What to Do If You're Being Recruited: Ask for Schedule C

Dave Ritchie over at RealScam.com had an excellent suggestion for a very quick "due diligence" test: ask for their "IRS Schedule C", which is where their sole proprietor income will be reported, and most MLM income will be reported as schedule C. (Corp or partnership income are reported slightly differently, but if they are serious they should have equivalent documentation)

Once it becomes apparent your encounter with anyone is or will be taking place in the context of their role as an MLM business opportunity seller, control of your part in the encounter is completely in your hands. Simply ask the seller to defer their pitch (interrupt if you must) and inform them that it’s your practice to require reliable and objective evidence of a business opportunity’s viability before you invest your time listening to an entire presentation. 

The evidence you will request is a true copy of your seller’s most recently filed IRS Schedule C for their MLM business. Line 31 shows their “Net profit or (loss)”. If this figure is positive, the proposition may merit further investigation, although you’re not necessarily safe. If on the other hand, line 31 shows a net loss, you’d be wise to assume that you too would sustain net losses in the same business. 

This test is so simple, you can remember it easily. The penalty of filing fake tax return should make most people hesitant to pass you a fake document.

Go read the full suggestion as it goes into a bit more detail on how to follow up when your recruiter start to hem and haw, or have his/her jaw drop as s/he tries to find the relevant counter in his/her sales script.

http://www.realscam.com/blogs/dave-ritchie/375-simple-strategy-distinguish-between-mlm-business-opportunities-bankruptcy-opportunities.html

Why Is DSA Trying to Destroy Network Marketing Through Denial? (Redemption is still possible!)

Previously, MLM Skeptic has asked a hypothetical question: why does DSA ignore the threat of 'product-based pyramid scheme' to network marketing?   By pushing 3 myths that are not reality, DSA has basically denied there is a problem with network marketing.

While browsing through some documents related to Omnitrition case and self-consumption (aka internal consumption) I found a document that proved DSA's denial is much deeper, and that may lead to total destruction of network marketing as we know it. It's quite alarming... but if they persist in this denial, it is quite possible.

The denial is the threat of Omnitrition case to the current state of network marketing, which is nothing like the way network marketing was back in 1979, when Amway settled with FTC and created the "network marketing industry".

Seal of the United States Court of Appeals for the Ninth Circuit. (Photo credit: Wikipedia)

DSA's official position is that everybody should just FORGET that Omnitrition lost the case in the Court of Appeals, Ninth Circuit. It doesn't mean anything, they said.

Omnitrition case was not a final adjudication of the case but instead remanded the case to the trial court for final resolution. The decision was interlocutory in nature, and its dictum cannot be cited as law or even as a statement of generally accepted
opinion.

and self-consumption is perfectly legal.

...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity. 

Both interpretations are problematic at best, totally illogical at worst. Let's see why.

MLM Absurdities: To a Recruiter, There Are No Customers (Just Potential Downlines)

Previously, MLM Skeptic has posed the question... Why had network marketing lost its will to retail?  It was more of a hypothetical question as network marketing should be all about retail, but it seems that many network marketing firms had morphed into "product-based pyramid scheme" (PBPS) that seem to be making a lot of sales, but has no proof that it was actually retailing (most if not all) products to the end consumers. Instead, they are selling products to their distributors... and from there, they don't care any more. They'd love to have the distributors to consume all of the products, and in fact, DSA had fought so, by getting several states to adopt anti-pyramid laws that specifically legalized self-consumption, and DSA said about internal consumption (i.e. self-consumption)

...compensation received by salespeople for products they themselves buy and use, and those bought and used by other salespeople within their organization, is a legitimate, legal and ethical practice and not evidence of illegal pyramid activity. 

http://www.dsa.org/ethics/internalconsumptionwhitepaper.pdf

DSA, by adopting the position, has undermined its own position that network marketing is about retail, by allowing distributors to take "shortcuts" to sales goals by buying products themselves. Without audits and limits, self-consumption leads to product-based pyramid schemes.

Somewhere along the way between 1979 (FTC vs. Amway) and now, MLM had lost its soul along the way, by forgetting about retailing, but instead, embraced "self-consumption" and fudging numbers, and probably a bit of willful ignorance, i.e. we don't know about how much we retail because if we know, we may find ourselves illegal.

Part of the cause is the rise of the recruiter-MLMer, previously identified in "6 types of MLMer", and they helped PBPS along by playing loose with the rules.

But first, let us discuss what is the "ideal" MLM, and how far had the modern MLM wandered from that ideal.

MLM Dictionary: Omnitrition Case

The term "Omnitrition Case" refers to "Webster vs. Omnitrition" class action lawsuit that was argued in 9th Circuit Court (of Appeals) in 1996.

Explaining the Case

(editor's note: I am not a lawyer, so you can read the full case, and summaries by several MLM attorneys and MLM critics near the end.)

Omnitrition was started by Roger Daley, who had previously worked at Herbalife in the 1980's, and may have known Mark Hughes, founder of Herbalife, quite well. When Herbalife hit a rough patch, Daley went off on his own with a few close Herbalife fellow sellers and created OmniLife 4, a liquid supplement formula that became the foundation of Omnitrition International. Later, when Omnitrition hit a rough patch,  in the 1990's, he was served with multiple lawsuits, including the Webster vs. Omnitrition.

Shaun Webster and Robert Ligon worked for Omnitrition until they, in 1992, decided to sue Omnitrition International, a MLM selling vitamins and such supplements, charging it as a pyramid scheme. The case gained "class action' status, as it sought relief for all similar reps who had allegedly been cheated by Omnitrition. Webster also charged Omnitrition with violations of securities law as well as violations of California's "endless chain" (pyramid scheme) laws, as well as various other laws such as RICO (racketeering), wire and mail fraud, etc.

At the time, Omnitrition's comp plan has distributors (no multi-level commssion), and various ranks of supervisor. Lowest rank, "bronze supervisor" requires $2000 order in one month, or $1000 orders over two consecutive months. The order goes to Omnitrition.  (Omnitrition's comp plan is very similar to Herbalife's comp plan, because Daley used to work at Herbalife)

Omnitrition's defense is that it had followed Amway Safeguard Rules and thus it cannot be a pyramid scheme if Amway was ruled not a pyramid scheme by the FTC (per FTC vs. Amway).

District Court ruled in Omnitrition's favor in 1994, granting it a summary judgement ("Not pyramid scheme") and thus essentially dismissing the lawsuit. Webster appealed.

The 9th Circuit Court of Appeals reviewed the case in 1996 and found that the district court have ruled the summary judgement in error in not considering sufficient evidence. However, it had also ruled that some additional charges brought against Omnitrition's lawyers and such are not valid and the summary judgement issued by lower court for those are affirmed.

MLM Basics: Why Had Network Marketing Lost Its Love of Retail?

Modern network marketing companies lost their love of retail, and thus its primary purpose.

According to the law and their implied purpose, a network marketing company's purpose is to retail stuff through their affiliates (IBOs, distributors, counselors, salespeople... whatever). However, few if any of modern MLM's verify that the products they sold to their affiliates are actually retailed. Almost all network marketing companies merely require a signed "promise" from the affiliates that they promise to honor the Amway Safeguard Rule #1 "Retail Customer Rule". And without retail, the common affiliates's only income would be to recruit additional affiliates (who also do not retail, since retail is hard). If you extrapolate this out, you have a bunch of salesepeople who sold stuff to themselves, while recruiting yet more people like that. That would make it a pyramid scheme.

The Omnitrition Case and Lack of True Retail

In the Webster vs. Omnitrition case, Webster, an affiliate of Omnitrition, sued Omnitrition of being a pyramid scheme. The company responded by asking the court for a summary judgment, i.e. "Court, please tell me (and whoever sued me) I am NOT a pyramid scheme! I use Amway Safeguard Rules! I can't be!" After looking at the evidence,  the court ruled that if the company (Omnitrition) does not audit actual retail, then the company cannot use this "signed promise" to prove they are not a pyramid scheme. Omnitrition then immediately settled the lawsuit with Webster, as they apparently find paying off Webster, et al. to be easier than actually auditing their retail.

Yet dozen years after Omnitrition case, no major network marketing company that I know of, audits retail.

The implication is mindblowing: virtually all major network marketing companies in the US are in danger of being declared a pyramid scheme, despite their claimed adoption of Amway Safeguard Rules that supposedly separated network marketing from pyramid schemes, because they do NOT audit retail.

When Herbalife was first accused by Bill Ackman to be a pyramid scheme at the end of 2012, Herbalife cannot cite how many retail customers it has. Even now in 2014, Herbalife is STILL citing the retail number it EXTRAPOLATED from surveys it conducted in 2013. Herbalife cited a lot of ancillary numbers, like "amount of products directly shipped to non distributors" (31% IIRC), but it has NO RETAIL NUMBERS.

Herbalife classified their ranks by amount of downlines they have (no downline, single level downline, multi-level downlines), and claimed those with no downline are "customers", and those with single level downline are retailers.

THIS MAKES NO SENSE. By definition, EVERY distributor, no matter if they have downline or not, ARE RETAILERS, if the company was following the Amway Safeguard Rules!

Herbalife also produced survey results in 2013 that claimed 44% of its distributors have NO INTENTION OF RETAIL PROFIT, and 73% PRIMARILY JOINED FOR 25% DISCOUNT.

Why would a company NOT encourage retail, which is at the heart of network marketing?

Because lack of retail enrich those at the very top of the company and the company itself, with minimal effort and expenses needed all the way around (company or affiliate).

Guest Post: Vemma and Napoleon Hill's "Think and Grow Rich" Part 1 of 6

Cover via Amazon

Many self-proclaimed financial gurus are fond of quoting Napoleon Hill's "Think and Grow Rich". I have that book around here somewhere, along with Dale Carnegie's "How to Gain Friends and Influence People". Those two books, along with "Rich Dad Poor Dad" sort of became must-have books in recent years, for income seekers.

However, it appears that many people have been quoting Napoleon Hill out of context.

"SlayerofScams", a fellow scambuster on IGN, had this to say about people who wrongly applied the sound advice of Napoleon Hill. Here is part 1 of 6 of his "Napoleon Hill, from beyond the grave", which is reposted with his permission. Content's unchanged except a few bits of editor's note, and slight formatting changes.

----------

SlayerofScams / Dec 30, 2013.

I have discovered that Bob Proctor is one of Vemma's most notable shills and that his wife, Linda Proctor, has been given a prominent position within the Vemma pyramid. Proctor disgraces his former good name and defecates all over whatever legacy he might have otherwise had by promoting the illegal pyramid scheme that is Vemma. Because of that foolish decision, Bob Proctor will now forever be remembered in history as nothing other than a lowdown dirty scammer.

(editor's note: Bob's daughter Colleen Filicetti, has the same Vemma rank as her stepmom, Linda: Ambassador, making about 15000 per month.)

Over the weekend, I was watching an old Proctor seminar video (it looked to be from the late 1980's although I am not sure exactly when it was released), in which he basically paraphrases the 1937 book by Napoleon Hill, Think and Grow Rich, along with a few other books. In that seminar Proctor appears to be a respectable guy. That seminar presents some good ideas (although Proctor admits that the ideas are not his own).

Then I watched a video of Proctor shilling at a Vemma convention from 2013, and presenting those same ideas that he presented in the old seminar, in order to justify Vemma as a great company, and to justify all of Vemma's victims as winners.

Proctor was one of the people behind The Secret which was big about 6 years ago. The Secret is basically a plagiarization of Hill's book, albeit The Secret also cuts out a vast majority of the sensible advice that Hill claims (many times!) to be mandatory parts of his book. That is why reasonable people usually condemn The Secret as crazy rubbish, whereas Hill's book remains famous and popular to this day.

In Proctor's seminar and in his Vemma convention shilling, Proctor directly gives credit to Hill and Hill's book, professes his undying love for Hill's book, and tells all his fellow Vemma shills that they too should get and read Hill's book.

All of that has led me to start to read Hill's book.

Here is some good news: Hill's book is in the public domain and so it is legally free for anyone to get and read. Here is a link to it:

https://archive.org/stream/Think_and_Grow_Rich/think-and-grow-rich-napoleon-hill_djvu.txt

To address the sane readers of this thread: for personal interest, you might want to read that book for some sensible advice on how someone, maybe yourself, might possibly get rich (of course, no guarantees exist). I am sure many of you have read it already. To give a brief summary of Hill's book: Hill interviewed Andrew Carnegie, and Carnegie introduced Hill to most of the richest men in America during Hill's lifetime. Hill spent 25 years interviewing them in order to learn their secrets and find out what they had in common, so that he could present to his readers a sound theory about how someone might get rich.

For the remainder of this post, I will address not the sane readers, but rather, the Vemma shills/victims.

MLM Absurdities: How Scam Evolve Around MLMs and Pseudo-MLM Scams

Previously, MLM Skeptic have pointed out that many so-called "legitimate" MLMs have scams revolving around them in what's known as "lead generation" companies. They work by sending out teases to large number of people by selling them bogus "business starter kits", then sell the info of these people who bought a kit to affiliates desperate to sign people up. Company benefits twice. (Read full details on the Verge)

Herbalife had realized this and in 2013 have disallowed the use of most lead generations companies, esp. those ran or have close ties to its own affiliates. According to its own affiliate agreement, affiliates are prohibited from selling leads to each other, but these lead generations companies had NOT been scrutinized... UNTIL Ackman raised the pyramid scheme allegations.

While the Herbalife situation is rather unique, in that Shawn Dahl's company is a clone of his mother-in-laws pyramid operation outlawed in Canada (also for Herbalife), the phenomenon of creating potentially ILLEGAL business around supposedly legitimate companies is hardly unique to Herbalife.

Let us explore the underbelly of network marketing... You will learn about:

• How "fake" lead generation really works
• How "sales aid" companies perpetuate the "tool scam"
• How top affiliates get rich from training other affiliates
• How feeder matrix schemes feed pyramid schemes
• How fake ad posting requirements in Ponzi schemes spawn ad posting companies

Let's get started... First stop... How "fake" lead generation really works...

BREAKING NEWS: Herbalife may also be under investigation in China

When reports of NuSkin representative's alleged misconduct surfaced in Chinese media back in June and July 2013 in China it received little western media attention. However, when the Chinese Communist Party media People's Daily repeated the allegations, and called for local authorities to investigate and stamp out pyramid schemes and pyramid selling, western media noticed, and NuSkin stock took a dive, and Herbalife stock also took a dive because it's already under attack in the US. 

Turns out, Herbalife may be under more direct threat than people realized, as NYPost managed to find a report in August 2013 in First Financial Daily (of China) that Herbalife reps in China encouraged front-loading and thus is in violation of anti-pyramid-selling laws in China, among other potential law-breaking.  Quoting from the report... 

Recently, First Financial Daily discovered through private investigation that, while Herbalife is fast growing in the China market, its sales model is suspicious in five respects: collection of "recruitment fees" in disguised form, suspected exaggeration of  product effects, possible windfall profit derived from products, fast growing clubs absent of strict supervision and control, and product purchase overly dependent on sales representatives or potential sales representatives…… A series of issues have deviated the direct selling model of this company, and have contradicted with certain provisions in the "Regulations on the Prohibition of Pyramid Selling" promulgated and implemented by the State Council in 2005. As a result, suspicion has been brought up that Herbalife's sales model is a pyramid scheme. 

The specific offense mentioned first in the report is reps are required to buy $2000 USD worth of Herbalife products to join. They're told that 1) it's easy to sell, 2) it demonstrates that they are serious about this opportunity, and 3) there are plenty of people who want to join and only limited positions available.

There's a lot more.

Bad Propaganda: Perpetuating Myths and Misunderstandings to Deflect Criticism

Editor's Note: This is start of a new segment 'Bad Propaganda' where I will analyze bad propaganda used by various MLM promoters who, whether intentionally, or by accident, or perhaps, even ignorance, perpetuate myths, misunderstandings, half-truths, and "spin" to promote their MLM when they don't have to. I've done this several times before, but usually as some sort of rebuttal (for Wazzub, Zeek, TVI Express, and other scams). This will make it a new 'regular feature'.

When a new MLM recruit wants to express their enthusiasm for their new venture, one of the things they do now is create a web page, esp. if they wish to market online. And one of the frequently asked questions asked about many MLMs is "isn't it just a pyramid scheme?"  There's the right way to answer it (explain the Koscot test and why MLM does NOT fit the Koscot test... if done correctly)... and then there is this way... done by a Vemma Rep.

In order not to embarrass him too badly, his name will not be used, and URL will NOT be included (don't want to give him any LinkJuice), but you can see a picture of his web page below...

The title is "Vemma : Scam or a legitimate opportunity for you and your friends" by "Nick".

From here on, his stuff is in blue, and my counterpoints will be in red.

You might be wondering if there is an opportunity to make money with Vemma, or if the Vemma scam allegations are true. Don't worry you have come to the right place seeking answers so look no further.

Wow, he claims to be the ONLY place on the web to offer answers about Vemma, look no further! This guy is full of himself, isn't he?

Nick (censored) is a 21 year old adventure seeker, who went from scrubbing dishes at an old hospital for minimum wage to traveling the Northwest and has built a distribution network of close to 1,000 people in the past 12 months. He has inspired young entrepreneurs into taking charge of their lives, and isn't afraid to challenge the status quo. CLICK HERE to learn about how you can become one of the next success stories on his team, and work personally with Nick and the other leaders of Treasure (censored) Vemma.

The standard rags-to-riches underdog story that appeals to the "rebel youth" crowd. 

   There are many Vemma reviews on the internet that make claims about the company, and for someone who wants to cut straight through the BS you need answers. So lets get to the bread and butter, but know that multi level marketing scams are hard to detect so in this article I will help you swim through the sludge of information on the web.

    In order to confirm or deny if Vemma is a scam you need to understand what the company is. They are a health and wellness business based out of Scottsdale Arizona. Founded in 2004 by Bk Boreyko, Vemma has done over 1 billion dollars in sales over the past nine years. Pretty big for a scam i'de say.

First paragraph is a completely waste of space, as it said nothing. Second paragraph started off wrong. To know whether Vemma is a scam, you need to define what a scam is, not what Vemma is. That comes second.

That was segued into a "too big/old to be a scam" myth, though he did couched it as a personal opinion, bad spelling and all.  Go look up FHTM should tell you it lasted 11 years before being shut down by the FTC as a pyramid scheme. Bernie Madoff's ponzi scheme took even longer. Both are much bigger than Vemma. Clearly, Nick had NO IDEA what he was talking about. 

But wait, there's more! Lots more!

The Real Reasons Why Network Marketing Needs Reputation Management

It's interesting how the topics in this blog suggest themselves: why network marketing needs reputation management. It's not because there's a bunch of "meanies" out there... though there are. It's usually because they have some actions that looks shady, and people will point that out.

Recently, a company called BidForMyMeds was reviewed on BehindMLM. The company employed a whole slew of questionable conduct, including listing some other company's management as if it's their own, and implying a far tighter integration between the two companies than there actually is.  The truth is BidForMyMeds is a marketing company that markets BidRx through MLM. However, BidForMyMeds at many times implied that they are BidRX, and borrowed various BidRX media as if that is them.

So Oz / BehindMLM published the review with the questions, wondering if BidForMyMeds is really authorized to by BidRX as it is not behaving ethically. Within hours, Oz was sent a "cease and desist" email by BidForMyMeds' lawyer who demanded the review be taken down. Oz, who knows his rights, put the threat online instead, with even MORE questions and other information received, revealing that BidRX has multiple marketing partners, none of them pretended to be BidRX. And the MONTHLY fees ($7) that BidForMyMeds charged is almost 300% the cost charged elsewhere for BidRX ($2.50), and so on and so forth. AND if you pay even more ($17), you can benefit from recruiting other people who also pay the monthly fee.

That alone takes it into the potential pyramid scheme territory.

Then Kevin "The MLM Attorney" Thompson posted an entry on his blog about Cease and Desist.. cited Oz's reaction, then discussed when C&D should be used, and when it's an empty threat.

In the comments is a Mr. Jonathan Gilliam of Momentum Factor, touting their reputation defense can deal with "online Meanies".

...Our reputation defense team similarly serves
at the front end of a company's need to "do something" to combat online
Meanies. Lawsuits as you know are often just too distracting, involved and
expensive for some CEOs.
The good news is, companies CAN
defend themselves, often without the Meanie even knowing, via online
suppression strategies...

In other words, he just spam-commented a lawyer's blog with an ad for his firm. :)

And he basically claimed that he can "bury" negative comments through "suppression", which may or may not involve shill reviews. :)

But what's *really* surprising is what sort of people would employ Mr. Gilliam's firm...

BREAKING NEWS: NuSkin suspends recruitment meetings in China (until further notice)

Amidst charges by Chinese government that its agents are running a pyramid scheme, NuSkin today announced that it is suspending all recruitment meetings in China (until further notice).

NuSkin is an American MLM but operates as direct sales in China... officially. However, many local newspapers have reported, since June 2013, that many NuSkin sales teams actually operate as Multi-level Marketing, which is ILLEGAL in China, complete with pyramid organization. Many were alleged to also make fradulent health claims, and employ cult brainwashing tactics on participants.

NuSkin announced only hours ago, on 21-JAN-2014 that it will suspend all recruitment meetings in China pending further review of training, and blames a few overzealous reps of using unethical tactics to drive sales. It maintains that the reports in Chinese newspapers are exaggerated and are not typical of its presence in China.

Critics noted that it does not preclude person-to-person recruitment.

http://www.businessweek.com/news/2014-01-21/nu-skin-to-review-china-practices-after-pyramid-scheme-claims

Related articles

• MLM Dictionary: Pyramid scheme
• MLM Dictionary: Amway Safeguard Rules
• Bad Arguments: Misrepresenting Pyramid Schemes, esp. by people who should know better
• MLM Mythbusting: Does Having a real product prove business is not a pyramid scheme?

MLM Mythbusting: Does Having a real product prove business is not a pyramid scheme?

One of the most often repeated myths spoken in the network marketing industry is "we have a product, therefore we are not a pyramid scheme". In fact, this position had apparently been adopted by Direct Selling Association itself. Here's one example:

Is this myth confirmed, plausible, or busted? Let's examine a few things:

• Is there an example (or more) where a proven pyramid scheme (closed by FTC or other authorities) have real, actual, non-woo products? 
• Does the definition of pyramid scheme precludes the existence of real non-woo products? 

Let's get started.

MLM Dictionary: Koscot Test

Koscot Test was a 4 part test that determines whether the business or a scheme is a pyramid scheme. It was established in 1975 in the court case "FTC vs. Koscot Interplanetary" i.e. 86 F.T.C. 1106, 1181 (1975) "Koscot".

Koscot Interplanetary is a part of "Glen Turner Enterprises", ran by Glen W. Turner (who's still around!). Despite the fancy name, Koscot sells "Kosmetics (sic) for the communities of tomorrow!"

Original charges from the FTC was filed in 1972, and the trial started two years later. During the trial, the court created what's known as the Koscot Pyramid Test, often shortened to Koscot Test. It has four parts:

(1) Payment of money to the company;
(2) The participant receives the right to sell a product (or service);
(3) The participant receives compensation for recruiting others into the program;
(4) The compensation is unrelated to the sale of products (or services) to the ultimate user.

Koscot case has been referred to in every suspect pyramid scheme case since.

Bad Argument: If it were a scam it would have been busted by cops long ago!

Previously we had covered the bad argument: Wall Street Legitimacy Gauge, where being traded on Wall Street, for a long time, was used as "proof" of legitimacy when it's proven that Wall Street don't care as long as the stock prices go up.

Today we'll cover a parallel bad argument: because the government(s) haven't closed them for such a long time (5 years, 10 years, or even longer) they must be legal beyond reproach.

Very often, the fact that the network marketing company had been around for more than 5 years was touted by some of the most junior reps as a sign of legitimacy (both to themselves and to others), with an implied corollary "If they were illegal government would have shut them down long time ago!"

If you put it in the A therefore B form, it would be

a) company has not been deemed illegal for X years
therefore
b) company will never be deemed illegal in the future

Logically, this doesn't fly, as it's "appeal to age/tradition" fallacy.  It is... because it always had been. That's not a reason, that's just a statement.

Frankly, there is one example in 2013 that easily disproves this bad argument... Fortune High Tech Marketing, otherwise known as FHTM. FHTM was founded by Paul Orberson in 2001, and closed by FTC and several state attorney generals in January 2013. Took the authorities 11 years to close this pyramid scheme.

However, the problem apparently was even more endemic than that... the problem is the authorities... In that the victims have to complain for the authorities to act... and Pyramid/Ponzi schemes are very good in keep its victims in the dark with the mushroom treatment.

Bad Argument: The Wall Street Legitimacy Myth

One of the favorite arguments by proponents of network marketing is "Look at how big Amway is! And Herbalife! And Mary Kay! And Avon! And ______! Their stock prices keep going up! If they were a scam Wall Street would have never invested in them!"

A more recent version would cite Herbalife as an example, such as "Herbalife a pyramid scheme? Wall Street don't see it that way! Herbalife stock has MORE THAN DOUBLED in price since Ackman's accusation!"

While it is true that price for Herbalife stock (HLF) has indeed rose from 25's to 60's in 2013 (Ackman's accusation was in late 2012) one must question... Are the two even related to each other...  i.e. "price of stock" vs. "morality / criminality"?

Perhaps John Hempton of Bronte Capital put it best when reacting to Ackman's accusation in January 2013:

I agreed with Bill Ackman that Herbalife is mostly about ripping off distributors and people at the end of the chain. The product is more than twice as expensive as competitor shakes. I called Herbalife "scumbags". 

But they are highly cash flow positive scumbags and they will use the cash flow to buy back shares. Over the past five years the share count has gone from 140 million to 108 million and will fall further. 

They are scumbags then - but they are scumbags working for stock market investors.

In other words, as long as the stock prices keep going up, Wall Street wouldn't give a f*** about the company being scumbags.

MLM Dictionary: Autoship

Previously a commenter asked me if I can put up a glossary page where some of the terms I often use are defined. I haven't thought about it for a while, as at the time adding to a page over and over sounds a bit... boring. Then I realized... why not define the term as a blog post, and link to relevant articles if I already discussed it?

Meet the new segment: MLM Dictionary

Today's term:  

Autoship (n)

Autoship refers to the periodic "subscription" of products shipped from company to you and your account is automatically debited. The amount is usually just sufficient to meet the minimum sales quota to stay qualified for certain amount of sales commission or rank level.

DSA code of ethics require DSA members to honor cancellation of autoship as well as accept returns of merchandise with a clearly defined return policy (usually it's 90% of price paid within 6 months). 

Usage: New affiliates are highly encouraged to enroll in "fast start", which includes autoship of 1 unit of product XYZ every month, thus qualifying you for rank of "supervisor" immediately.  

Analysis: Autoship is a somewhat controversial practice that has attracted attention of critics. 

MLM Absurdities: MLMers Encouraging College Kids to Drop Out and Do MLM Full-time... Crazy.

One of the most dangerous absurdities is the notion that MLM offers an even playing field, therefore you need NO education to succeed in MLM, and thus, college is not necessary and a complete waste of money (thus you should drop out). Plenty of people dropped out of college and went on to successful ventures.

This is often used by MLMs that concentrate on younger people, such as Vemma, with their Verve energy drink line, signing college kids and even some high school kids as their affiliates (formerly "brand partners").

We have to look at this myth in separate pieces.

• Does network marketing really offer a level playing field? 
• Can *any one* succeed in network marketing? Or is talent / education required?  
• Is College a waste of money? 
• Are the the successful college dropouts actually relevant to the premise? 

Does Network Marketing Really Offer a Level Playing Field for All? 

One of the often repeated myths is that NM is a level playing field, in that anybody can succeed. 

Frankly, that is absurd. The idea that you have an upline and s/he benefits from YOUR work should tell you this is NOT level at all. He got there first. 

Furthermore, there are a LOT of circumstantial evidence that the industry is plagued by insider advantage and cronyism... just like the "regular corporate America". 

Did you know that a mother-daughter team in Vemma, both "Ambassadors" (making 15000 a month in commissions) actually is related to the head motivational speaker for Vemma, and the speaker is a close friend of head of Vemma BK Boreyko and his parents? 

Did you know that a member of Herbalife's Board of directors has TWELVE family members and relatives among the top-tier "President's Team"?  

Network Marketing is not as level as they want you to think. 

Can any one succeed in network marketing?

I've had network marketing enthusiasts claim that the top income careers all require heavy education or extreme amount of physical talent, like doctors, engineers, sports stars, and so on... Except network marketing.  The claim is anybody can succeed in network marketing, and the playing field is even. 

At first glance, this sounds reasonable, as the top twenty income careers based on US Bureau of Labor Statistics are mostly medical and engineering careers. However, is it true that any one can succeed in network marketing? 

US Bureau of Labor Statistics 2010 "20 highest paying occupations, by median annual pay, 2010 census data"
The top entries are doctors, surgeons, engineers, lawyers, and very senior managers

The idea that you need no education to succeed in network marketing is actually quite ludicrous. At the minimum, you need to learn how to market. It is network MARKETING, after all. While some people have a talent for it, all people need some tests to assess their skills and add some remedial lessons for the areas they are lacking. In a Harvard Business Review blog entry, the author estimated that 70% of top salespeople have innate talent or natural instincts that give them an edge ins ales, while 30% had to learn to sell, having no such talent.   

It's safe to say that if you had not specialized in sales career before, you probably don't have much sales talent or instinct. Thus, let's assume that you have no such talent or instinct. What are your chances of 'success'?

According to the same author, given 100 people with no talent, 40% will fail, 40% will do average, and 20% will do above average, in a sales career.

Keep in mind that in network marketing, in almost every major MLM, "average" means making a lot less than 2000. This is the figure directly from Direct Selling Association (DSA). As of 2012...  15.9 million people sold 31.63 billion worth of stuff in the US.

Now if you do the math... 31630/15.9 = 1989.31 dollars... that's average RETAIL sold per person.

That's not profit. That's just retail sold. Profit would be less than half of that, perhaps a LOT LESS. That's less than $1000 PER YEAR PER PERSON.

Extrapolating from that 40/40/20... That means 40% of you will earn practically nothing. 40% of you will earn just a little (less than $90 a month), and maybe 20% of you will actually earn enough to call it a part-time job. And a tiny percentage of that 20% will really really earn a car or whatever.

Saying that you *can* succeed in network marketing without an education is like saying anyone born in the US of A can be president. While factually true, it is of no practical use. It's like saying any valid lottery ticket has a chance of winning. Duh!

The reality is you will have to spend time and money and effort to become a good salesperson... assuming you have the right personality traits to be one. And you will keep paying for seminars, meetings, training calls, workshops, and so on and so forth, just like any other education.

Also keep in mind that there are TWO colleges in the US that offers courses in network marketing.

New Years Resolution for Network Marketers (and Wannabes)

It's New Year's Eve, December 31st, 2013, and a New Year is almost upon us.

So I'd like to propose some new year's resolutions for the various network marketers and wannabes. Here are 7 simple items.

• I will not be hurried into making a decision I shall regret later. 
• I will not be swayed into making a decision after only hearing a one-sided presentation, no matter how good it sounds. 
• I will learn how promoters use psychological coercion on me and others so I can avoid such 
• I will not make bad arguments by using logical fallacies and irrelevant facts as that would only make me sound ignorant and stupid if I make such bad arguments. 
• I will fact-check and perform due diligence on claims I repeat. I shall remember 'Extraordinary claims require extraordinary evidence'. (Arthur C. Clarke)
• I will learn about pyramid schemes and Ponzi schemes from real sources, such as lawyers and scambusters, rather than people who don't know what they are talking about. 
• I will learn all I can about the career I an interested in, such as network marketing, even "negative" stuff that nobody seem to want to talk about because I don't want to be blind-sided by anything.  

All of these are for personal improvement, and none of them are very hard.

MLM Absurdities: Due Diligence is NOT Analysis Paralysis!

One of the more subtle reality inversion techniques used by scammers (and unethical sales people), and cloned by clueless MLM noobs, is misrepresenting "due diligence" as "analysis paralysis". 

Analysis paralysis usually refers to an organization attempting to analyze a certain proposed project or change and the effect it would have, but so much time and resource was spent on the analysis that the project never was actually adopted.  For an individual, it could be that s/he is attempting to reach a decision, but that decision has so many factors s/he was overwhelmed by combination of scope and interactions and end up making no decision at all.

However, a decision to "not participate because I clearly have no idea what I am getting into" is a decision, and reaching that conclusion is NOT analysis paralysis.

Yet many MLM veterans and noobs will mischaracterize their moment of commitment as "overcoming analysis paralysis". Here is one example from MLMBlonde(dot)com:

Or they may have been polite but also declined and you were crushed
SO you went into what I call "Analysis Paralysis".
You began to question if this could work for you. You start to analyze
your decision.
YOU FREEZE. You begin to think something may be WRONG with you
or you made a bad decision, after all, if those closest to you don't "GET
IT", how you possible speak to a stranger.
You sit back and think and think , and then you just NEVER
get up the nerve to move forward. You lose your excitement. You
just DO NOTHING. 

The problem is MLMblonde had NOT described analysis paralysis. She described "self-doubt paralysis", but slapped the "analysis paralysis" label on it. 

And she's not alone in doing so. Many MLM noobs seem to think any sort of doubt is analysis paralysis, even a full on analysis (i.e. "trust, but verify"). 

And due diligence is NOT doubt. 

MLM Absurdities: Why Do New MLM Businesses Just End Up Cloning Old Scams? (Is Lucrazon a scam?)

 Lucrazon logo via CrunchBase

In studying network marketing and its illegal cousins, the pyramid schemes and the Ponzi schemes, it is sometimes rather disheartening to see that some people just end up reinventing old scams, or are treading so close they may as well as claimed to have reinvented the wheel. Here's one of those cliche quotes to throw around:

Those who cannot remember the past are condemned to repeat it. -- George Santayana

Perhaps in the modern times, it's necessary to add a corollary:

Those who cannot research the past are doomed to repeat it

And today, we shall examine one such biz... a seemingly very upright one... except it seem to be a business model that's a copy of a scam that was closed by the FTC 13 years ago.

That business is called Lucrazon.