Jul 2008

Ethical ByPasses

Even if you could not figure out whether an MLM is a fraud or a legitimate business, some typical behavior that the MLMs expect from you might tip you off that you have stepped into a scam, a place where ethics are “bypassed” on the way to the “dream.”

1. Asking others to join the scheme and telling them it’s a “great opportunity”, even when you have not made any money from it yourself or maybe are even suffering significant losses.
2. Leveraging your friendship or family relationship to recruit someone -- “Hey we’re family; you can’t say no.”
3. Looking up old friends and pretending you called them because you were interested in them, even though you haven’t been in touch for years, and in fact are just contacting them to recruit them. All MLM recruits are told to draw up a “warm list” composed of almost everyone you know or are related to.
4. Urging someone to join only because you need the “points”, while perhaps having already realized that most people never earn any money. (99% never earn a profit.)
5. Discovering that 60-80% of all recruits quit in less than a year, making the building of a “downline” almost impossible, but telling the recruits all they have to do is recruit five and the five recruit five each, and those 25 get five, etc.. (The “five get five” pitch falsely assumes everyone who joined stayed in the scheme. Most people never get even the first five to stay in, because the market is already saturated.)
6. Learning that 99% of MLM recruits receive less than $10 a week, far less than they spend, but omitting this fact while recruiting.
7. Realizing that the person “below” you is losing money and going into debt, but urging him/her to stay in anyway, (resulting in more debt and more losses) because you will have “chargebacks” if they quit and others in the downline may also desert you.
8. Berating people who had quit as “quitters and losers,” even though you know that 60-80% of all MLMers quit in the first year and 95% quit within several years. (MLMs are structured with “endless chain” recruiting. The scheme can keep going only if most people quit. If they actually stayed in, the market would totally saturate and there would be no one else to recruit! The scheme would then totally collapse. In fact, MLMs reach market saturation in each area, and but continue to lure new recruits anyway who cannot possibly find enough new recruits to be profitable. They inevitably lose their money, quit, and are then replaced by other hopefuls who repeat the process and suffer the losses. That’s how the MLM and its top upliners make their money.)
9. Telling recruits that the MLM products are “amazing”, even though you yourself stopped using them or did not experience any health improvement and knowing that similar products are on the market that cost as little as 1/3rd the price. Later you may try to unload your MLM inventory on ebay.
10. Claiming you are in the “direct selling” business, even though you haven’t sold the products to anyone at retail price because they are too expensive and other similar products are readily available. In fact, you are just “recruiting”, while pretending you are a retailer. (One hallmark of a MLM pyramid scheme is that the customers are the salespeople!)

The Myth of Multi-level Marketing

Welcome to the False Profits Blog.

When I wrote the book, False Profits, 10 years ago, I described MLM and pyramid schemes as “kissing cousins,” closely related, yet not necessarily one and the same. With 10 years of additional research, courtroom experience, communications with thousands of participants, and in-depth analysis of scores of MLMs, I now describe the situation quite differently.
Our report on the commission payouts of 11 major MLMs shows that more than 99% of all MLM participants lose money every year. Yes, 99%. That is not hyperbole. The data offered by the MLM companies themselves confirm this amazig fact.
MLM, therefore, cannot be called a “business opportunity.” The idea of MLM offering the average person a viable or an “extraordinary” income is a myth, which is to say, a lie.
Additionally, none of the MLMs studied – all of which were members of the Direct Selling Association – had significant numbers of retail customers. The sales people were, essentially, the only people buying the goods! Each of the salespeople signed contracts, paid fees, and, in order to qualify for the promised “rebates,” purchased a monthly quota of products. The salespeople, then, were investors and participants, not customers. Moreover, 60-80% of of them quit the schemes within 12 months, and they never bought the products ever again!
Without retail customers or “end-users”, MLM cannot be “direct selling.”

So what is MLM? And what sustains MLM? Obviously, it is not products -- it has no real customers and its salesopele quit buying within a year. And, certainly it is not the income to the salespeople, with 99% loss rates!
MLM is sustained by the “myth”, the disguise, and the hopes it generats among those it recruits.
We shall investigate this myth in much more detail in this blog. Your views are welcome.