|
CAI Consumer Awareness Institute Non-profit Corporation |
How I discovered the abysmal odds of success in MLM |
|
By Jon M. Taylor, Ph.D., Consumer Awareness Institute It
may help you to understand where I, as the founder and primary researcher
for The Consumer Awareness Institute, am coming from. My
background in education and experience is extremely varied. My BS was in
education, after which I taught for a couple of years. Then I obtained an MBA at
Brigham Young University, after which I worked on the administrative staff of
two universities. Unhappy
with bureaucracy, I began a career as a “pure entrepreneur,” which meant I
liked creating businesses, but not managing them. So I started a total of 47
businesses, including many which were heavily dependent on sales and marketing.
When a business was successful, I sold out and moved on to something else. If a
business was not profitable, I simply went on to something more promising. Such
broad entrepreneurship taught me some valuable lessons that would later enable
me to discern important differences between a legitimate business opportunities
and clever scams. Along the way, I went back to the University of Utah and obtained a Ph.D. in Applied Psychology, which is the application of behavioral sciences to a variety of human challenges. As an adjunct professor I taught classes in management, entrepreneurship, ethics, and communications, as well as sponsoring business seminars in cities across the country. Trusted
friends aggressively recruited me into a popular MLM program in 1994, but I was
initially very resistant to what seemed to be a disguised pyramid scheme.
However, with all the hoopla about network marketing, I decided to put the
concept to the test for a year. Though very successful (top 1%) in climbing the
pyramidal ladder of participants, I was losing tens of thousands of dollars
(including lost income from not continuing the insurance selling I had been
doing). It became apparent that to profit I would have to recruit my way very
near to the top of thousands of active participants in the scheme. The
thing that caused me to leave the program (and it would have made no difference
which MLM it was) was the effect my participation was having on our close
relationships, which my wife and I had spent a lifetime cultivating. She let me
know that I would have to decide between her or MLM. I chose her because I love
her and respect her on-the-mark sense of discernment. She never felt good about
the pitches at the opportunity meetings or about my recruiting everyone we knew. So
I wrote my first book on the subject – The Network Marketing Game: Gospel
Perspectives in Multi-level Marketing, which examined the ethics of exploiting
friends and family for personal gain. It got great reviews, and people were
hugely entertained by the cartoons by Cal Grondahl, who I had hired to
illustrate the book. Many of these cartoons are on my web site. Book
reviews were very favorable, but reader feedback ranged from very appreciative
to hostile – some could even be classed as hate mail. Most interesting were
the tax accountants who were asking why – with all the promises made by these
MLM’s – no one was ever reporting profits on their income taxes.
I
decided to research this more thoroughly than had ever been done before. Lots of
opinions were flying around about what percentage of participants actually
achieved the promised rewards. I wrote the presidents of the 60 most prominent
MLM firms and asked for earnings data of participants at the various levels.
None were able or willing to respond. So
I went to financial reports of publicly traded companies, records of court cases
against MLM’s, internal documents, etc. Most revealing were surveys of almost
300 tax professionals, tax software designers, and sponsors of tax seminars. My
research revealed what many have suspected. If you remove the income of the
handful of TOPPS (top of the pyramid promoters), approximately 99.9% of
participants lose money – after subtracting all expenses, including
“incentivized purchases” (purchases from the company that are required to
qualify for commissions or to advance in the scheme. I
even called some Las Vegas gambling casinos for their odds of winning at the
various games of chance. Amazingly, one’s odds of success are far greater
at the roulette wheel or in a craps game at Caesar’s Palace than in almost any
MLM program. For more information on the numbers, go to my page on MLM
statistics at – With my varied experience and training (including all the legitimate businesses to which MLM is compared, such as insurance and franchising), I was able to identify some core principles that could be generalized to making decisions about legitimacy of all types of chain selling. After consulting with top experts in the field, I came up with the “5 Red Flags” of a product-based pyramid schemes. Whenever these 5 red flags appeared in a compensation plan and valid data was available, approximately 99.9% of participants lost money. Independent investigations by others have essentially confirmed my findings. For more information on all of this research, which was conducted under my non-profit organization, Consumer Awareness Institute, go to – http://www.mlm-thetruth.com/mlm_research.htm
|