Protect your investments in multilevel marketing companies

Dallas Business Journal/November 3, 1997
By Lisa M. Whitley

Tired of the rat race? Many people who dream of financial independence and freedom from corporate structures are turning to multilevel marketing companies and business-in-a-box plans.

Three years ago, Diana Denton, a registered nurse, was working three nursing jobs, averaging 50 hours a week. It was time for something new.

"I had reached a burn-out point," said Denton, now an independent distributor for The People's Network.

Denton, who is 40, said she felt going back to college was not a feasible option for her, requiring too much "money and time," she said.

"I needed a change in my life," she said. "I was hungry for something."

So she answered an employment ad for Equinox International, a Nevada-based MLM which distributes products for water filtration, hair and skin care and herbal nutrition, she said.

After attending a presentation on a Friday, she quit her jobs the following Monday and drew out $6,000 from her 401(k) plan.

"I believe in the direct-marketing concept," she said. "This was one way for somebody like me who doesn't want to be employed anymore. With direct marketing they give you the product or the plan."

Denton bought into Equinox at the manager's level by purchasing $5,000 worth of products. She said the company recommended opening an office in order to be successful. This cost her an additional $1,000 for an association fee and $500 per month in desk fees. She put in a phone and started running business ads right away, she said.

She began attending training programs across the United States, but the programs were part "brainwashing" and part "pep-rally," Denton said.

Every Saturday, she tuned into a satellite link-up and listened to pep talks from Equinox's founder Bill Gouldd. He was pictured in various multimillion-dollar homes, sending the message that successful distributors could have such a lifestyle, she said.

"They led me to believe I could quit my full-time job and replace my income in a couple of months," she said. "They said, `Fake it until you make it.' They taught you manipulation ... I was very naive to the world of direct marketing. I allowed them to really manipulate me in the wrong direction.

"They made you feel like if you quit now, tomorrow could be the day that you make it."

The company encouraged members to recruit people to her down-line. In many MLM's, more money is earned from the people you recruit than from the product sales generated.

She said she was asked to make a list of friends that she could contact about joining the company.

"It cost me some friends. I couldn't understand why they wouldn't buy something," she said.

Denton said that tomorrow never came for her with Equinox. She sold her inventory, but it barely covered her expenses. Then she didn't have the funds to replace her products, she said.

After seven months and an investment of $30,000, which wiped out her 401(k) savings, she realized something had to give.

Other people Denton shared office space with at Equinox have since filed bankruptcy, she said.

Equinox has entered into an agreement with 14 state attorneys general, including Texas. This agreement forbids it from, among other things, making exaggerated income claims to potential distributors. Equinox admitted no liability or wrongdoing in signing the agreement.

Denton is involved in a class-action lawsuit filed against Equinox. The company did not return phone calls to the Dallas Business Journal. However, in other statements the company has said that not every distributor will be successful and they do not guarantee any results.

"Anybody can start up a business, but until you fly high enough to get picked up by radar, you are just pretending to run a business," Denton said.

In 1996, Equinox was ranked No. 1 in Inc. magazine's list of the 500 fastest-growing private companies in the United States.

During that same year, the Better Business Bureau received 3,334 inquiries and 72 complaints about Equinox. The Bureau reports that Equinox is responsive to resolving filed complaints.

Denton attributes her failure with Equinox to a "lack of experience, believing what people said, and taking them to heart," she said.

Having worked as a pediatric transfer nurse for seven years, she said she is not a stupid person. She just bought into the wrong plan.

"It was almost like a cult," she said.

Now, Denton has gone back to nursing in a pediatric unit part-time and is working as a distributor for The People's Network, a satellite channel she said promotes a positive change in people's thinking. Her earnings are now equal to the amount she previously made when working three nursing jobs, she said.

In January, TPN announced a marketing alliance with Primestar. The company is now the satellite provider for TPN.

She said she is happy with TPN and believes it offers several advantages over Equinox. Her start-up investment was less than $200 and TPN does not allow distributors to buy positions, she said. Everyone starts equally and is moved up by the number of people they bring in, she said. Also, there is no front-loading of products involved.

Businesses-in-a-box

Another area to be cautious of are business-in-a-box plans which offer a list of people to mail marketing packages to, said Virginia Hansen, owner of Access-A-List, a Fort Worth-based home business.

"They may have the greatest scheme in the world but you're not going to get rich quick unless you have a good response," she said.

Use a known list broker and buy a certified list which has been verified for accuracy, she advised. Oftentimes, lists bought in these types of plans are not fresh, she said. Also, the cost may be cheaper to rent the list from a list broker rather than paying for a list which may have a double mark up involved in the price.

"Be careful of the business-in-a-box scheme," advised Beverley Williams, president and founder of the American Association of Home Based Businesses.

"The reality is if it sounds too good to be true, it probably is. You're probably buying information you can find elsewhere."

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