Monday, December 23, 2013

Bad Arguments: Misrepresenting Pyramid Schemes, esp. by people who should know better

Some of the most persistent bad arguments presented by network marketers (not just noobs, but also many veterans) are various misconceptions about pyramid schemes, and using those misconceptions to explain how network marketing is NOT like that. However, that explained nothing since the rebuttal is based on a misunderstanding.

Today, we shall explore a website called "Engineered Lifestyles" by a guy named Jamie Messina, who claimed to be an automotive engineer before getting bitten by the network marketing bug. You'd think that an engineer would know about a bit of critical thinking... but let's look at the evidence, rather than presumptions.

Okay, what does Jamie Messina say about pyramid schemes? This can be found at:

For a page with the title "Recognizing Pyramid Schemes, and subtitle: Is MLM a Pyramid Scheme?", the page is surprising light on information, as there is not a proper definition of pyramid scheme on this page at all. Instead, the entire page is actually a sales pitch about network marketing in an attempt by pointing out the pyramid like structure is all around us therefore a pyramid shaped organization is nothing to be afraid of.

While technically correct, that pyramid shaped organization is all around us and nothing to be afraid of, it is IRRELEVANT as it has NOTHING to do with a "pyramid scheme". This is a very common obfuscation defense even by famous "advisors" such as Robert Kiyosaki. A pyramid scheme is a type of FINANCIAL FRAUD and nothing nothing to do with organizational shape of an organization.

Jamie has gotten off to a bad start. Let's see if he can redeem himself in the second half...

Unfortunately, the second page revealed that Jamie Messina was bitten by the "recruiter" type of NM bug... that he doesn't care about sales. Remember, it's called network "marketing" for a reason, yet there's nothing here about sales or marketing. Instead, it's all about recruiting. This particular paragraph from his 2nd half really illustrates the point:
Alice Krige as the Borg Queen in First Contact
Alice Krige as
the Borg Queen in First Contact
(Photo credit: Wikipedia)
Below you will be your frontline distributors / associates. These will be the individuals that you personally sponsor. They in turn will start to sponsor individuals just as you have. However when they sponsor a new distributor / associate it is their frontline distributor / associate and your downline. As there are more people below you this will benefit you from leverage and duplication.
"Leverage" and "duplication"... Sounds like the Borg, doesn't it? All they do is hit more creatures with the Borg nanoprobe, which takes them over, and turn them into more Borg.

Note that there's no mention of the word "sales" or "marketing" in the article at all. NONE WHATSOEVER (other than "network marketing", which is not defined)

It's all about recruiting more people, and have the people you recruited recruit even MORE people. (Marketing? What marketing? Just recruit more people!)  Just like the Borg.

Yes, I may have exaggerated somewhat, but only somewhat.

It's clear that Jamie Messina has absolutely NO understanding of what network marketing is other than what his upline told him directly or told him to read (which would be MLM marketing books)

In a way, I don't blame him, as he's obviously taught by someone who were taught by... recruiters. Somehow he doesn't see what he taught was... offbase.

Network Marketing is marketing first, network second. Network is used as an adjective to modify "marketing". The idea of network marketing is you can interact with your customers, and if some of them are helping you make sales, and may be looking for extra income, THEN you can recruit him/her to help you make more sales. You should be picky / choose-y when it comes to who you recruit, which should be a tiny fraction of who you sell to. Clearly, very few people are good at sales, and even fewer knows how t spot such talents.

Yet recruiter type MLMers proliferate because they THRIVE on replication... like Zombies or the Borg. They replicate / network first, market second. Even NM veteran commentator Len Clements (who is pro-MLM) had lamented about why are a lot of MLM training "Bass Ackwards"

And with the Internet, every such "yahoo" has a voice... and it's up to you to figure out whose opinion is based on facts... and whose are based on misinformation and misunderstanding.

And that's why this blog and website exists.
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  1. I suggest you to read this

    1. The problem is Kevin Trudeau is going back to jail for breaking his promise to court (i.e. "Contempt of court") rather than running that pyramid scheme called GIN. So anything FTC said is not exactly proven in a court of law... yet.

  2. So at the end of the day, the question still remains:

    Pretty much every MLM company out there (At least the ones I know) operate the same way: You get a guy who gets X amount of people, and each of those get X people each and so on. The money is not on selling the product, but on selling the opportunity, and due to our greedy nature, we all fall for the easier way of making money: recruiting people. Thus, it becomes an endless chain of recruitment, AKA a pyramid scheme.

    Mathematically, we know it's wrong because a large bunch of people lose money to only enrich a very few.

    For me, three questions arise:

    * Is there such a thing as an ethically correct MLM company?
    * Even if we followed the rules and enforced them (Such as the Amway rules), is it possible to keep the MLM industry clean from crooks? I've seen that a lot of MLM'ers are crooks in the end due tot he nature of this business.
    * What should we do with this business model? Should we just outright ban it?

    So many questions and so few answers.

    Keep up with your blog. You're doing a great job.

    1. Merry Xmas to you.

      A1) Supposedly a pure "direct sales" company, with properly tracked RETAIL sales, and bonus pay out over very few levels (i.e. reward retail sales, i.e. big retail sales, not lots of little sales) would work. As I haven't studied every MLM under the sun, I don't know if the such a thing exists or not. I can't rule it out, but I haven't seen one.

      I think I had a discussion with the folks on SaltyDroid's comment section on this "unicorn" business, and that I may be providing "false hope" to people chasing this unicorn dream biz. I understand their concern, but I don't deal in absolutes.

      A2) Due to the way the law is enforced (or unenforced), such as the Omnitrition case and lack of enforcement of the retail sales provision in Amway safeguard rules, the big MLM companies have gotten complacent and allowed people to setup those lead generation companies like the Amway tool scam feed off Amway itself. Add to serious lack of media attention (except NY Post and The Verge, who seem to be the only two seriously covering the "underside" of MLM) had emboldened those "crooks" to take over top of the business, and they in turn, encourage more crooks (by accident or intention) to rise to the top of the biz.

      One of these days I'll discuss in my blog the psychology of a MLMer... are they narccisistic sociopaths and why do those people end up in MLM.

      A3) MLM is due to a HUGE legal shakeup. I don't think an outright ban is needed for that. There just needs to be better transparency (i.e. how much real 'retail sales' is there vs. sale that ended up at the distributor and no more).

      I think the existing laws just need to be ENFORCED better, rather than overturned wholesale. The question is enforcement costs.

      Perhaps the problem is with the DSA, as instead of really enforcing the Amway Safeguard rules on its members, they are instead, really a lobby organization for the MLM companies flying that "DSA Ethics Rules" banner. I asked earlier a theoretical question on why doesn't DSA recognize the danger of modern "product-based pyramid schemes", but few people seem to have noticed. :)

    2. Perhaps there needs to be a special "MLM Tax" to pay for an independent agency that's under the aegis of FTC, but paid for by dues collected through the DSA, and basically require EVERY MLM to join the DSA (and any one who doesn't is automatically illegal). The MLM tax will be used to run random audits of retail data, through electronic submissions of sales data, with fines for non-compliance.

      yes, it's another agency, but if DSA won't control MLM industry, someone has to.