MLM Genre Analysis: CBD products have HUGE risks not understood by participants

Some of the more recent MLMs have latched onto CBD, or cannabidiol as their next big thing, and several companies have started selling products based on CBD oil for topical and other uses. However, what those people failed to consider is CBD is NOT legal in all 50 states. That's right, holding CBD oil in certain states can get you arrested for drug possession, which can RUIN YOUR LIFE!

Fact: DEA considers CBD oil as a schedule I controlled substance, with ONE exception

DEA considers CBD oil "marijuana extract" and remains on schedule I (same as cocaine and heroin). DEA has allowed a specific formulation, containing less than 0.1% THC, and approved by the FDA, to be reclassified Schedule V. This happened in October 2018.

This is often misquoted by CBD advocates as "DEA legalized CBD" when nothing of the sort took place.

With that said, DEA has bigger fish to fry, like the opioid epidemic. But it's illegal. And if your state law enforcement wants to bust you, it can, as a man in Indiana found out. He was arrested for possessing CBD oil and prosecutors chose not to charge him because the state legislature made CBD legal AFTER his arrest.

How will the California Supreme Court "Dynamex" decision affect MLM?

When California Supreme Court handed down the Dynamex decision on May 4th, 2018, people wonder if the "gig economy" is doomed, as the decision is likely to affect Uber and Lyft drivers, and potentially all gig economy participants. But here's a question so far that had not been addressed: how will this affect multi-level marketing aka "MLM"?

In issuing the decision, CSC also handed down a new "ABC test" to see if the work should be classified truly as an independent contractor. To be classified as such, the worker needs to satisfy ALL THREE criteria below:

• (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact
• (B) that the worker performs work that is outside the usual course of the hiring entity’s business
• (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Does MLM pass the test? This is important because ALL MLM classify their participants as independent contractors (except for their corporate staff). They may get glorified names like "consultants", "Independent business owners", "brand ambassadors", and so on, but they are independent contractors because they get a 1099 and the end of the year.

But is joining an MLM really as an independent contractor...or as an employee?

Question A: is working in MLM actually free from control and direction of the hiring entity, both in performance and in fact?

This is going to be hard to answer, as it's NOT possible to say definitely either way. Many MLMs have LONG bylaws and joining agreements, including how you can dress and present the company image. (Mary Kay is infamous for its "no pants rule", really, look it up)

Question B: is working in MLM actually performing work that is outside the usual course of hiring entity's business?

This should be a definite "yes". MLMs typically have ZERO sales/promotional department. They may have a sponsorship department buying sponsorships and PR but no "sales force" per se.

Question C: is working for MLM something that the worker already does as an established trade, occupation, or such?

This is a "very likely no". Most people join MLM with zero experience (indeed, this is one of the mantras of MLM, "no experience needed, work as much or as little as you like")  Indeed, MLMs often specifically seek out housewives and students with ZERO work experience.

If MLM companies are forced to reclassify much of their associates as employees, this would be the end of multi-level marketing (as we know it).   And based on the ABC test presented, there is no reason why vast majority of MLMs will not be forced to do so.

And it may not be a bad thing.

Bad Propaganda: "Alternative Facts" about MLM

Recently the Trump camp used "alternative facts" when attempting to "defend" some numbers that are obviously bogus... with even MORE bogus factoids. It is interesting to note that this has been used by MLM for decades, with little success.

So what are some of the "alternative facts" that had been used by MLM supporters?

• If I can succeed you can too...  just like "any lotto ticket can be the big winner"
  
• Success requires hard work... and a whole lot of luck, and other stuff conveniently not mentioned
  
• Thousands of people around the world found MLM works for them...  out of 100 million, as estimated by DSA
  
• Avon is nothing compared to the bigger network marketing companies...  despite Avon is almost same size as Amway, about 10 billion annual revenue larger than any other MLM company.

MLM Veteran on answering MLM income question: Be evasive

Recently Ray Higdon, a self-professed high flyer in MLM and inspiration coach, posted on his blog "How to Answer 'How much Money Have you Made in Network Marketing". His answer is evasive and shocking, as it basically sidestepped the answer.

Here is a screenshot of Ray Higdon's blog, and copy of his text:

How To Answer “How Much Have You Made In Network Marketing?” 

This is a question that you most likely get when people feel like you’re maybe not as postured as you could be. Right? That maybe you’re not as confident as you could be, and people like to ding you with this question. “Well how much money have you made in network marketing?” 

Obviously, those of you who haven’t made any money in network marketing, you’re, “What do I say?” Right? My suggestion for this circumstance would be you can rely on your upline. You can rely on even trainers. You can use a little bit of my story, if you’d like. 

But my suggestion on answering that is to say: 

“Hey, you know what? I’m just getting started, but the people that I’m working with and getting trained by have made millions of dollars in network marketing. They’re showing me exactly what to do, so I’m fired up about it. I’m just getting started, but I’m excited that I’m learning from people who’ve proven it over the last X number of years. They’re helping me follow the exact footprints, exact steps that they took to make money, so I’m fired up about it.” 

That’s how I would answer it. By painting where you’re going. It’s very powerful.

Yep, you read it right: self-professed MLM coach telling everybody to NOT ANSWER THE QUESTION. Be evasive, blah blah about "getting training" instead.

Right, and my teacher was "Rich Dad", Bill Gates, and Buckminster Fuller.  Or I can rattle all the rich and famous people I'd like to emulate.

What a bunch of crock.

MLM Basics: Why is MLM so... addicting?

Many people who are NOT in MLM wonder WHY MLM seems to be so addicting to its participants, and even as members lose money month after month. After all, an "entrepreneur" is supposed to be making money, right?

MLMSkeptic has studied the issues, and it is clear that the participants are not merely valuing the economic benefits from MLM (for there is minimal evidence of such enrichment except for a few near the top), but actually SOCIAL and MENTAL benefits that came with the MLM participation. It is the social and mental benefits, not the financial, that keeps the members in despite their minimal economic gains.

Those social and mental benefits can be divided roughly into three types:

• Sense of belonging (family and group dynamic)
• Sense of being something greater than oneself
• Sense of accomplishment  (recognition)

Let's discuss each one.

Sense of belonging (family and group dynamic)

Many of the articles that tout the benefits of MLM emphasize the camaraderie of the group and team. There are even articles that tout "come for the opportunity; stay for the relationship".

One such leader asked the question:

Have Your “Why” Established. This is very important. This is your major driving force, your reason WHY you decided to make a move and become a network marketer. It could be family, financial freedom or even time freedom.  

It's not an accident that the author talk about family being a driving force, but have you ever wondered which family did he mean?

He probably doesn't mean YOUR family. Not your wife/husband/partner, not your father/mother, not your children.

He probably means your SALES/NETWORK family: your upline, your downlines, your lateral marketing folks.

But doublespeak is a standard tactic in unethical network marketing.

So how do you know if your specific network marketing is ethical or not? You don't.

There were plenty of examples where families have been torn apart because half of the partnership saw and recognized the hidden dangers, but the other half was already in too deep to see the forest for the trees. It will take a huge jolt for someone to recognize the threat to one's family from cultish-MLMs and some just sank deeper and deeper.

One example was when a wife, who's in MLM was talking with her MLM female friends, and the topic drifted to the husband, who was not in MLM.  One of the so-called female friends suddenly suggested that the husband is such a loser for not joining the MLM and the wife should leave that loser of a husband. Clearly, the husband is what's holding the wife back from true success. Wife was shocked into silence. WHICH does she value more... her family (husband and children)... or her personal success for a few dollars? And what sort of people are around her that would suggest NOT placing her family first?

MLM Basics: Numbers Needed To Profit

One of the hardest things to analyze in a MLM is "How Much Money Will I Make".

The stupid ones recite the slogan: "As much as you want!"

The weasel ones add a disclaimer, "As much as you want (don't blame us if you fail)"

The realistic ones don't feed you BS, "Your success is dependent on your ability to sell, your ability to form a sales team, your effort and willingness to dedicate yourself and a whole lot of luck."

But none of them will be able to quote you a number, except what *they* have personally earned, or what someone in their team earned. And that doesn't say whether they do this every pay period, or where did this money come from: "personal volume" (retail sales by oneself), or commission from "group volume" (i.e. team total sales volume)

Amway is one of the few companies that even calculates what average member earn via retail.

The average monthly Gross Income for "active" IBOs was USD $183 (in the US) / CAD $206 (in Canada) in 2014. 
53% of IBOs in the US (and 49% of IBOs in Canada) were considered "active" (in 2014)
source: Achieve Magazine, published by Amway, August 2014 issue, from AchieveMagazine website

Amway calculate "gross income" from retail sales, minus the cost of the goods sold, which basically means they ASSUMED that product purchased by the IBO (independent business owner, i.e. participant) will be sold at MSRP and thus profit can be calculated. While they did not include any commissions (most MLMs report ONLY commissions), it also (and quite understandably) did not attempt to estimate business expenses, such as time and effort to attend meetings, demonstrations, seminars and events, and so on.

Bad Argument: Citing Celebrity Endorsement as Evidence despite Celebrities said Some of the Craziest Things

It is a fact that celebrities have said some of the kookiest stuff in public including

• Earth is flat (claimed by a rapper)
• Cancer is caused by "negative attitude" (claimed by a TV show host)
• Homeopathy and anti-vaccination (too many to count)

There are even dedicated lists of celebrities idiotic comments. Yet celebrity endorsement remains one of the top forms of advertising. Indeed, MLM has repeatedly used celebrity endorsements. Back when Vemma was a thing, Vemma followers have repeated cited association with Dr. Oz, mainly because B K Boreyko, Vemma's founder, had once said it is Dr. Oz's "favorite fatigue fighter." The real truth is Dr. Oz never endorsed Vemma... The linkback is a courtesy because Boreyko is on the board of one of Dr. Oz's charities.  In other MLMs, Both Donald Trump and Ben Carson (candidates for 2016 Presidential Campaign) have had dealings with MLM (ACN and Mannatech respectively).

SIDENOTE: Trump was quoted by Wall Street Journal, "I (Trump) know nothing about the company (ACN) other than the people who run the company, I’m not familiar with what they (ACN) do or how they go about doing it, and I make that clear in my speeches." A ringing endorsement indeed, despite Trump pocketing millions in speaking fees from ACN events. 

MLM itself often tout their "sales leaders" as minor celebrities, complete with big pageantry of award ceremonies and such.  As an example, Mary Kay is well known for its huge spectacles which are deceptively called "seminars" where new sales rep who reach some minimum goal are showered with praise from the crowd. It is very intoxicating and "inspiring".

Mary Kay convention, all the "ruby" folks getting recognized (date unknown)

But what makes celebrities seem to goof up more often? This can't really be merely explained by the spotlight effect, i.e. anything celebrity said is repeated ad infinitum, while a regular person's kook can often be overlooked. It is a factor, but it can't be all that there is.

Other factors at work includes:

• Luck blindness / Survivorship Bias
• Dunning-Kruger effect
• Self-Centered bias
• Positive reinforcement / confirmation bias / Echo chamber effect

Scam Psychology: The "Hard Work" Narrative vs. the Luck Factor

The words "hard work" often appears in the MLM supporter's arguments or narrative trying to discredit their "opponents". Any one who failed can be explained away as "they didn't work hard enough".

The problem is technology has shrunk the required competence in skills that makes a difference. It has "leveled the playing field", so luck now plays a much larger factor than any one realizes.

This is total anathema to network marketing / MLM, whichever name they choose to go by. Indeed, luck and success are almost opposites in the MLM mindset. Those who are successful and "self-made" never want to talk about luck, or even want to HEAR about luck.  This is a cognitive bias known as luck blindness. And MLM feeds into the self-made narrative directly. Most MLM pitches involves "entrepreneurial spirit" "be your own boss" "get away from the J.O.B. (just over broke)" and so on. These people are taught that any success they had is due to their "hard work" and the brilliance of the system (despite the same system, in another breath, claimed "anyone can do it")

This sort of mentality leads to some truly amazing (in a slow train wreck sort of way) claims. One of such claim is how some net winners in the ZeekRewards ponzi scheme are claiming they provided "value" to the business, and thus they are entitled to their ill-gotten gains and thus not have to hand them back to the receiver to be redistributed to the victims.

Let's forget for a moment that ZeekRewards ponzi scheme head Paul Burks was just judged guilty on all four counts in July 2016. How did these ZeekRewards Ponzi net winners claim they are working hard and thus entitled to be compensated, according to their brief, worth $50K to 80K a year? They are pasting 10 short text ads per day on anywhere they can get away with it (i.e. "spamming"). For the record, while they are required to copy the URL where they posted the ads back to ZeekRewards for "verification", no such verification was ever done. In other words, they don't even have to be done. Their work were worthless. It can be done in minutes. For this simple work, they they claim such to be worth 50-80K a year...

Right, and pigs can fly.

Cognitive Bias: Sunk Cost Fallacy

Answer this following question to yourself, truthfully please. Remember, it's for you and you alone. Only you would know the answer.

Q: Do you make rational decisions based on the best-estimate future value of objects, investments, and experience? 

Your answer to yourself is probably going to be: Yes, of course.

You are wrong. In reality, your decisions are based on your EMOTIONAL investment you already made and accumulated, and the more you invest, the less likely you can let it go. 

This is a cognitive bias known as "sunk cost fallacy".  In short, you are basing your decision on what has been invested, rather than what it's worth NOW (or in the future).

And it's very simple to make you feel you've invested time and effort... by making you do trivial tasks that amounts of zero importance. Zookeepers (and pet owners) know this principle well... it's called "contra-freeloading".

Contrafreeloading is a term coined in 1963 by animal psychologist Glen Jensen, who created an experiment where 200 albino rats were given a choice: unlimited food pellets in little bowl, or a mechanism where they have to learn to press a lever to release a food pellet. Logically, rats should simply gorge on the effortless food and never touch the lever. However, the opposite happened... rats actually prefer the food source where they had to press a lever, by a large margin. This was since repeated in gerbils, mice, birds, fish, monkeys, chimps... and more. (The only exception is the domestic cat). In short, animals prefer doing a little work (but not too much) for their food, rather than just take a handout.

A great example of contra-freeloading in a scam is ZeekRewards ponzi scheme (as accused by SEC and USSS), an $850 million scheme will soon go to trial. In ZeekRewards, one supposedly buy bids in the Zeekler penny auction, give away the bids to random strangers as promotion, and gets rewarded with certain amount of daily profit based on the bids purchased for the next 90 days. One also needs to post ads to random places on the Internet, and then post the URL on the ZeekRewards website as "verification" to be rewarded. In reality the vast majority of the bids were never used (i.e. the participants simply put money into the system) and expect daily "profit share" of up to 1.8% of the money they put in. The daily posting of ads were never tracked and verified, and indeed some people started a blog just to post ads... that nobody will ever read or see. It's rather obvious, in hindsight, that the "posting the ad" must be contrafreeloading... to make the participant feel they "worked" for and "earned" their share of "profit" amounting to as high as 1.8% DAILY, when the trivial task can literally be done in a few minutes, and be outsourced to some kids for pennies a day.

Yet when all these facts were pointed out to the ZeekRewards affiliates, their answers often are "you work for a competitor", "you work for the 1% to oppress us", "why don't you want us to succeed", and so on. After Zeek was shut down, several members even outright claimed "there were no victims until the government came along."

Curt Miller, on FB, soon after Zeek was closed by USSS and SEC, claiming that
"there were no victims (in ZeekRewards) until the government came along". 

They are so emotionally (and financially) invested into ZeekRewards, they can longer think rationally and see reason, even when there is NO REASON to continue to behave irrationally.

It is illogical to continue to support an alleged scam AFTER the owner made a plea deal with the government. However, hundreds of people donated money to a organization that promised to put the money toward "defending" ZeekRewards from the SEC. The owner of such organization was later jailed for defrauding the US government in an unrelated matter. The so-called defense ended up being an attorney who attended the receivership meetings, and filed several motions that was denied. He accomplished nothing useful except delay the process for the rest of the victims, and it was widely rumored (but never confirmed) that the rest of the money went to the organizer's private plane's upkeep.

They are the embodiment of sunk cost fallacy.

OPINION: With HLF consenting to reforms, and Burks of ZeekRewards Guilty, justice prevailed, but work is never done

July 2016 has been a busy month.

On July 15, 2016, news was released that Herbalife has reached a settlement with the Federal Trade Commission where HLF agreed to a LONG list of reforms and pay a $200 million fine / reimbursement to the victims.

Then on July 22, 2016 Federal Court in North Carolina passed down the verdict... a Federal jury has convicted Paul Burks of ZeekRewards of all four counts of fraud and conspiracy to commit fraud.

MLMSkeptic has long criticized both schemes, both here on the blog, and on BehindMLM.com.

MLMSkeptic had analyzed the various comments, retorts, criticisms, and cheers of Ackman's epic short of Herbalife at end of 2012 and the subsequent PR war, and pointed out problems with such arguments.  Most of the critics of Ackman then believed that HLF was "too big to fail", or perhaps "not egregious enough to die, maybe fined".

So it is with much amusement and facepalming when "journalists" loudly proclaimed "FTC says Herbalife not a pyramid", when FTC said no such thing.

How did CNNMoney got it so wrong?
FTC never said HLF is not a pyramid scheme... 

You are welcome to search the actual FTC complaint and stipulation agreed to by HLF. "Pyramid scheme" was nowhere in the documents. Furthermore, when questioned by the press at the news conference, FTC Chairwoman Edith Ramirez was asked at least FOUR SEPARATE TIMES whether HLF is a pyramid scheme, and Ramirez repeatedly dodged the question (probably as a part of the settlement).

Q: I know that you’re not going to put any labels on this, but it seems to me if we look at the BurnLounge case, that while this complaint does not use the words “pyramid scheme”, would you agree that a prima facie case of a pyramid scheme is alleged with the allegations within the complaint?

A:  Again, I will leave it up to you to draw that conclusion. Our focus in this complaint was in addressing the core issues

When asked outright about HLF's own announcement... That FTC have determined HLF to be NOT a pyramid scheme...

Q: Did you review the language in their (Herbalife’s) press-release that sort of affirmatively said that they were not declared to be a pyramid scheme? Because they’re sort of having that as an outright headline.

A: I do not agree with that statement. The word “pyramid” does not appear in our complaint that is true, but um again the core facts that we’ve alleged, that we consider to be problematic with their compensation structure, are set forth in detail in our complaint. And again, I will leave it to readers to draw their own conclusions. But that they were determined to not be a pyramid… that would be inaccurate.

And indeed, checking the HLF website no longer shows any sort of language that claimed "FTC determined HLF not pyramid scheme"...

So you know which way the CNNMoney article was written... They were written from HLF's press release, not the FTC press release. It is... biased.  Shame, CNN. Shame on you for lazy reporting.

I am not listing all the changes that FTC managed to squeeze out of HLF. You can read the documents linked above yourself. It is a LONG list of reforms, and it will likely become a new standard much as Amway's settlement with FTC created the modern MLM back in 1979.  And that pretty much tells you the fact: HLF was a scam that required reforms so it is no longer operating as a scam. Any one who argues otherwise is simply denying reality.

I may do my own analysis later on these changes, but HLF is no longer the same company. They believe they can continue to thrive (or else they would not agreed to these changes), but we shall see.

Then we come to Zeek Rewards, and Paul Burks.

MLM, Religion, and Feminism: synergy, or triple threat?

I was reading this article on Vox about multilevel marketing by Kate Shellnutt when I had an epiphany: MLM's rise to prominence matches rise of feminism to mainstream, and it is connected to religion.

Consider this... What do Christianity and Islam say about women working? Their view is that women should stay home and mind the house.

All three texts—the Old Testament, the New Testament, and the Qur’an—invariably stipulate women’s religious duty of submission to men. In this view, women are deemed subordinate to men, with their legitimate roles invariably exhausted inside the home.  (huffingtonpost 11/07/2014)

Consider this... Did you know that Mormons are into generosity and sharing? Did you know that Utah, home of the Mormons, is home to many of the largest MLM companies in the world? NuSkin, doTerra, USANA, and dozens / hundreds of smaller companies...In fact, five of the top 50 MLMs in the world are based in Utah.

This is no accident. According to Dr. Jon M. Taylor, a Mormon, and a former MLM participant, now MLM investigator, MLM is designed to emulate / co-opt the Mormon style of sharing / proselytizing.

When you combine all these points, the conclusion is simple: MLM is designed to

1) appeal to women who wish to earn income (and thus be less subservient to men)

2) allow women to stay home and do their more traditional homemaker roles (so men can't object to it too much, as it's "only part time")

3) appeal to women who wishes to socialize and share (which is why there's gajillion "party plan" MLMs selling everything from plastic containers to sex toys)

4) appeal to Mormon's style of "sharing" their faith and co-opt it

5) appeal to people of faith, who are more inclined to believe in something before effects can be demonstrated

Indeed, MLMs nowadays seem to be specifically designed for suburban moms who want a 2nd income, and they have faith (backed by desire, and religion) to dump all their effort, despite losses, into doing something they believe they love.

And they are out proselytising the virtues of MLM... based on these exact points.

Commentary: How "Ultimate Guide to Network Marketing" illustrates what's wrong with Network Marketing

I often browse used bookstores, and one day I came across "Ultimate Guide to Network Marketing" edited by Dr. Paul Rubino. As the MLM Skeptic, I read it with a skeptical mind...  Overall, I am rather... disappointed. While several of the authors out of 37 did dispense practical advice, such as how to utilize modern tech like autoresponder and such, while others laid out do's and don'ts on what to say in a sales speech, ZERO discussed what's legal and what's not legal.

"Pyramid scheme" was NEVER discussed, other than as an resistance to be overcome, as doubt in a prospect that must be quashed, and so on.

Product-based pyramid scheme was never mentioned.

In fact, the entire book is devoid of definitions other than odd backronyms like WOO = window of opportunity. There is no glossary, just an index.

Consider the implication: how would the network marketing noob know what's legal and what's not if it was NOT discussed in a so-called "Ultimate Guide to Network Marketing"? How "ultimate" can this guide be if legal stuff was not discussed at all?

Furthermore, many of the chapters were about belief / faith. Belief in oneself, belief in product, belief in company, belief in team...  Belief involves TRUST. What happened to due diligence? Common sense? What makes the company, product, or team members WORTHY of trust?

This is basically a collection of "business porn"... written by network marketing "leaders" who claimed success through effort even though they can't prove that their success was a result of their effort. Anything they wrote are results of survivorship bias and self-serving bias, but people starting in network marketing believe these to be words of wisdom, and indeed, many of the 37 articles advocate "just ape what I do" or "create system that can be easily aped"

In fact, one article is about how to CREATE business porn... awards, recognitions, newsletters, mailing lists, podcasts, Youtube videos, and so on, as marketing vehicles.

Would you really consider "monkey see, monkey do" to be wisdom?  The entire book is thin on actual practical advice. Most are motivational talk and how to customize such for your particular market (i.e. your prospects). Again, it's business porn, and it does NOT help.

Just as porn is not sex but sexual fiction designed to titillate, business porn is NOT business advice, but sales pitch designed to motivate.  Porn is fine in moderate doses, but porn addiction is serious problem. Similarly, business porn is fine in moderate doses, but business porn addiction will simply depress you as you constantly choose to compare yourself to leaders, trying to ape them, without understanding WHAT made them successful (often, it's just luck) and what price did they pay (which is NOT depicted).

The book basically is all about trust, and duplication, with a few bits of sales techniques and marketing vehicles covered, but has ZERO advice on what to look for, how to spot good from bad, and how to spot legal from illegal.

The implication is very troubling: if this is the sort of book written by top network marketing professionals, network marketing is about faith and recruiting, not about sales and earning trust.

Cognitive Bias: Choice Supportive Bias (aka Post-hoc Rationalization)

Previously we have often talked about cognitive dissoance, which is basically when a person is faced with two sets of "truths", and they conflict, therefore one set of which must be false.

For example, let's say the person has joined a suspect scheme, and is withdrawing money bi-weekly, but not yet achieved breakeven. Then he's exposed to a source that explained that the scheme is a scam with trustworthy sources.

So, how does one resolve this conflict between two sets of facts... a) the scheme works, I am getting paid  and b) the scheme is a scam ?

One way the conflict can be resolved is through "choice supportive bias", also known as post-hoc rationalization. As the person is already in the scheme, the person is likely to choose to continue in the scheme and therefore decide that the trustworthy sources (that explain the scheme is a scam) are NOT acceptable.

Basically, the person wants the answer to be "scheme is fine" and thus chose that outcome, and came up with reasons to discount the trustworthy sources post-hoc (after the fact). Normal logic is  check all the sources, then arrive at the conclusion. This is the reverse... The person know the conclusion s/he wants, then come up with the reasons later.   It's motivated thinking.

As you can probably guess, motivated thinking means more often than not the person will reach the WRONG conclusion, since the conclusion was NOT deduced from logic, but emotion.

Let's look at some examples...

Scam Psychology: Luck Blindness, or why lucky people see it as skill, not luck

Success is dependent on many different factors, but it can usually be summarized as

...be at the right place, at the right time, with the right training to spot the opportunity, and have enough resources to call upon to take advantage of the opportunity. 

It should be readily obvious that rich people have a better chance at success because they started out with better starting positions. Donald Trump was practically born with a silver spoon (his father was a real estate tycoon). Conversely, poor people can't succeed if they don't find the right connections to make their talent known, no matter how hard working they are.

Outliers (book) (Photo credit: Wikipedia)

In the book "Outliers", Malcolm Gladwell reported that a good portion of professional hockey players found success due to their birthmonth, not solely via their talent. Why? If they were born in January, an arbitrary line used by the youth hockey leagues to divide up the years, they would enjoy physical advantage over the other kids who were born later in the year (generally speaking, of course) but still in the same league. And this physical advantage would lead to success, which would lead to them developing a taste for hockey, and eventually, into a pro career. Of course they trained hard, and they got some physical skills, but luck of having been born in month of January played a part in their success... They may not be aware of it, but that doesn't mean it didn't affect them.

Yet when you ask successful people how did they succeed, they will rarely if EVER mention luck. And in fact, some get downright offended if you try to bring up the role of luck in their success. This known as the "luck blindness" cognitive bias.

A few years ago Cornell economist Robert Frank wrote an opinion column for New York Times about luck and fairness, and for that he was invited on the air by Fox Business host Stuart Varney to talk about it. Varney opened the show by introducing Frank, then immediately jumped down Frank's throat: "Do you know how insulting that was, when I read that? I came to America with nothing 35 year sago. I've made something of myself, I think through hard work, talent, and risk-taking, and you're going to write in the New York Times that this is luck."  As you can imagine, it didn't go well for the rest of the interview.

Many people can look past their luck blindness though. Warren Buffet readily admits that he had won the 'genetic lottery' to have been born in the US to a loving family. And in a way, "gratefulness" (thanking God and the universe) is a way to acknowledge luck played a role.

How Luck Blindness Can Mislead You

Scammers know luck blindness is a button they can push to make you behave, along with sunk cost fallacy, hindsight bias, IKEA effect, and so on. By making you believe you are on your way to success, scammers will continue to take money from you, and you'll be happy doing so, because you believe you have learned skills, when it was either luck, or "arranged" success.

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.

MLM Basics: Why a MLM Comp Plan is MORE important than the product, not less

One of the biggest mistakes a MLM "noobs" makes is put all the emphasis on the product, without analyzing the business model itself, i.e. the compensation plan, or in jargon, "comp plan".  (Or perhaps there's only a cursory glance). They are all enthusiastic about the product. OMG, it totally works. I (blah blah blah blah),  product is (blah blah blah blah). You have to try it! It's totally legit! I didn't believe at first but now I do! (blah blah blah blah)

When critics / concerned friends/family told them the company is likely a pyramid because of X, Y, and Z, the first thing out of their mouth is "it can't possibly be a scam, the product works".

They are suffering from the "blind men and an elephant" problem... They cannot understand that what they experienced  may be true for them, but is NOT the WHOLE truth.

Here's a very simple analogy... Take a look at this car:

Those of you who know cars should be able to tell, by the GT-R badge on the hood, that this is an older generation, Nissan Skyline R34 GT-R (or a reasonable facsimile thereof), which is a two-door coupe.

Except this is not a coupe. It's a station wagon. A five-door station wagon Nissan GT-R, and no, it's NOT photoshop(ed).

The point is if you ONLY look at the nose of the car, you'd have assumed it's a GT-R. But it's not. You have to see the entire body to realize this is NOT a coupe but a station wagon.

Similarly if you ONLY look at the products of a MLM, you could not have gotten "the whole picture", on whether the company may be a scam or not.

That's why the compensation plan, i.e. what you need to do to get paid by a MLM, is FAR MORE important than the product... It is the PRIMARY indicator on whether the company is a pyramid scheme... or a real MLM.

So how do you determine which is which?

Charity MLM? What a joke, and here's proof

Here's a simple and logical premise: MLM and Charity does NOT mix.

Think about it. MLM is a MONEY MAKING enterprise, both for the company itself, and for the individual affiliates. Charity is.. altruism. The two goals are mutually conflicting.

That doesn't stop a bunch of lame MLMs from trying to cash in on the charity angle, some by claiming it is helping kids where you "donate" your money to them, and they will deliver the food to kids in some third world country. Another claim that by participating in their penny auction your bids will be partially donated toward a worthy cause. There are many other variations, but they all include a supposedly non-profit charity making profit AND income for participants.

And in 2016, it turns out that leader of one of these so-called charity MLM is the largest tax cheat in the state of Oregon.

A gentleman by the name of Randall "Randy" Jeffers.

Scam Psychology: Presumption of hate

One of the more... insidious aspects of MLM is how its members will often NOT listen to "reason", even if it's coming from people they used to trust, like family members and best friends. They are often screaming for some understanding, that they really are trying to improve their situation, and why are people around them so... defeatist, and so on. They will appear to be completely brainwashed.

(Sidebar: China claims to have found a new type of paranoid disorder they temporarily named pyramid cult sales disorder. )

But what motivates such... hate? It's a combination of factors, but generally, it has to do with how you perceive people on the other side, and its origin was longstanding.

In a research by Liane Young at Boston College, it was revealed that both Democrats and Republicans (political parties in the US) claim that they were motivated by positive emotions such as love and loyalty to their party members, and their opponents were motivated primarily by hate and animosity.

In other words: "I think you hate me, therefore I hate you."  It's basically preemptive hate.

Scam Tactic: Deny everything, make up some other reasonable sounding reasons

When confronted with truth that contradicts their world view, MLMers often resort to denial, i.e. "that can't possibly be true". It's motivated reasoning, i.e. thinking with your heart, not with your head, and that means impulsive rather than logical decisions.

After the denial, then some alternate explanations was supplied with no proof in order to justify the view.

Recently on BehindMLM I encountered a perfect example of such.

On Feb 6th, 2016, commenter B.F. wrote on BehindMLM that MLM "Kyani" was "kicked out of the Norwegian direct selling organization (Direktesalgsforbundet) for using illegal health claims in the official marketing."

Less than 24 hour later, commenter "MLMexec" replied "Kyäni was not kicked out of the Norwegian DSA because of illegal marketing. They were trial members for a year and weren’t accepted as full members because Eqology and Zinzino joined forces to vote against it."

But is that true?

What should you look forward to MLM and Direct Selling in 2016?

It is now 2016, and as usual, positive thinkers are already out hating my blog posts already.

First reader comment of 2016 starts with:

You loser ...obviously couldn't make it in any MLM's - most likely your attitude and shallow thinking.

Hahahahaha.  This is the sort of typical potty mouth positive thinker type comment, though in this instance he was reacting to my comparison of "MLM Cult vs. ISIS".

The fact that he somehow thinks that "MLM Cult" refers to his chosen profession is rather amusing, isn't it?

But really, let's throw around some REAL numbers, compiled by Direct Selling Association (DSA.org) and the World Federation of DSA (sort of global DSA), the industry lobby group.  It's too early for 2015 numbers, but here's the 2014 factsheet, as published by DSA (US).

DSA factsheet 2014, http://www.dsa.org/docs/default-source/research/research2014factsheet.pdf

The key figures... 34.47 billion USD in 2014 US Retail Sales... by 18.2 million people "involved".

That's less than $1900 sold per "involved" person PER YEAR. ($1894 if you want to be exact)

And since people are joining faster than actual retail growth sales (8.3% vs. 5.5%), average retail per person per year is GOING DOWN. This is despite the PR spin, i.e. "more individuals generated more revenue in 2014 than any year previously".

And remember, that's retail sales, NOT PROFIT.  Actual profit will be FAR LESS. Even if you estimate a margin of 20% AFTER expenses, that is $379 per year.