Having taught college classes in finance, entrepreneurship, and ethics, and having been a successful salesman and entrepreneur, I was skeptical of chain selling schemes labeled as “network marketing” or “MLM.” However, under pressure from respected friends to join various MLM programs in 1994, I decided to do a one-year test of a leading MLM to prove to myself and to others whether or not MLM was a legitimate business model. Though I became successful at recruiting and climbing the ladder of distributors (top 1% if you count ALL distributors - not just "active" ones), I was still losing money. It became apparent that to earn the huge income that was promised, I would have to be at or near the top of the pyramid – which I believed was possible. However, my wife threatened to leave me if I continued, as my aggressive recruiting was affecting our most treasured relationships and (she said) changing for the worse the man she married. So after carefully considering my situation, I quit MLM and decided to tell the world about what I had learned.  
    
I wrote a book The Network Marketing Game, which exposed the ethical problems of exploiting friends and family for personal gain. While on a speaking tour promoting the book, I got feedback from tax accountants who asked why – with all the promises of MLM promoters of “residual income” – they were not seeing profits reported on tax returns of MLM participants. I decided to interview other tax professionals – almost 300 of them over a period of several years. I also interviewed programmers of tax software and persons involved in seminars for tax professionals. With a total of over two million tax returns represented, a clear picture emerged of who was making money in MLM – the TOPP’s (top of the pyramid promoters), at the expense of huge downlines of participants/victims who lost money. 

I performed a thorough analysis of unique features of MLM and pyramid schemes and compared them with features of legitimate businesses with which MLM is often compared. Having taught entrepreneurship, sponsored an Income Opportunity Show, researched an (unpublished) Income Opportunity Directory, and experienced first hand the difference between a variety of marketing-intensive businesses and then MLM, I was able to make some clear distinctions missed by other analysts.  In fact, I had not only done direct selling (which MLM adherents now claim they are doing), but had recruited, hired, and trained sales persons – so I knew what characterized legitimate direct selling. After months of comparative analysis and discussions with top experts, five “red flags” or characteristics became apparent that clearly distinguished chain or pyramid selling schemes from legitimate direct selling businesses.  
    

These features, which could be identified in the compensation plans of the MLM programs, clearly contributed to the high loss rates and helped to identify MLM’s that were in violation of laws in most states, as well as FTC guidelines. In fact, wherever I could get the earnings reports of participants in MLM’s with these “5 Red Flags” in their pay plan, approximately 99.9% of ALL participants (including dropouts) lost money, after subtracting ALL expenses, including minimum operating expenses and “incentivized purchases” (needed to qualify for commissions or bonuses) of goods and services from the company. I called Nevada gambling casinos and learned that the odds of profiting from gaming tables in Las Vegas are far better. MLM’s even make obviously illegal no-product pyramid schemes look profitable in comparison.   

Over the course of my research, I recorded typical misrepresentations or deceptive practices used in MLM recruitment campaigns. Taken together, they represented a giant con game. The deceptions far exceed those of recent investment scandals, such as Enron, WorldCom, or even Madoffs's Ponzi scheme.  

Over a period of 15 years, I analyzed over 300 MLM programs, and prepared numerous reports and presentations for various law enforcement agencies and consumer advocates – and for consumers themselves.  Many of these reports are posted on our web site (www.mlm-thetruth.com), as well as the Pyramid Scheme Alert site at  –  www.pyramidschemealert.org. 

     For further details on Dr. Taylor’s credentials, check out his full vita.

Read more information about how the events of Dr. Taylor's life prepared him to unmask the inherent flaws and attendant deceptions in MLM as a business model and in hundreds of specific MLMs.

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Jon M. Taylor, MBA, Ph.D.

Readers' comments:

Dr. Taylor,
Thank you from the bottom of my heart for the website I stumbled upon!  I am currently being “recruited” by 2 acquaintances to “sell” [an MLM].  My husband knew exactly what it was and told me to stay away!  So, to prove to myself that he was right, I did a search on the internet and thankfully found your website!  You are doing our nation a wonderful and much needed service and I commend and thank you again for it!  I will be sure to pass on the information to other unassuming people.
– Mary Lucania

I just got off the phone with a recruiter, and was seriously considering starting my own MLM business. the product sounds great.
I couldn't get the web page I wanted so I Googled it, and found your info.
I just wanted to say thank you for telling the truth. I'm a single mom on a very tight budget, looking for a way to make an HONEST living. I [should have known that] if sounds to good to be true, it probably is.
Thanks again, from making a huge mistake I can't afford to make.
– Anonymous