CNBC's MLM Investigation... What did MLM NOT Tell You?

CNBC, which had a long undercover investigation into MLM, chose to move up their publication schedule when the Herbalife new broke. It has a lot of interesting info, but nothing really new under the sun. However, there are four revelations that stood out:

The more you recruit, the more you make

MLM should be about selling, and thus, most of your income should come from SELLING. However, that does not seem to be how MLMs operate. The CNBC story said:

Many of the people interviewed discovered that selling the products was harder than they thought. After hitting up family and friends to buy products, sellers often resorted to spending hundreds and even thousands of dollars buying sales leads, which sometimes led nowhere.

The real money, they found, is in recruiting others to sell the product, creating what's known as a "down-line" of distributors. The more distributors they recruit, the more money they are likely to make, based in part on a combination of bonuses and commissions. And the higher a distributor is in the pecking order, based on his or her purchases, the more likely he or she is to get a share of the profits.

In other words, selling stuff, which is what MLM should be about, does NOT make money. What really makes money is recruiting other people to do what you *should* be doing: sell stuff. But that was what your upline did... recruit you!

So is MLM really a recruiting game? Or did the system gone "off the rails" somewhere?


Many big MLMs do NOT enforce Amway Safeguard Rules

Amway Safeguard rules are 3 rules that Amway enacted back in the 1970's when it was sued by FTC of being a pyramid scheme. By enacting these rules, it was able to convince FTC that it is NOT a pyramid scheme. Thus, these rules were adopted by all legitimate MLMs (or at least those that *want* to at least appear legitimate). One of the rules is "ten customer rule", that requires each distributor to sell to 10 different retail customers in order to qualify for commissions / bonuses. There's another rule, known as the "70% rule" that distributors must resell at least 70% of their inventory before ordering more products. Many companies do NOT actually audit the rules, but simply rely on the distributors promising ("by signing below, I certify that...") to enforce the rules on themselves.

However, Federal Court had previously ruled, in Webster vs. Omnitrition, that the safeguard rules, unless enforced, may not protect the company. Yet some companies today do NOT enforce the rules at all. From CNBC report again:

For example, distributors are required to certify that a certain amount of product is sold to genuine customers outside of the distribution network. But in a regulatory filing, 10-K, Herbalife said, "We rely on certifications from the selling distributors as to the amount and source of product sales to other distributors which are not directly verifiable by us."

In other words, Herbalife is doing the same thing that Omnitrition got hit on.




Even MLM CEOs Use "Pyramid Organization" Dodge

One of the often used derail / dodge used by suspect pyramid scheme promoters was to point out that most organizations are pyramid-shaped, which really has nothing to do with a pyramid scheme. Thus, I was very surprised to see CEO of Herbalife using the SAME dodge...  From the CNBC article again...

Johnson [CEO of Herbalife] compared Herbalife to his prior job as an executive at the Walt Disney. He explained how he moved up the organization.

"And at the top was sitting as CEO, Michael Eisner. Is that a pyramid? Is that any different than what failure rate we're doing here?" he said

How sad to see even a CEO fall for this... crap.


Corporate Blame the Minions for Misrepresentation

One of the often used excused used by suspect scheme defenders when confronted with known cases of victimization / abuse is to blame the minions, they must have did it wrong, corporate knows nothing about it.

It's then, perhaps somewhat surprising, to see Herbalife doing the same thing:

After CNBC contacted Herbalife detailing what happened to Shea and Lopez, Herbalife reimbursed them for some of their losses, blaming their failures on "bad mentoring."

"We don't feel good about what happened to them," Johnson said during the interview with CNBC. "Nobody would. Their opportunity was not realized."

In other words, their "mentors" did it wrong. They are victims of the mentors, not Herbalife, its CEO said. The implication is... it worked for all the other people... "they" must have did it wrong or got the wrong teacher.

Why can't it be the system itself?

Read the CNBC report yourself. It has good points to ponder. People who are pro-MLM will say the article's anti-MLM. Read it, try NOT to get pre-conceived notions in your head, THEN make up your mind AFTER you got all the information.

Related articles

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• Due Diligence applies to business opportunity
• Analyzing Loeb's rebuttal to Ackman's Slam of Herbalife
• A Kellogg School Of Management Professor Wrote A Paper On How Herbalife Is NOT A Pyramid Scheme