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.

Do You Know Where Your Money Went If You Invested in a Suspect Scheme?

According to court documents made public recently, ZeekRewards ponzi scheme victims may have a longer wait if any money can be recovered, for millions of their money held by payment processor for Zeek being a high risk client, may have been in several Eastern European Banks that have been shut down for fraud, and chances for recovery is remote.

Zeek Rewards was a Ponzi scheme in North Carolina that ensnared MILLIONS of victims in the US and beyond by promising massive profit sharing from the alleged penny auction business if they "purchase" bids to be given away as promotional items and in return gets a profit share based on amount of bids purchased for the next 90 days at daily rate of up to 1.8%. The scheme collapsed in 2012 when facilities was raided by SEC and Secret Service agents and entire operation closed down. Since that time, a receiver has attempted to recover tens of millions of dollars held by third-parties, who were supposed to obey court orders not to move the money, and to be eventually returned. Yet it is clear now this order was not obeyed on many occasions, and tens of millions have gone missing.

Before the collapse of Zeek in 2012 Zeek consultant "Keith Laggos", MLM Expert, boasted that he helped Zeek management to move payment operations abroad. People then didn't ask why. The reason can only be that US financial institutions no longer want to touch Zeek. Now, millions of dollars are out of the US, and potentially out of the reach of the victims, all thanks to efforts of Zeek to continue operating its criminal enterprise by moving money overseas. If this all sounds confusing as heck, let's start from the beginning.

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?

Scam absurdities: "An honest Ponzi" is still illegal (duh)

Those of you who read articles in general may recall something about MMM... If not, here's a TL;DR version:

MMM, or Mavrodi's Money Machine, is a fraud company founded by Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova. With its start in 1989 Sergei tried to do legit business, but was chased down for tax evasion by 1992. By 1994, Sergei had gone into financial market and with the Russian economy in hyperinflation he was promising profit of 1000% percent a year with a full-on TV campaign as well as a "free metro ride day" where they paid for EVERYBODY's metro ride for a day in Moscow.

In 1993 and 1994 it was estimated that MMM was taking in 100 BILLION rubles PER DAY for its shares. Party finally ended in Mid 1994 when tax police closed MMM for tax evasion. However, Mavrodi was able to manipulate the victims into voting him into Russian Dumas (house of representatives) by claiming government closed MMM, not him, and if they do that he'll pass measures to pay them back. Elected official was also immune from arrest. Mavrodi's run came to and end when the Dumas chose to cancel his immunity in 1995, and MMM finally declared bankruptcy in 1997.

However, Mavrodi went on to start several more scams, including "Stock Generation" (closed 2002, Mavrodi arrested and convicted 2007), MMM2011, MMM-India, and MMM-Global.

The interesting parts about MMM2011 and the last few schemes is its.... "honesty", so to speak. MMM2011 was described as...

"This is a pyramid. It is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!"  (source)

Which brings us to the "honest Ponzi"...   Is it a Ponzi scheme if the owners admits to it?

Of course it is. Does a weasel stop being a weasel by admitting it is a weasel?

Yet that's what many scammers want you to believe... that as long as they paper over any irregularities with enough disclaimers... they can't be "liable".

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.