The History Of Network Marketing As A Home Business

The mere mention of the network marketing or MLM industry can cause a very visceral reaction with many people.

When you hear someone such as Donald Trump suggest network marketing is a terrific home based business vehicle for the average person, what reaction do you have? Do you find yourself feeling skeptical or hold a negative opinion of the industry?

If you already participate in network marketing, do you sometimes feel embarrassed to admit it? Or, if you’re not in it yet, are you embarrassed to admit you are seriously considering it? If so, why? What is it about your beliefs around network marketing that lead you to have these feelings?

To put these feelings into some context, let's take a look at the industry of MLM or network marketing.

Network Marketing MLM in the 21st Century

Network marketing is a +$100 billion dollar per year industry which represents an accessible way for the average person to launch a legitimate business with the potential of generating very substantial income.

It offers the opportunity to launch a business on a part-time basis, and then growing that into a full-time (or more) income. And it requires the least amount of start-up capital and ongoing operating expense of virtually any legitimate business model.

Network marketing/MLM is responsible for enabling the creation of an untold number of millionaires.

Paul Zane Pilzer, a world renowned economist and college professor, goes so far as to predict that over 10 million new millionaires will be created through network marketing over the next 10 years.

If this is true, why on earth would you feel ashamed or embarrassed to be part of this industry?

Well, there’s a lot of history behind network marketing. So let’s review that history for a few moments and perhaps it will shed some light on where a lot of your feelings and attitudes around the industry may have come from.

The History Of Network Marketing

Network Marketing as a means of product distribution – which is really all that it is – has been around literally forever. You can go back through history and the establishment of trade routes and find examples of traders who distributed goods, food, and fur, face-to-face, on behalf of various backers. Sometimes these backers were rulers of a country, sometimes they were powerful individuals, and sometimes they were large businesses or companies.

The North American history of the notion of direct selling can be traced back to the 1600’s. For example, the Voyageurs established fur trading routes and posts on behalf of the Hudson Bay Company. The Hudson Bay Company itself relied upon the influence of Prince Rupert, who was the cousin of King Charles II, to acquire the Royal Charter which, in May, 1670 granted the lands of the Hudson Bay watershed to "the Governor and Company of Adventurers of England trading into Hudson Bay."

In New England, in the mid 1700’s, began the phenomenon of the Yankee Peddler, in which peddlers would travel in their cart home to home throughout the countryside, selling their wares.
From there evolved the concept of the door-to-door salesman. The Watkins Company was launched in 1868, selling a popular liniment. The late 1800s saw the spawning of new companies employing door-to-door salesmen to distribute bibles, books , spices, remedies, perfumes, tonics and the like. The California Perfume Company, which later became better known as Avon, was founded in the late 1800s.

The Fuller Brush Company debuted in the early 1900s and it was Alfred Fuller who is credited with transforming door-to-door direct selling into something different. Rather than positioning himself as a salesman who sold brushes and focusing on the features of the brushes, he instead focused his attention on selling the benefits of his brushes to the consumers.This is referred to as “empowering the consumer”.

His entire company vision was crafted in the context of the service he was able to provide to his customer. The approach was revolutionary.

The early 1900’s also saw the emergence of vacuum cleaner and encyclopedia companies such as Electrolux, World Book and Britannica.

,b>The Dawn of a New Age

The term “network marketing” specifically is 20th century creation.

Its genesis lies in the post World War era of the late 40s and early 50s. This was the dawning of the era of the subdivision in which genuine neighborhoods flourished with their own circle of trusting relationships and backyard barbeques.

It is out of this trend that the term “belly to belly” marketing – or warm market as you may better recognize it – was coined.

A company named California Vitamins came to the realization that many of their new sales recruits were in fact friends and family of their existing sales force. These new recruits’ primary motivation to becoming a sales associate was that they wanted the products for themselves at the wholesale cost.

That led the company to recognize it was easier to build a sales force with a lot of people who sell a small amount of product, than it was to find a small number of top sellers who would move mountains of product.

And so California Vitamins designed a revolutionary sales compensation model encouraging their salespeople to invite new representatives from satisfied customers, most of whom were family and friends. Each of those new representatives in turn had the same right to offer the product and opportunity to become a representative to others.

This allowed the sales force to grow exponentially. The company rewarded its representatives for the sales produced by their entire group – or network – of sales representatives. And so multi-level marketing was born.

It was also during this time that the home party plan was introduced.

The original party plan was the Stanley Hostess Party Plan, by Stanley Home Products. The focus of the party plan was to demonstrate the myriad of uses and benefits of the products right in the home. Out of the original Stanley dealer roster came the founders of such future marketing program giants as Mary Kay and Tupperware.

The introduction of the multi-level, person-to-person sales program in the mid 1950s coincided with another pair of new giants arriving on the scene. First, Shaklee was launched. Then, a couple of years later, in 1959, came the birth of Amway.

The Advent of MLM

The term multi-level marketing, or MLM, became a part of the industry lexicon.

And the direct selling industry would never be the same.The popular notion that MLM companies really gained steam in the mid 1970s when the US Federal Trade Commission (FTC) charged that Amway and its multi-level marketing structure constituted an illegal pyramid.

This made lots of headlines in the mainstream press.

In fact, in 1979 the court sided with Amway and deemed its multi-level marketing structure valid and legal and that its model represented a legitimate business opportunity.

Out of that court decision, the “Amway Safeguard Rule” set the legal standard for direct selling, multi-level, and network marketing based companies going forward.

The Myth of the MLM Pyramid

However, the myth of all MLMs being pyramids lives on.

Amway and its multi-level structure were targeted by the FTC partly in response to a proliferation of pyramid programs in the 1970s. In these illegal pyramids, money was the only commodity or “value” that moved through the program. There was no underlying product or service.

Schemes were developed whose only purpose was specifically to recruit others into the program. It was the emergence of several high profile schemes that led to a rash of regulatory requirements and the ultimate targeting of MLM as a structure. It also led to the clarification of speculative or fraudulent schemes and legitimate direct sales activities.

The Amway Safeguard Rule identifies three key points which ensure the validity of the opportunity. It was the existence of these three points as part of the Amway structure that led the court to conclude the business was not an illegal pyramid.

These therefore are important criteria with which to assess any network marketing or MLM opportunity and establish whether it is in fact legal as opposed to “one of those pyramid scams”.

1. Does the opportunity require the retail sale of products or services before one can qualify for any recruiting commissions or sales?

2. Does the opportunity have a mechanism in place to prevent the stockpiling of inventory of physical products with no intention of reselling?

3. Does the opportunity offer representatives who choose to leave a buy-back provision on unsold, unopened inventory or products?

The term “network marketing” became popular in the 1980s. It was partly coined as a way of getting away from the stigma of MLM.

Ultimately, direct sales and multi-level marketing are distinct subsets within the overall network marketing industry. In simplistic terms, they can be defined this way:

Direct selling is where the profit or commission for a retail sale is paid to one person.

Multi-level marketing is where the profit or commission for a retail sale is shared with an up-line (or recruiter). Typically there are also bonuses paid based on recruiting activity, so long as the recruiting is accompanied with ongoing retail sales activity.

Network Marketing Gains Legitimacy

Finally, network marketing and MLM gained a strong degree of legitimacy in the 1990s and into the 21st century.

A number of very well known and respected authors and business people began to lend their public endorsement to the industry. People such as Brian Tracy, Robert Kiyosaki, Paul Zane Pilzer, Jim Rohn, and even Donald Trump began to openly talk about the merits of the industry and, in fact, encouraged people to consider it.

At the same time, MLM network marketing morphed into a proven, preferred method of product distribution by some of the largest companies on the planet.

Corporations came to the conclusion that network marketing, as a distribution channel, offered many advantages, not the least of which is that it’s lower cost.

Commissions are only paid on the sale of product or services and the structure allows the companies to offload much of the time and training requirements onto its representatives, who are incented to train the new representative they recruit.

In particular for new product launches, network marketing distribution allowed companies to avoid costly traditional advertising campaigns.

Pretty soon telecommunications companies, travel companies, satellite providers, financial services companies, and many other industries joined the party. Today there are literally thousands upon thousands of network marketing based companies operating throughout the world.

Today, network marketing is a +$100 billion dollar industry.

So there you have it, we’ve come full circle.

So now let me ask you this question. Do you still feel as though there is a reason to feel ashamed or embarrassed to admit you are involved in or considering getting inolved in MLM or network marketing? Or might you conclude it's an avenue of wealth building that at least merits further investigation?