What One MLM Critic Wants You To Know
A bit of delay on posting this as I was on my way to Phoenix (and early warning that comments submitted over the next week could be delayed as well), but the following comment was submitted Wednesday in response to my post debunking the 99.9% myth. While I could have easily discarded it based on the personal attacks the author makes toward me, I ultimately decided that the bulk of the post does address the very issues we have been discussing here. While the author and I obviously disagree on many points, being exposed to various viewpoints is an important part of being informed. My stance remains that given the facts, consumers are intelligent beings who can come to their own rational conclusions. As a result, I am more than happy to post dissenting opinions.
I chose to post this as a new entry because there are certainly many opportunities for discussion here, and I don’t think being buried in the comments of an old post would give site viewers enough opportunity to review and react to it. As such, it is posted in its entirety below. I will look forward to the reactions of others.
Just one final note before we get to the post itself. Thus far the visitors to this site have conducted themselves with respect to the opinions of others. The intent of this blog is to discuss the issues, and personal attacks have no place here. However, I am posting this message in its entirety because I hesitate to do ANY editing to posts – one would then always need to wonder if something had been left out. Since the bulk of the post does address relevant issues, I did not want to lose that input – no matter how far afield it may be from my viewpoint or that of DSA. That being said, in the future I will not post any comments from this author or any other that make personal attacks on people or their opinions, or simply restate the same information regardless of the topic at hand.
Message from Jon Taylor posted 10:28 pm ET 6/4/2008:
Amy – Is this the same Amy Robinson that used the web version of identity theft to register pyramidschemealert.com to divert honest people seeking the truth from finding the pyramidschemealert.org web site they were seeking? And the same DSA that blatantly lied in our Utah legislative committee hearings to get MLM exempted from prosecution as pyramid schemes? The same DSA that used blatant influence peddling to get MLM exempted from a Business Opportunity Rule that would have given consumers some protection from the worst business opportunity scams?
I don’t expect that you would dare post my response (below) to some of the above comments on your blog. It would only be honest and ethical to do so, since the statistics you challenge are my statistics. But I would be surprised if you were that open to honest feedback. Here are a few points for readers to consider:
1. The 89%, 84%, and 91% satisfaction rates for direct selling you cited above on “Happy Mothers Day” (and which have been cited in legislative hearings, etc.) are themselves extremely misleading, since they combine legitimate direct selling with pyramid or chain selling. MLM is not considered as a separate category, but is treated as core direct selling activity.
2. I worked my way through college selling World Book Encyclopedia while you were still in diapers. World Book, Fuller Brush, Tupperware, etc. were not endless chain selling operations, but legitimate direct sellers at that time. I have watched MLMs gradually take over the agenda of the DSA, which initially represented legitimate direct sellers. Now the DSA spends its resources twisting the truth to match the deceptions used to recruit hapless victims into the revolving door of recruits needed to fuel the insatiable appetites of TOPPs (top of the pyramid promoters), officers, and founders of MLMs that are its most profitable members.
3. Back to your statistics, only “active” participants in MLM are included in statistical population, not the 90% that are gone within 5 years in many of the programs we’ve studied. If you included only MLM and ALL who were enrolled in a 5-year period, you would get strikingly different statistical results. This is only fair, since some of the “successes” included in the studies have been with the company for ten or more years.
4. As far as the “99% myth,” you should read Bob Fitzpatrick’s “The Myth of ‘Income Opportunity’ in Multi-level Marketing.” (See www.falseprofits.com) He comes up with a loss rate of closer to 99% using the numbers published by the MLM companies themselves – assuming you subtract minimal expenses. My 99.9% figure comes from a more strict accounting and statistical standard – subtracting “pay to play” expenses (purchases required to qualify for commissions and advancement) and minimal operating expenses – which I established be carefully tracking expenses in a one-year test. It also includes ALL recruits within a reasonable time period – not just “active distributors,” etc. And since the vast majority of MLM recruits soon become EX-participants, they deserve to be represented.
5. Now to the tax studies. If you read my tax survey carefully, you would know that I acknowledged the problems of doing the survey from the outset. If anyone were to do a simple survey of tax professionals on the profitability of MLM participants using a standard survey questionniare, they would be unable to get the desired data – period. You should know that. This is confidential information. What happened to me was that accountants aware of my research were asking me why no one doing MLM was reporting any profits. So they gave me the opening for talking with others. I would simply ask “… Shoot, I’m not going to write out pages to repeat the process that is reported on my site. Go to www.mlm-thetruth.com and click on the research link, and you will find it. My approach was the best I could do under the circumstances. And I stand by my 99.9% loss rate for the companies I have studied – not based on the tax survey, but on careful analysis of actual company data.
6. You should know that Bruce Craig, while working in the AG office in Wisconsin in the 70’s and 80’s, was able in a state action to obtain the tax returns of the top 1% of Amway distributors. Their average income was minus $900. So there was a precedent.
This feedback is surely too honest and straightforward for you to post, so I don’t expect anyone but you to see it. But I feel better having written it.
Amy Robinson, how can you sleep nights, knowing (as you must) the great harm the DSA and its member firms are doing world wide?
Jon M. Taylor, MBA, Ph.D., President, Consumer Awareness Institute and Advisor, Pyramid Scheme Alert
Amy’s response:
The author says he has the same goal as DSA – and that’s to make sure pyramid schemes are not able to operate in the marketplace. The problem is we don’t agree on the definition of a pyramid scheme. However, I find value in the exercise of finding common ground from which to start a discussion. Undoubtedly there is somewhere in the middle where we have some agreement, and both sides could probably benefit from an open and honest discussion of each other’s opinions. Certainly there are areas where we would have to agree to disagree, but I’m not sure the author would ever be able to accept that his views might be wrong.
Now, since I chose to proceed with posting the personal attacks, I will respond to them briefly. The online identity theft assertion has been used frequently by the author – and is absurd. Why the author has made this an issue personal to me, I’m not sure – it is only my name on the registration because one has to be there. But that detail aside, DSA does in fact own a domain similar to one used by the author and at one point we did have information posted there relevant to anti-pyramid scheme legislation being considered by Congress. However, at no point did we conceal our identity or masquerade as anyone else.
Assertions about DSA’s testimony with regard to anti-pyramid scheme legislation in Utah are equally as absurd – and in reality represent no more than a difference of opinion. Just because our view is different than the author’s doesn’t take away from the truth of what we are saying – we simply view the facts differently. This is further evidence that the author is unwilling or unable to entertain different points of view.
With regard to the Business Opportunity Rule, the FTC reviewed our feedback on the issue just as they reviewed the feedback from the author and others and decided the merits were on our side. If we had the influence the author suggests, wouldn’t we have used it to prevent the Rule from being proposed in the first place? We are confident in our position because we know we have the facts on our side and verifiable data to back it up.
Now to the specific, and more substantive, assertions made by the author:
Regarding the author’s specific comments on my previous posts, the numbers I quoted with regard to satisfaction are from our 2002 National Salesforce Survey, during which more than 1,800 direct sellers involved in both MLM and non-MLM compensation systems were polled by an independent research firm. While the interviewees were current direct sellers when selected at random from the salesforce, that group ultimately represents people who were just starting, well-established or in the process of quitting – for a variety of reasons. I don’t understand the suggestion to limit the pool of respondents to only companies using a multilevel marketing compensation plan – while most direct selling companies use MLM, some don’t and they should be represented proportionately. And why would we want to limit the time period to exclude those who have been active for a long period of time? Are the experiences of those people less relevant than newcomers, people who had only a short-term goal or decided direct selling was not for them? You can’t pick and choose your respondents to get the results you want, nor is it credible to conduct your own research and analysis, as the author did, when you have a clear and stated bias.
Interestingly enough, the author goes on to state in another part of his post that when looking at income stats, then we should consider ALL distributors – not just those who are active. So which way is it? Do we pick and choose or do we include ALL participants?
The credibility of DSA’s numbers is backed up by the outside research firms that conduct the studies. A respectable research firm won’t risk their reputation by cooking the numbers – regardless of who pays for the study.
That said, I’ve made no claims on this blog that there are not issues to address. On the contrary, one of the reasons we’ve started this Web site and this blog is to have an open exchange of ideas about the industry regardless of one’s position. Our goal is to improve the direct selling experience for everyone – if that means changing policies or educating companies about what today’s consumer’s want, then everyone would win.
Further, this site encourages people to do their homework regarding direct selling in general and the companies they are considering in particular before signing up – and to begin with realistic expectations regarding the time involved and the income potential. In case I have not been clear, direct selling is not an easy way to get rich quick.
In addition, the site promotes the DSA Code of Ethics – which acts to both prevent issues and solve them. Compliance with the provisions of the Code sets a framework for ethical behavior, but if a seller or consumer encounters a problem, it also provides a structure for relief.
Regarding the studies the author cites, it’s not surprising that one would choose to cite the research of others they agree with – particularly when they already work closely with those individuals, closely enough in fact that they are all advisors for each others’ organizations. The studies the author cites contain limited data. For example, his own study group was admittedly a sample of just 33 tax preparers from three counties in Utah who were asked what they recalled about returns they had completed. Further, they were asked to divulge confidential information and then coaxed further by being told what others had already said. That is simply not an objective way to collect data. The data may have been difficult to collect, but that doesn’t mean you can introduce a bias to extract information or randomly fill in missing information. At best, the data is anecdotal, at worst it’s just outright wrong.
Lastly, Mr. Taylor asked how I can sleep nights. Well, with a full-time job, a husband, and two small children, I don’t sleep as much as I’d like to. However, I do sleep well because I know that direct selling can be a rewarding opportunity for men and women, whether they’re looking to begin a new career or just earn some extra money to pay bills or take a trip. And I also know that those of us at the DSA are working to make the industry even better.
Mr. Taylor is certainly welcome to be part of the conversation and I do hope that we’ll be able to have a useful back and forth free from personal attacks that focuses on the issues at hand. It’s fine if we reasonably disagree on the basis of facts and data. It is not acceptable to degrade the other party.
Tags: direct selling, DSA, MLM, multilevel marketing
June 7th, 2008 at 10:58 am
Thank you, Amy, for posting Mr. Taylor’s comments. It appears that he has some strong opinions that many may not agree with. That is not uncommon actually- in any industry, culture or political arena.
I appreciate your willingness to keep this blog and website as open and transparent as possible. While ‘90% of most statistics can be made to appear another way 80% of the time or at least in 20% of some cases’, LOL, I think that ethics and integrity play as big a role as the numbers when presenting information. Thank you for doing that so cordially with an opposing opinion.
As Steven Hawking said, “All we need to do is make sure we keep talking.”
Safe traveling, Amy.
Tom in Atlanta
June 8th, 2008 at 7:56 pm
You say with regards Jon Taylor -
The problem is we don’t agree on the definition of a pyramid scheme.
Jon Taylor’s problem is that only he and a handful of other anti-mlmers, such as Robert FitzPatrick, whom he quotes, agree on his definition! Taylor has to quote FitzPatrick (who likewise likes to quote Taylor), since hundreds if not thousands of local and national governments around the world use remarkably similar definitions in their laws - and Jon Taylor’s definition doesn’t fit their laws.
What’s more, Taylor simply ignores reality and assumes that MLMs are illegal pyramids, then rails against the evils of MLMs as if they have the failings of illegal pyramids. They don’t! For a start John, MLMs don’t rely on “endless chains of recruitment” any more than any other product distribution business. That’s illegal pyramids that do that, John - and that’s one reason why they’re illegal.
Legitimate MLMs are based not on recruitment, but on product sales. Recruiting other sales folk is simply a strategy to increase those sales, just as “traditional” retail outlets might recruit staff to increase their sales volume.
Unfortunately the Internet Echo Chamber has repeated Taylor’s and FitzPatrick’s misinformation all of the ‘net, and other folk believe it.
Great to see the DSA finally fighting back - keep up the good work Amy!
June 10th, 2008 at 12:51 pm
Wow! Amy, thank you for your professional, concise, fact based response.
And what’s the bottom line, here for us all?
Direct selling is rapidly becoming “THE” 21st century business model.
Meanwhile, soaring gas prices and staggering “brick and mortar” business layoffs across the board serve to only speed up this powerful, positive change.
Below are two web links that underscore this fact..
Direct selling is “breaking the sound barrier” and is going to become “THE” number one, 21st century business model.
A United Industry Makes Its Case: FTC Revises Proposed Rule
http://www.directsellingnews.com/article_app.php?articleid=312
Direct Selling Education Foundation
http://www.dsef.org/GetInvolved/HowToContribute.cfm
Dear direct selling friends, the future is now and it’s ours,
Bonnie in Redondo Beach
June 10th, 2008 at 6:45 pm
With all the pro and con arguments being made about MLM businesses being or not being a pyramid scheme, it is a believers better beware situation. Just because regulators do not step in and shut a company down doesn’t mean that the company isn’t operating like a product based pyramid scheme in which nearly all company sales are made to distributors. Retail selling to non-distributors is required, but seldom enforced.
I take the view that people have a right to be fleeced as suckers if they so choose. I a person believes all the hype and wants to be a part of the “plan” well, go for it.
I believe that valid points are made on both sides of the argument. Some of the few legit MLM direct selling businesses do not offset the many recruit and dupe types that also claim legitimacy. It is a BBB situation. A buyer better beware, use what is between ones ears before believing over exaggerated dream selling cons.
Amy, I am scratching my head over Jon Taylor’s accusations that you have participated in the equivalent of internet identity theft. You get the benefit of the doubt for now.
June 12th, 2008 at 6:18 pm
While my first inclination was to ignore the entire discussion of the “online identity theft” issue based on its absurd nature, it has clearly become a red herring fallacy that Jon Taylor and his associates are trying to use to their advantage, so let’s put this to rest once and for all.
DSA owns a sizable number of domain names using relevant terms that we use to provide information about direct selling, identifying pyramid schemes, and consumer protection. Among that list is pyramidschemealert.com (and other extensions such as .biz and .net). The domains were freely available when they were purchased several years ago, and for a time contained relevant information people should know about the issue of pyramid schemes. There was never the appearance that the information was provided by anyone but DSA, and the term “pyramid scheme alert” is not trademarked to the best of my knowledge, so I do not think it created any confusion between our information and that provided on the site with the .org extension. If this were in fact a case of identity theft, I would have expected a request to transfer ownership of the domains to the owner of said identity. Having never received such a request, my guess is this they either: 1) realize it’s not really a case of identity theft and they would not win in a domain name dispute because the information that appeared on the site was clearly relevant to the domain name, and equally as clearly posted there by DSA (i.e. creating no confusion about the source of the information), or 2) they value the ability to use the identity theft assertion when they need something to distract their audience from the issues at hand. (Interestingly, Mr. Taylor likes to assert that the .com extension was never registered because of a requirement that non-profits use the .org extension. However, there is no reason the .com domain could not have been registered - they just didn’t do it.) If he and his associates were so concerned about the identity issue, I would have expected to have received a request that we relinquish ownership of the domains. That leads me to believe they find it more beneficial to make accusations than to assert any ownership rights to the domains.
So, in the interest of not letting this red herring get in the way of a focus on the issues, consider this an open invitation to the owner of pyramidschemealert.org to request transfer of the domains to their control. If they are truly concerned about an identity question, I will expect such a request shortly.
This does give me some food for thought, though – Mr. Taylor and his associates commonly refer to their organization as PSA – which is strikingly similar to DSA. Maybe there’s some identity theft going on there. No, wait, that’s just absurd!
June 12th, 2008 at 8:01 pm
quixtarisacult, you said -
… product based pyramid scheme in which nearly all company sales are made to distributors. Retail selling to non-distributors is required, but seldom enforced.
Sales to non-distributors are *not* required to make something not a pyramid. Even if 100% of sales are made to a companies registered distributors, that does not make it a pyramid. A “product based pyramid scheme” is one in which the products are essentially worthless and non-consumables. The only way to earn an income is to recruit other people who make one off (or close to it) purchases of the worthless products, making it a defacto payment for recruiting. Payment for recruiting is the sine qua non of a pyramid scheme - “without which it is not”. Unless there is a payment for recruiting a new participant, it’s not a pyramid scheme, simple as that.
Now that doesn’t mean it might not be some other sort of illegal scheme, but the fact is that the FTC has very clearly stated, on more than one occasion, that “the level of internal consumption” does not determine whether something is a pyramid scheme or not.
I know you visit many other sites on this topic, so I’m almost certain you’re aware of this, so I’m a little concerned that despite this awareness you persist in promoting the myth.
June 13th, 2008 at 7:15 pm
ibofightback…
I really don’t care whether the FTC believes it is a pyramid scam or not. They basically have not been enforcing the laws for a few years now. I am not calling for any MLM company to be shut down. If someone wants to get fleeced by one of these recruit and dupe scams, by all means they should have the right to do it.
I also respect your right and this blog’s administrator to express your views. Potential recruits should be exposed to both the pro and con arguments before deciding if MLM is truly a good opportunity.
Your observations about there not being a recruitment fee paid to the recruiter is a valid one. Also, I have a tendency to agree that it is not all that bad for distributors to be the company’s primary customer. It is ingenious to make newly recruited distributors new customers. From the standpoint of the company, who makes all sales to the distributors anyway, it is profitable and a good thing. It is the distributor (er customer) who buys the products, rally tickets and the propaganda that passes as training materials.
There are two groups in MLM who generally make all the money: those that own and sell the product, and those who have the right to market tools. There may be the few smart distributors who retail, but many do not. For these, they get what they pay for. Many strive toward the dream that may or may not be there at the end. Folks who believe in any MLM have every right to follow it where-ever it leads.
I believe that if prospects would carefully consider both the pro and con arguments, they would use their intelligence and common sense and avoid them all together. Obviously, there are plenty of people who jump into a MLM business after only being exposed to the distributor’s overly optimistic spin on things.
June 15th, 2008 at 4:51 pm
quixtarisacult, the FTC has prosecuted, successfully, many illegal pyramids over the past decade. They are enforcing the laws. I’d suggest you either do not understand the laws, or you do not understand how legitimate MLMs actually operate, or both.
There are an enormous number of people who have generated significant incomes from MLM and other direct selling opportunities, including Quixtar. In Quixtar alone in the last 2 years nearly 1400 *new* people have qualified at the Platinum level (average income nearly $50K/yr). By any measure that’s a great income for a part-time business.
As for the distributor/customer issue, if someone did not buy “tools” or go to meetings, did not “show the plan”, did not “retail” - they did nothing but just buy the products, because that’s pretty much what they wanted to do - why don’t you consider them a customer just like any other customer? What makes them “illegitimate” in your mind?
June 15th, 2008 at 5:39 pm
I think this discussion is great, but let’s just be sure it doesn’t end up as a discussion about any particular company.
Having said that, I would agree with the previous post that the FTC does have an enforcement mechanism that it uses when appropriate. In fact, recently the FTC reaffirmed this mechanism when it issued a revised notice of Proposed Rulemaking on the Business Opportunity Rule, excluding MLMs from that Rule in favor of utilizing the enforcement mechanism already in place.
June 23rd, 2008 at 4:59 pm
ibofightback…
Trying to give any bad company legitimacy by claiming that it hasn’t been shut down by the FTC yet is an old and very flawed argument. Wasn’t a former Amway lawyer appointed to head up the FTC?
Seems to me that the FTC is an incredible waste of tax payer’s money. They may shut down a small fish company from time to time, but they aren’t going to harm the goose that lays golden eggs.
Just because a MLM is technically legal doesn’t make it a good deal. Money extracting schemes and cons have always gone on and will probably always continue. Thinking people will just have to protect themselves from these bad cons and avoid them altogether.
The direct selling industry is great for the owner/operators, not so great for everyone else. People dreaming of success usually get the bad end of the deal. Enthusiasm for a con makes the enthusiastic the yearly losers that con men target with their worthless training propaganda to keep the cash coming in.
To allow a business that operates exactly like the mafia to operate says something bad about the state of affairs in our country. Oh, I believe the mafia is still operating in this country, so why not allow any con dream selling business to operate also? One thing for sure, if anyone believes the Better Business Bureau will protect anyone from bad direct selling businesses, they are badly mistaken. Buyer Better Beware is the only protection consumers have against con-like schemes, scams and criminals pawning themselves off as independent business men.
July 18th, 2008 at 5:15 pm
Amy -
I just learned of your posting my comments - and appreciate your courage in doing so.
I also read what you said about the registration of domain names that should have been reserved for Pyramid Scheme Alert: “So, in the interest of not letting this red herring get in the way of a focus on the issues, consider this an open invitation to the owner of pyramidschemealert.org to request transfer of the domains to their control. If they are truly concerned about an identity question, I will expect such a request shortly.”
This post has been passed on to Robert Fitzpatrick and I expect he will act on it.
Jon M. Taylor, MBA, Ph.D.
July 18th, 2008 at 5:35 pm
I’ll be awaiting word from Mr. FitzPatrick. Since it had been nearly 6 weeks since I made the offer I was beginning to wonder.