Thursday, August 18, 2016

Eric Worre is wrong about Dave Ramsey: or, why MLM advocates only knows truthiness, not truth

If you are in the US, you probably heard of Dave Ramsey, who had been giving financial advice for decades as a radio call-in show (i.e. he goes live on air and lets normal people call him and he gives answers immediately) since 1992. He does not fully endorse multilevel marketing, but instead, advocates caution and realistic outlook, something that is inherently anti-faith, but based on evidence and reality. 

On August 10th, 2016, at about the 7:48 point, a "Sarah from Cincinnati Ohio" called in and asked about joining "It Works!" MLM.  Ramsey urged caution and be absolutely aware what she wants to do going in. His message was "... You will be in the recruiting business. There is nothing really inherently bad or evil about it, Your real job is training salespeople, in a high turnover environment, because most of them don't make it... I have friends that makes 7 figures in that business... But for every one of those, I know a thousand (chuckles) that didn't last 90 days, with six boxes of makeup in the garage they are still paying off on credit card... Is this really your calling if you had lost everything and starting from scratch? ... You ought to really thinking about what you're getting into. But if you want to give it a run, I will support you on it... " 

The MLM sphere went nuts as they reacted with venom. So-called MLM 'leaders' started posting videos 'Dave Ramsey is Wrong'. Here's a typical reaction from Eric Worre of networkmarketingpro.com:
Dave (Ramsey) went on to pour cold water all over the hopes and dreams of this young woman, and pigeon holed the Network Marketing profession into his very limited understanding of what it is all about.
So what exactly is Eric Worre mad about? He claims that Ramsey made multiple mistakes. 
  • Risk is minimal in MLM, w/ the buyback policies in place
  • It's not recruiting, it''s expanding your network
  • Failure? So what? 90% of traditional businesses fail
  • Bothering friends? They''re doing it wrong
Mr. Worre's final message is: basically "why don''t you just be honest and admit you hate network marketing? Innuendo doesn't suit you". 

Go look in a mirror, Mr. Worre. Innuendo does not suit you either. 

Let's examine the factors at play... who''s really wrong or right? But with a skeptical attitude and fact-checking. 

Just how risky is MLM?

Eric Worre claims that Dave Ramsey exaggerated the risk involved in MLM, and most people don''t have "6 boxes of makeup sitting in the garage getting paid off on credit card".  He claims that with the 90% buyback policy in place in most major MLMs (esp. DSA members), financial exposure is minimal.

The problem with Mr. Worre's statement is there are NO stats available from the MLMs that such policies have been utilized. Yes, DSA members do have at least a 90% buyback policy for at least six months, i.e. if you want to return all the stuff you haven''t sold within 6 months, you get 90% back. Some even go as far as a year. However, there are various caveats not discussed. 

Is there any stats available on how often such policies had been invoked? How many hoops do people have to jump through to get such returns processed? 

Nope. Nada. Zero. Zilch. Nothing. 

In fact, it's been documented in Mary Kay that any attempts to quit an return inventory would trigger an "intervention" from your upline and other people in your group (because she would be notified as any returns means her commission from your purchases will be clawed back) who will want to meet with you then shame and guilt you into staying in past the refund deadline, or to delay you in order to ensure you will get as minimal refund as possible. 
Mary Kay sales directors and recruiters are notorious for using misinformation or unethical tactics to stop consultants from returning inventory. This includes lying about the program or otherwise delaying the consultant’s return so that less product can be returned under the “last 12 months” rule. -- PinkTruth.com
It's hard to imagine the same does not happen in other MLMs as well. 

There are other tricks that can be done as well, like refresh products at less than 12 month cycles. That way when you try to return product it had already been phased out and thus cannot be returned. 

Sure there's a policy on the books, but a policy that's never used / enforced is no policy at all. 

Mr. Worre's hypothetical "white elephant" MLM only exists in his imagination. 


It is "recruiting" or "expanding your network"? 

Eric Worre claimed that just as Dave Ramsey pick up additional financial advisors and radio stations for his programs and his referral network, MLM does the same. 
Recruiting expands the network, but the network by itself pays no one.  The only way people get paid in network marketing is when product moves to a consumer. -- Eric Worre (ibid)
Unfortunately, Mr. Worre is again, talking about the hypothetical ideal MLM. In the ideal MLM, the distributor keeps ZERO inventory, everything they buy from the company is immediately resold at a profit to consumers. This is clearly not true in reality. 

Herbalife claimed for YEARS that a MAJORITY (73%) of its distributors are NOT distributors, but consumers. Following is a slide from their presentation trying to rebut Ackman's claim that Herbalife is a pyramid scheme several years back. 
Herbalife claimed that 73% of its distributors did NOT intend to make money. 
When you first join MLM, you are the consumer. You are making your upline money. It's not until you move your inventory to other consumers that you making your own money. Some never managed to sell significant amount of stuff and indeed, as Ramsey said, ended up with garage-ful of boxes still being paid off on credit card. And if Herbalife, one of the largest MLMs in the world, is like this, do you really think it's any different in other MLMs? 

And indeed, this is where the analogy between Ramsey expanding his radio and advisor network with MLMer expanding their own network falls apart completely. 

Advisors join Ramsey's network so if they do get a referral they forward Ramsey a small referral fee. Because they know if they will make a profit on whatever services they provide to the consumer. 

Radio Stations join Ramsey's network by paying the syndicated show fee as any other radio show. They can make money off playing their local ads over the Dave Ramsey show. 

But MLMers join a MLM they can do so both as a consumer... or a distributor. And more often than not, as shown above with Herbalife example, they joined as one, but ended up as the other. MLMers can make money if they were successfully moving products to consumers... But not if they are the consumer. And MAJORITY of MLMers *are* consumers, if Herbalife, one of the largest MLMs, is any example to go by. 

Mr. Worre then begged for a "fair" review of MLM:
So rather than painting network marketing as this particular exception where only a few people succeed, why not compare that with the rest of the world where there are winners and there are losers -- Eric Worre (ibid)
So you want to compare stats? How about this... 
  • Average household income in the US is 51939 (as of Census Data 2014)  (see Wikipedia)
  • Average MLM retail revenue in US per person is 1789  (as per DSA 2015) *
It's pretty obvious that MLM is NOT where the winners are. 

* -- 36.1 billion retail divided by 20.2 million participants = 1789 

90% of traditional businesses fail in 5 years, right? WRONG!

Worre repeated the mantra "90% of those (startups) fail over the course of five years"...   Not once, but twice. It's yet ANOTHER factoid that's not fact. It's often repeated by MLM supporters trying to prop up MLM by slandering "traditional" businesses. 

The reality is 50% of businesses remained open after 5 years, according to real stats gathered by the SBA. And of the 50% that did close, 17% were closed VOLUNTARILY. So the REAL failure rate after 5 years is NOT 90%... It's not even 50%, but 33%. 

If 90% of MLMers fail after 5 years (or even 18 months), that's MLM's problem. 

There is ANOTHER point to make. Eric Worre seems to think that businesses cost 65K. No citation was given. 
The average person in the United States that wants to start a traditional business, spends $65,000 to do it. -- Eric Worre (ibid)
Where did he get this number, and did he just make this up out of thin air, or worse, pull it out of his... (ahem).. ear?  SBA.GOV website says many microbusinesses can be started for less than $5K, and Kauffmann Foundation in 2009 estimated average start-up cost at 30K.  And that's AVERAGE. Many businesses were started for much less. 

Bothering friends? They're doing it wrong.  Aren't they?

This is where Eric Worre admit that a MLM came from a tradition of overpromise and underdeliver. 
...network marketing as a whole has set an unrealistic expectation around the world.  We’ve made it seem too easy for when we talk to prospects.  No argument there. -- Eric Worre (ibid)
But other than claiming "they did it wrong, we'll fix it", there was little else offered. 

But let's examine a few more stats...  Ever heard of TruthInAdvertising.org, aka TINA? They are very active in consumer protection, and most of their recent focus were on MLMs. Herbalife, Vemma, Jeunesse, Jusuru, Nerium, SevenPoint2, Kyani... the list goes on and on. All of them are egregiously violating various ethical rules including income claims, product efficacy claims, and more. 

In fact, many of these unethical claims were done at the CORPORATE level. Prime example: Vemma. 

Vemma was shut down by FTC as a pyramid scheme September 2015 and was forced to reorganize to a compensation plan that was mutually agreed between Vemma and FTC as not to be a pyramid scheme. The first quarter 2016 results were pretty damning... Vemma lost millions of dollars when it was forced to operate ethically. Yet Vemma had received an "Ethos" award from DSA from 2013 supposedly for "highest standards in business practices and ethics". DSA, or Direct Selling Organization, was supposedly watching over all MLMs, but is actually a lobbying org that was funded by the MLMs that pays for advocacy campaigns to improve MLM's image. 

How did a company that was supposedly following the "highest standards in business practices and ethics" in 2013 got sued by FTC in 2015 for operating an alleged 200 million dollar pyramid scheme? Clearly, the so-called standards and ethics are just words written on paper and have no practical meaning. 

And if a company that was recognized by DSA, supposed standards body of the industry (it's not) for "highest standards in business practices and ethics" was accused of being a pyramid scheme within 2 years... What does that say about the rest of the industry?


Message to Mr. Worre and MLM Supporters

Truthiness, a term made popular by Stephen Colbert, is usually defined as 'a quality characterizing a "truth" that a person making an argument or assertion claims to know intuitively "from the gut" or because it "feels right" without regard to evidence, logic, intellectual examination, or facts'

After examining the facts available, it's quite clear that Eric Worre's reaction stemmed from truthiness, not truth. He had lived his life around MLM. He now lives off MLM as a motivational speaker and trainer. 

His various "rebuttals" to Dave Ramsey are based on incomplete hypothetical scenarios that does not exist in real life. And his conclusion claiming the other side is using innuendo to slander MLM is not only uncalled for but a gross misinterpretation of the advice given. 

He heard only what he wanted to hear (OMG Dave Ramsey hates MLM) and posted a "gut reaction" based on factoids, not facts. 

Mr. Worre, you can do better than that. Your followers deserve better. Your INDUSTRY deserve better. 

The past twelve months has been tough on the industry. First Vemma, now Herbalife. 

Yet instead of self-reflection on where did things go wrong, your first reaction is to rebut, to attack, even reasonable even-headed response from Dave Ramsey. You heard only the cautionary tales, and immediately used the "demand for parity" trope. Then you used factoids that are NOT facts and gross analogies to support your viewpoint. 

No doubt you have die-hard supporters who will support you no matter what you say, and I'm a mere blogger. 

But facts are facts. 

MLM is extremely risky and often misrepresented. And it's far more about management than sales. 

Pretending otherwise will NOT fix the industry, but destroy it. 


6 comments:

  1. Most MLMs get around needing to buy back products by using the 70% rule that requires you to sell or use any products you purchase each month. At the end of 6 months or a year you have almost nothing you can return because you have been forced to use the product because you were unable to sell it. Deception is the foundation of MLM.

    ReplyDelete
    Replies
    1. Good point, but 70% rule doesn't have to be every month. It's only if they want to force themselves to self-consume the inventory in order to stay "qualified" (but in reality putting money in their upline's pockets). If they are spending beyond their means (i.e. buying more inventory than they can sell, then pretend to have sold them, i.e. lied to the company) then they have been mislead and/or complicit in their own financial ruins. Yet they could not have "figured" this by themselves, but were probably "taught" such tricks by their machiavellian upline (who clearly did NOT have their welfare in mind).

      Delete
  2. good job deconstructing worre's bullshit.

    ReplyDelete
  3. It's kinda funny that Worre went off on Ramsey-- because I've long felt, and still feel, that Ramsey is too easy on MLM.

    It was due to the way Ramsey talked about MLM that made me (once) think that Herbalife might be ok. This was before I understood about the nature of a Pyramid scheme-- I mean I had seen it talked of before, but I had never seriously looked at the possibility that the common folk were getting routinely messed over by a wolf in sheep's clothing.

    I feel like I'm rambling again.

    Summary: IMHO, Ramsey is soft on MLM. And he probably legitimizes it a lot more than many realize. Sure he says you have to look at it as recruiting. Sure he says most fail. But he also *always* mentions that he knows folks that make seven figures.

    Anyone that *wants* to be sold will hear just what they want to hear and feel that Dave just endorsed MLM.

    So Worre is probably kind of dumb. Or maybe, if we're very lucky it might be he's just too rattled to hear clearly right now.

    --
    Furry cows moo and decompress.

    ReplyDelete
  4. nice where did you get your source on the percentage business startup and failures? from one source? how reliable

    ReplyDelete
    Replies
    1. The source is SBA stats for past three decades. SBA, as you may remember, is a part of the Federal Government.

      Any other questions?

      Delete