Will You Be Better Off In A Publicly Traded MLM Company?

Is it better to be a distributor for a publicly traded MLM company? Some people intuitively think so. Some companies like to spin the fact that they are a public company in their favour, touting their advantages over a privately held company. What’s the truth?

The truth is, being publicly traded does not mean anything if you don’t know how to assess a company. It’s is not a selling point. Your prospects don’t really care. The number one thing that prospects care about is who gave the presentation.

The bottomline is, if you want long term success, you first need to learn how to choose wisely. You need to not get caught up in the hype and see an opportunity for what it is. Once you are able distinguish between a good and a bad network marketing company, you need to choose one company and marry that company.

Some people think that because a company is publicly traded, it can’t be a scam. After all, it’s quite unimagineable that investors might buy into a scam, isn’t it?

Well, YTB International (Your Travel Biz), a publicly traded MLM company, was sued in early August 2008 by the Californian Attorney General for operating as a “Gigantic Pyramid Scheme”. In 2009, the Illinois Attorney General moved to shut down the company completely. That nightmare is not over yet.

In 2007, the FTC shutdown BurnLounge, another publicly traded company, because it was an endless chain recruiting pyramid scheme.

Now, a publicly traded company must report its earnings, along with other fundamental figures. And because of that, some people think that you can properly do your due diligence from the published figures. A privately held company doesn’t have to release any figures at all. Therefore a privately held company can lie, but a publicly traded company can’t lie, can it?

I wouldn’t be so confident on that either. In late 2001, ENRON filed one of the worst corporate bankruptcies in history. The audit revealed accounting fraud on a massive scale. It turned out ENRON hid billions of dollars of debt behind accounting loopholes and “special purpose entities.”

Companies can hire clever accountants to make their numbers look good, to entice investors to give them more money.

Public companies inherently have more overhead than privately held companies. Public companies need to hire special accountants and attornies, they need to have a public relations department, they need to hire graphic designers to make glossy annual reports, they often employ high flying CEO’s who command multi-million dollar salaries. All of these are extra expenses that a private company doesn’t have.

But the companies’ only source of revenue still comes from the hard work of distributors in the field. To pay for all of their extra overhead, public companies must price their products higher than their privately held counterparts, making it more difficult for the distributors to sell their products.

Finally, a publicly traded MLM company needs to look after its investors first. They must ensure that investors get their dividends. Otherwise, the investors will take their money elsewhere. The distributors, the people who build the company, come last.

Companies make stupid decisions and do dumb things and they can lose millions of dollars. When a publicly traded MLM company gets into financial trouble, it will always make decisions that favour its investors. More often than not, these decisions are detrimental to the hard working distributors in the field.

A common thing for a public company to do when it gets into financial strife is to stop paying its distributors through a compensation plan, and go to a direct sales model where the distributors are only paid commissions on the retail sales of the company’s product.

Therefore, all of the residual MLM income that would have been paid to the distributors, a substantial amount of money, now go to the company and its investors. Effectively, the company has just terminated all of its distributors. The years of hard work that distributors have put in to build the company and build themselves a steady residual income just dissappears.

It’s the distributors who will have to find a new home, and work hard to build it all again.

Publicly traded companies will often tell you if they might one day get rid of their compensation plan and go direct sales. They say it in their Policies and Procedures.

[Company] reserves the right to terminate this agreement, and all associated agreements (including, without limitation, the marketing incentive programs), upon 30 days written notice, with or without cause.

Body Electric, Heartbar in 2002, Excel Communications in 2004, XLER8 in 2010 are just a few examples of publicly traded MLM companies who decided to do away with their compensation plan and stop paying residual income to distributors when they got into trouble.

It seems like I’m having a hard go on publicly traded MLM companies. Look, there have been plently of privately held companies that have hurt their distributors too.

The point I want to make is, don’t just join a company just because someone said it’s a good idea. Learn to choose wisely and find a company that will be here for the long term so that you only have to build it once, build it right and build it big.

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To your MLM success,

Wayne Wu
Founder, The Profitable Networker

P.S. I would love your input! If you have an opinion that would contribute to this discussion, please leave me a comment below.

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3. Can’t Get Good Prospects For Your MLM Business? Here’s Why!
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6. Does Your MLM Company Have a Fair Compensation Plan?
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Tagged as: Distributorship, Due Diligence, Earnings, Investors, Publicly Traded MLM Companies