You’re familiar with the rags-to-riches stories of big winners in multi-level marketing. More often, you’ve heard from friends, family members and acquaintances that couldn’t quite make a go of MLM.

If you’re considering your own investment in a multi-level marketing venture, there are some important things to take into account before making your decision.

Evaluate the MLM opportunity - thoroughly

Make sure you perform due diligence on any potential multi-level marketing opportunity. The Federal Trade Commission and state governments have guidelines for MLM companies to prevent “pyramiding,” which is the payment of commissions for recruiting new distributors. Also check with the Better Business Bureau and with your state’s attorney general office for any complaints about a multi-level marketing operation.

Startup costs are another key indicator of whether you want to get involved in a multi-level marketing operation. Required buy-in to get started should be limited to just a few hundred dollars, says Peter Koeppel, president of Koeppel Direct, a Dallas-based marketing firm that does some work for MLM clients.

Also beware, if Independent Business Operators - MLM lingo for agents - make a lot more money by recruiting “downliners” than they do from selling products and from facilitating the long-term success of their networks. Downliners are recruited by an IBO, and a portion of proceeds from their sales is credited to the IBO.

Another important indicator is the availability, variety and costs of various training and motivational tools and events that the company offers. With many multi-level marketing operations, it’s easy for you to spend hundreds or even thousands of dollars on such things before you know it - all of which flows as revenue to the company, but doesn’t yield any immediate benefits to you.

Be quick to judge the opportunity by the people who are recruiting you or are involved with a particular MLM venture. “If you don’t respect the people recruiting you, you probably don’t want to join them no matter how ‘lucrative’ the opportunity appears,” says Robbie Kellman Baxter, head of Peninsula Strategies, a business-consulting firm in Silicon Valley.

Be willing to confront the hard realities. If most people involved in MLM opportunities end up spending more money than they make, why will it be any different for you? “I haven’t seen a lot of success with MLM,” says Bruce Fenton, a financial advisor in Norwell, Mass., who knows the intimate financial details and entrepreneurial tales of his firm’s 3,000 or so customers. “I see a lot of initial excitement because of the rah-rah meetings and so on - but then it usually dies out after a year or so.”

Decide if you have what it takes to succeed in multi-level marketing

Experienced multi-level marketers underscore that some types of individuals can succeed in the MLM realm. Characteristically, like most entrepreneurs, they tend to be people with strong egos, lots of energy, a capacity for hard work, great selling skills, and a determination to shape their own futures.

“I know a ton of people who’ve succeeded wildly in MLM,” says Ellen Ornato, a marketing consultant who recently turned to conventional entrepreneurship after several years of being a multi-level marketing agent. “The ones who succeed have a singular and unique focus and are able to stay in for the long haul.” They have personal resilience - an ability to weather the numerous rejections they get as they try to land some takers.

“Sure, everyone could succeed if they applied themselves consistently over time and with the right training,” says Ornato, a Middletown, Conn., resident who quit being an agent for the online-MLM service, Quixtar, a few years ago. “The challenge for most people is that ‘life happens,’ or they get blown away by simple things: I’ve seen so many people just throw up their hands at this because someone doesn’t show up to meet them at a Starbucks like they said they were going to.”

Address the crucial “friends and family” question

For so many IBOs, the moment of truth comes when they must begin recruiting and retaining “downliners” for their enterprise to really become something lucrative.

Because it’s easiest to reach out to and rely on people you already know, you quickly and inevitably arrive at the thorniest decision for anyone involved with this business model: Do you really want to bug your family members and friends about this? Every adult in America has probably been pestered at one time or another by a cousin or an old college buddy who’s found out about this “great opportunity” through multi-level marketing and wants to get you involved.

Of course, the reality is that you’re probably going to have to be able to recruit at least some of your friends, acquaintances and cousins in order to succeed at MLM. But if you do so, be prepared for lots of polite refusals, cold shoulders – and even some backlash. Most people simply feel taken advantage of if they must politely sit through your multi-level marketing pitch just because they’re in your personal orbit.

There are alternative approaches that save you, your family and friends from this fate. Some IBOs actually succeed by networking with strangers in various social settings and leaving their loved ones out of it. But limiting your circle of prospects to strangers is a big additional hurdle to impose on yourself in a pursuit that’s difficult enough as it is.

Our Bottom Line

Those who succeed in multi-level marketing have done a good job of researching the credibility of a specific MLM opportunity and have matched the particulars of it with their own background, personality and motivation. If you can’t make such a match, be wary of multi-level marketing. There are other ways to be your own boss!