Friday, May 20, 2016

Bad Argument: MLM Strawman Arguments Labelled as Mythbusting

A lot of so-called MLM "coaches" write articles to drum up business and recruit downlines, and they have to deal with, what they perceive as "undue criticism" of MLM. However, what they often ended up doing is defeat strawman arguments.

Recently I came across a certain article titled "6 Biggest Myths about MLM -- A Must Read" by Nathan Sloan posted on Network Marketing HQ dot co dot uk.  (Interesting, the URL says 7, so he seem to have lost one in the edit), and it served as a prime example of how MLMers argue... broad insinuations, strawman, this guy used them all.

His myth #1: Pyramid structures are bad

Pyramid SCHEMES are bad. Pyramid structure or pyramid-shaped organizations are not necessarily bad. If a MLMer, even a noob, can't explain the difference between a pyramid structure and a pyramid SCHEME, s/he is uneducated in the MLM fundamentals and his/her upline should be ashamed.

However, instead of explaining this fundamental difference, Mr. Sloan instead pointed out that pyramid structures surrounds us. Basically, he failed to identify the real problem, and instead, went to equivocation fallacy instead. Indeed, this is a common "MLM defense" tactic, present a strawman equivocation with "safe" structures.

Verdict: strawman myth

Solution: Mr. Sloan should concentrate on differentiating pyramid SCHEME vs. pyramid organization. Pyramid scheme is fraud. Pyramid organization is just a shape.

His myth #2: MLM is a Scam

Is MLM a scam? Sloan's explanation is that pyramid schemes are illegal, MLM is not. However, instead of explaining the difference between MLM and pyramid scheme, he simply quoted an OUTDATED definition he copied from "Ultimate Guide to Network Marketing" without attribution. And yes, I have this book on my bookshelf. That's how I recognized it. It was published more than 10 years ago (2005).

For the record, MLM in its current form was created in 1979 when Amway settled with American Federal Trade Commission to institute several reforms (today known as the "Amway Safeguard Rules") in order to keep on operating. The short of it is, the difference between MLM and pyramid scheme is MLM NEVER pays on recruitment (but there are ways to disguise the payment). This is what Sloan failed to address.

However, Sloan then went on to knock down another strawman. He claimed that any one who said MLM is a scam are lying to cover up their laziness and failure. This is in clear contrast of several pyramid schemes that presented themselves as MLM that were shut down. FHTM (shut down 2013) and Vemma (shut down 2015) are just some recent examples. By ignoring a prime example where a scam MLM did operate, Sloan is guilty of lying by omission AND a strawman, not to mention victim-blaming.

Verdict: strawman fallacy, lying by omission (or ignorance), plagiarism, unsupported argument (did not explain difference between pyramid scheme and MLM)

Solution: Sloan should acknowledge that many MLMs are done fraudulently, and attempt to explain the real LEGAL differences why MLM is not a pyramid scheme. Simply quoting a definition is not defense without explaining how that applies to your defense.

His myth #3: People are just in it for themselves

He claimed that people introducing products to you are indeed trying to make money from you, but then any salespeople do that, so that's not a valid point of criticism. While what he explained is true, it is, again, guilty of omission.

There are TWO general types of MLMers... sellers, and recruiters. A seller genuinely wants to sell you a product first, have you joined his/her sales team second (if ever). A recruiter, on the other hand, is all about adding people (i.e. you) to his/her team, and have them on a monthly autoship (subscription) no matter if they can sell or not.  CNBC pointed this out before:
That has sparked a growing debate over whether Herbalife and other multi-level marketing companies, are essentially pyramid schemes. That's when distributors make more money recruiting other sellers, rather than selling the products themselves, with profits flowing to the very top at the expense of those at the bottom.
How do you know the MLMer that approach you is really interested in selling you the product (to improve your life in a certain way)... or to add you to his/her team? You don't at first. You need prolonged exposure. Yet it is a COMMON attitude that you cannot succeed in MLM without recruiting though most of the time they use the term "team building".

Also keep in mind that if they sell product to you, they made ONE sale. If they signed you up on autoship as distributor, they make money off you UNTIL YOU QUIT. And if you went on to recruit like they recruited you, they make even MORE. Thus, the entire system is designed to create RECRUITERS, not sellers. Once they got enough income (their recruits / downlines do all the heavy lifting) they can be more genuinely selling, but that just means they are in the MINORITY.

So why is Sloam asking people to presume that MLMer you meet is a seller when chances of him or her being a recruiter is much greater?

Verdict: lying by omission (or genuine ignorance)

Solution: Instead of asking people to PRESUME anybody that want to sell you something is out to help you, he should be talking about how to spot the leaders who genuinely want to sell and lead, rather than just add to his or her downline pool.

His myth #4: it doesn't work due to market saturation

One of the criticisms about MLM if you keep touting replication, i.e. you find X people and they each find X people sooner or later you run out of people on this planet and have to go find some aliens. So why does Sloan say this is a myth? His explanation is that you don't *have* to recruit... According to Sloan, "you can build a highly success (sic) MLM business by just building a customer base without ever recruiting anyone".

To which I ask... WHICH MLM would that be? Most MLMs give you bigger discounts if you keep recruiting and your "team" (downlines) reach a certain size ("matching legs", any one?) and/or made certain amount of "sales" (i.e. subscriptions).

Basically, Sloan here pointed out an exception in the argument... WITHOUT pointing out how often does this exception happen. Apparently, if the exception happens, oh, 1 in 1000, it somehow negates the general truth of the argument.

Furthermore, as we pointed out in the previous myth, the system is DESIGNED to create recruiters, not sellers.

Then he had to just throw in an insult at "critics" using the "they just don't understand" trope.

Verdict: misrepresenting proportionality, ad hominem / stereotype

Solution: Sloan should have pointed out how to build such an organization that focused on MARKETING the products (i.e. how he claimed it can happen) rather than the typical recruiter-focused way most MLMs are run, and how to avoid such temptations.

His myth #5: There are ethics and relationship costs?

Sloan seem to need an editor, as the subtitle is ungrammatical. Any way, he basically said that ethical and relational costs of MLM can be avoided if people are just honest and upfront about what they are presenting. Many noob MLMers are taught by unscrupulous uplines to invite old friends for a catchup, only to be lumped into a sales pitch meeting.

This part I absolutely agree, but he seems to have not caught on to behavioral economics, esp. Dan Ariely's study about social norm vs. financial norm. The two does not mix in general, and it's that mixing making everything awkward. MLM, which relies on relationships, is all for the mixing.  That is the FUNDAMENTAL NATURE of MLM, and simply being upfront doesn't solve the issue, it only made the whole thing most honest. The cost is still there, only it was NOT compounded by lying.

Verdict: Mostly true, can be better presented

Solution: Sloan should read up on Dan Ariely and other Behavioral Economics developments on relationships and try to incorporate them into this specific topic.

His myth #6: Only The People At the Top Ever Make Money

Sloan here tried to explain away that in most industries or even skill learning only a few will ever reach the top. His analogy is faulty.

While it's true that only a tiny percentage of workers will ever reach the top, the difference is most people in MLM will actually LOSE money, due to the monthly autoship.  Whereas most people who work at a job actually earn money.

Which rendered the rest of his analogies (martial arts dojo, gym membership) null and void.

Then he went on to repeat the factoid that 90% of all business fail. It's NOT TRUE. It's been fact-checked by Washington Post. It's crap.

Verdict: bad analogy, bad evidence.

Solution: Pick a proper analogy or avoid this line of reasoning altogether. And do better fact-checking. Repeating a myth, even one repeated by famous politicians, does not make it true.


Out of six myths, Sloan only managed to bust one properly, and even then there's somewhat incomplete information.

Overall grade: F

It can be improved though. Don't make the mistakes he did.

Original is at

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