An Introduction to Network Marketing - Excerpted from Network Marketing: What You Should Know Book

MLM: A Maturing Industry Overcomes an Old Reputation


During its wild childhood and adolescence, network marketing acquired a reputation that in some ways was less-than-sterling.   Face it - any rapidly growing new industry attracts its share of scam artists, and network marketing was no exception.  

Some of the image problems that it gained in the eyes of the press, regulatory agencies, and the public are unfair and undeserved.   But some were rightfully earned.   The biggest problem has been hucksters who talk people into making huge investments or buying garage-loads of inventory, then vanish into the night.   Pie-in-the-sky, get-rich-quick, something-for-nothing promises and claims have been a continuing problem, too - not to mention the bad rap the industry takes every time someone is invited to come to a dinner party at a neighbor's house, or for coffee with a friend, only to be hit with a recruiting pitch.   Too many networkers, in their enthusiasm to recruit new distributors and sell products, have forgotten common sense and courtesy, and have become pests and a plague on their neighbors' houses.

As network marketing matures, the rough edges of its youth are being smoothed out. Today, legal and ethical rules and regulations from both inside and outside the industry are in place to help prevent the abuses of the past from reoccurring.   Most network marketing companies' corporate leaders and top distributors, knowing that a reputation for integrity and fair-dealing is critical to their success, zealously promote and enforce strict standards of ethics.   As a result, the industry's old reputation is being replaced by its new, mainstream posture in the business world.

Here are some signs that this is happening:

Major corporations have adopted network marketing.
Giant corporations have marketed some of their own products and services through network marketing channels - companies such as MCI (Amway), Sprint (Network 2000), ATT (Shaklee), Avon, Tupperware and Primerica.

National trade associations represent it.
The industry is now served by two national trade associations: the Direct Selling Association (DSA) in Washington, D.C., and the Multi-Level Marketing International Association (MLMIA), in Newport Beach, California.

The industry has given birth to publications, conferences, and seminars.

Several national publications have appeared in the last few years to keep the industry informed.   Major newsstand publications such as Entrepreneur , Success, Wealthbuilding and Network Marketing frequently cover network marketing topics.   Off newsstand trade publications such as Money Maker's Monthly and Upline are devoted to industry issues. National conferences and seminars on business and legal issues for networkers are commonplace. For more than a decade Legaline Publications (Portland, Oregon 1-800-231-2162), has sponsored the MLM Entrepreneur Series, a semiannual national conference on the industry, as well as the popular corporate conference series Starting and Running the Successful MLM Company.    Legaline Publications also publishes educational brochures for distributors as well as two informative newsletters for Network Marketing corporate executives, Legaline and Start . Academic conferences on network marketing have been sponsored by such institutions as the University of Texas at El Paso, University of Illinois, and the University of Houston.

The federal government has recognized network marketing.
Congress recognized the industry by amending its tax laws on independent contractors to provide that, if distributor agreements were properly worded, direct selling companies are not employers and distributors are not employees for federal withholding and tax purposes.   The IRS developed its own special publication (publication 911) to aid direct sellers in preparing their income tax returns.   Since the famous 1979 FTC decision involving Amway, the FTC has increasingly recognized legitimate multilevel marketing activity.   The Postal Service recognizes legitimate direct selling activity.   Representatives of various federal agencies appear at industry trade conferences and assure the industry that they are not interested in stamping out legitimate business activity.

State governments have recognized it, too.
Recent network marketing distribution statutes, which have been adopted in several states, are perhaps the clearest indication that the industry is reaching maturity. The new statutes specify requirements for distributor agreements, buy-back policies, registration, disclosures of information, earnings representations, etc.   Also, many states are following the federal government's lead in exempting direct selling companies from unemployment compensation laws and other withholding laws in recognition of the independent contractor status of distributors.   Most states are beginning to recognize that network marketing activity is a distinctly different form of business opportunity than that which is found in the area of securities, franchise, or the sale of other business opportunities.   The threshold dollar amount of investment in most franchise laws now exempts network marketing companies.   Similarly, most states which have adopted business opportunity legislation have carved out an exemption for sales kit materials sold at company cost.

Excerpted from the book Network Marketing: What You Should Know book, Jeffrey Babener, Legaline Publications.

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