keep the Vibe High

During my time in the direct sales world I attended countless events hosted by the company. Let me tell you, the energy was high and the goal of these events was to pump you up. And it worked.

After my first convention, I came home and was ready to earn the incentive trip. The next year after convention, I set a goal to be in the top 15, and ended up being #2.

(If you’ve ever been to an online business conference, the same approach is used but instead of getting you to sell more, they’re ready to enroll you in a program or mastermind on the spot.)

This high vibe is exactly how MLMs hook people and sell the dream. By creating excitement and keeping things super positive, it’s easy to get caught up in it. I know there was a time I definitely was, and as far as the tactics of MLMs go, the company I was involved with was extraordinarily mild.

I know that was a unique experience, and The Dream podcast does an amazing job of detailing the common practices of MLMs.

One of which is toxic positivity, where no matter what you should have a positive outlook. Within MLMs, this often comes from the top of the organization, and then is replicated in the upline/downline relationship. This shows up with everything from telling them to think positive and just work harder, to engaging in cult-like practices to suppress any negative emotional or dissent.

Toxic positivity is extremely common in the online business world with coaches  and celebrity enterpreneurs telling people to keep the vibe high and only surround themselves with top performers. Anything that’s not a positive emotion is labelled as a limiting belief, and I've witnessed this in action more times than I could possibly count.

In both cases, toxic positivity is problematic as let’s be real, running any type of business can be hard, and a full range of emotions is completely normal. If you’re constantly being told it’s a problem with you and to simply “think positive”, that can do lasting damage to your confidence and mental health.

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Is Online Business Just the New MLM?

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When you take a closer look at both business models, it’s easy to see where online business crosses over with MLMs, and the shared strategies being used, especially by coaches.

Given the many problems across the online business industry, we shouldn’t be so quick to condemn MLMs when we have so much in common.

Instead, we need to look at the predatory practices being used to market, sell and ultimately scam people out of their money in the online business world. It’s time to clean house and realize that the overlap between these two industries isn’t an accident, but a fact. (And that's not even getting into the fact that there's many celebrity entrepreneur types that run both an online business and do MLM too.)

You can listen to the latest podcast or watch a YouTube video talking about the evils of MLMs, but why not focus that same energy on the industry you actually work in? Why not stop giving your time, attention and money to celebrity entrepreneurs that are running a more palatable version of the most hated direct sales companies and utilizing the same business practices?

That's where we need to start.

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