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Dr. Jon Taylor tells how he developed his expertise and interest in MLM/ product-based pyramid schemes
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
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 or WorldCom.
For further details
on Dr. Taylor’s credentials, check out his full vita.