Anti-MLM Zealots – Part IX

Tall Taxing Tails

        In an effort to bolster his case that very few network marketers make any money, Taylor relates the testimony of 33 tax preparers and CPAs he interviewed, not one of which could remember an MLM distributor client who made a “substantial” profit. The only challenge in rebutting this hogwash is deciding where to begin! Let’s start with the fact that a document in which someone attempts to report the least amount of income legally possible isn’t exactly the best tool to judge how potentially lucrative a profession may be (not to mention all those returns these preparers saw where the client was overly aggressive in reporting business expenses, which I’m sure were more than a few). Putting that obvious point aside, consider this: According to Taylor, these 33 tax preparers had an aggregate total of about 14,400 clients in 2002 (the year Taylor did this “study”) and had worked on over 300,000 tax returns in their careers. Yet, amazingly, not only did they remember the “several hundred” that were MLM distributors, but even recalled the amount of their profits and losses! One particular preparer from H&R Block claimed to have prepared over 10,000 returns over 32 years, and not only recalled that all of his MLM clients lost money, he could even cite the average amount they lost! Pretty incredible, isn’t it? And what, exactly, is a “substantial” profit? And how would they know who was a network marketer? I’ve filed over a dozen 1040s since going full time in this business, and don’t recall once being asked to define my occupation. What’s even more difficult to accept is Taylor’s claim that he then called other tax preparers, accountants, financial planners, bankers, and insurance underwriters, (insurance underwriters?) who all allegedly “relayed similar feedback.” What does this mean? Who? Where? When? With such damning evidence you’d think Taylor would have spent some time on this point, and provided specifics. Yet he simply glosses over it in all of three sentences. And get this: Taylor decided to call 33 more tax preparers in Utah county and found that they could recall 38 clients who had made “large profits from a variety of MLMs” in the last year alone, and about 185 throughout there careers. Some, Taylor reports, “were reaping checks ranging from tens of thousands of dollars a month to close to $1 million a month!” How does he explain this? Well, Utah county, you see, has a high concentration of MLM corporate offices, and those most likely to be at the top of the pyramid would reside near their company’s home office. I’m not kidding. That’s his explanation. Of course, he provides no information as to the level these mega-earners are on, nor does he really have even the slightest clue. He also does not take into consideration that those top earners who do live near the home office (of the very few who actually do) often times moved there after they became successful. The reality is, his first survey was of tax preparers in what he acknowledges are “sparsely populated” areas of Utah, and the second survey was in a densely populated area, and common sense would suggest (and my own MarketWave research has proven) that areas of higher population density are more conducive to successful network marketing. Within the fine print footnotes Taylor mentions that he also called 106 tax preparers from other parts of Utah as well as Michigan, Idaho and California. Curiously, his findings from these surveys are not presented. If it supported his case, you can bet he would have presented them.
        Taylor concludes this section by asking for the reader’s assistance in gathering “objective” information about MLM, but then declares he is “not interested in anecdotal material.” I see. So, if a tax preparer provides anecdotal material that is negative towards MLM, based entirely on memory, he’ll accept it. If a practicing network marketer provides anecdotal material that’s positive towards MLM, it’s unacceptable. Yeah, that’s objective.

Odd Odds

        In yet another example of Taylor’s gross lack of objectivity, he states, “It is interesting to compare the odds of success of MLM schemes with legalized gambling in Nevada. It appears that on average one could do better at most any of the gaming tables or slot machines…”. Once again we have an anti-MLM zealot (previously it was Robert FitzPatrick) suggesting our successes are somehow a game of chance. It’s interesting to note how one’s “odds” of success in MLM seem to increase the longer they commit to it, the more they study it, and the harder they work at it. Taylor provides charts, graphs and numerous footnotes to create the illusion of substance to his findings. But when held up the light it reveals itself to be nothing more than gussied up garbage math. In one case he provides a chart showing the odds of turning a profit in a “no product” pyramid scheme, a single bet on a roulette wheel, and an MLM opportunity. He claims the percent who lose money in a classic pyramid scheme is 90.4% (9.6% make a profit), but 99.95% lose money in MLM. If we follow the asterisks to the fine print, we discover that his 9.6% figure came from a news report of a scheme called “The Original Dinner Party” and Robert FitzPatrick’s experience with the “Airplane Game” over 20 years ago. That’s it. Another asterisk leads us to where Taylor arrived at his so often cited “99.9% fail” figure. He picked six MLM companies (out of thousands) and analyzed “internal reports” along with SEC and FTC filings, even though only one is a public company in the United States. He also factored in “reports from ex-distributors.” But apparently his findings were still not to his liking, so he had to “correct” what he refers to as “deceptive data.” First, he didn’t care for the way MLM companies only report the earnings of those who are “active.” Adding back in all those who made no money because they didn’t do anything to earn it (signed up, bought a kit, and quit) would certainly increase his “failure” percentage. Next, he had to factor in each distributor’s average annual expenses. How he arrived at this number is not stated, nor does he even reveal the number he chose to use – because there’s only one way he could have arrived at it. He made it up. For someone who demands such statistical facts and verification from us, it’s both ironic and hypocritical of Taylor to pull flimsy, baseless, claims such as this out of thin air. His “99.9% fail” mantra is based on nothing more than a grossly bias guess.
        At one point in his marathon diatribe, he suggests a prospect ask the spouse of his or her potential sponsor “what problems the family has experienced due to MLM participation?” Notice, he doesn’t suggest you ask “Have there been any problems?” He’s suggesting you just assume there have been. And what does your sponsor’s family life have to do with yours? Taylor doesn’t say.
        Taylor’s ignorance as to basic MLM law is most glaring in his definition of the proverbial “Seventy Percent Rule.” This is a rule that was derived from, and clearly defined by, the FTC vs. Amway decision in 1979. It is, and has always been, a rule that forbids the purchase of more inventory until at least 70% of all previous goods have been sold or consumed (designed to prevent front loading and stock piling). According to Taylor, this rule demands “distributors must derive at least 70% of their income from retail sales to non-distributors.” He’s wrong.
        Among myriad other examples of Taylor’s asserted effort to fold, spindle and mutilate the facts to conform to his argument, he charges that “MLM apologists typically respond that a pyramid structure is common in all large businesses and their organization.” And yes, we do that. But then he states, “I maintain that many significant features (symptoms) separate a pyramid scheme syndrome from normal business organizations. To suggest that ‘all organizations are really pyramid schemes’ is naive.” Yes, it would be, except that’s not what we say, and Taylor just confirmed it! The common, if now almost cliche’ assertion we (us “apologists”) make is, as Taylor just described, that the “structure” is shaped like a pyramid, nothing more. So, how did we go from an innocent discussion of the shape of a company’s hierarchy chart to us claiming the “symptoms” or “syndrome” of a pyramid scheme are in common with conventional businesses? The bridge between the two totally separate concepts is an invention all Taylor’s.
        Taylor’s illogic and shallow reasoning is never more evident than in his proposed solution to the challenge of local market saturation. Taylor suggests that by MLM companies not applying territorial restrictions (i.e. limiting the number of distributors per area), it is common for local markets to become saturated with reps from the same company, making it extremely difficult to enroll more sales reps in that area (such local market conditions are actually extremely rare). His solution? Restrict the number of reps that can enroll per area. So, his solution for a condition where recruiting more distributors becomes very difficult, is to make it impossible to recruit more distributors in that area! Can you imagine having a neighbor down the street who becomes interested in your business, but your company’s policies forbid you from enrolling them? Taylor’s proposed cure to this local saturation challenge would actually make it far worse, and cause it occur earlier!

Selective Memory

        In his research, Jon Taylor interviewed me and read my book “Inside Network Marketing.” The only evidence of this anywhere in his material is his recounting of a question I have on my MLM survey (www.marketwaveinc.com) related to income goals. Yet, in spite of my crystal clear description of the question itself, and a verbal discussion on the phone where I reiterated my findings, his portrayal (betrayal) of this survey is so self serving and skewed as to suggest deliberate deception. My survey question simply asked at what income level one would consider themselves “successful?” Not their dream goal (of course we all want to be millionaires), but their “primary” income goal, and anything above that is icing on the cake. Eighty-six percent said they would consider themselves successful if they only made enough to quit their job and make a “comfortable living,” which they quantified, on average, as being $5,988 per month. According to Taylor, I asked what their “expectations of success” were and that 86% said they “expected a full-time income to result from their (MLM) participation.” My survey also found that 6% said they would not feel “successful” unless they made at least $84,000 per month (one million per year). This means, as I state in the survey, my book, and in every other situation when I’ve ever recited these findings, that clearly 6% misunderstood the question on the survey (obviously, they would likely consider themselves successful if they made only $10,000 per month, or surely $50,000). But Taylor calls it “remarkable” that 6% expected to make $86,000 per month, then asks “What do such expectations tell us about the more aggressive MLM promoters?” A better question is, what does Taylor’s portrayal of my findings tell us about the more aggressive MLM demoters?
        Taylor claims he also interviewed a producer of “multiple vitamin” products that had several MLM clients. He alleges the conveniently unnamed producer told him that he sells the vitamin supplements to these MLM companies at a cost of $3 to $4 a bottle, and each of the MLMs sell to their reps for a wholesale price of about $50 a bottle. He goes on to claim that this producer suggested to these MLMs that they could offer a superior product with higher quality ingredients at a cost of $7 a bottle, and all declined because there was “not enough margin.” First of all, I’ve not only been a full time participant in this business for over 14 years, I’ve studied it, and it’s companies, extensively that entire time. I’ve never seen a “multiple vitamin” product wholesale for fifty bucks. Not one, ever. Besides that, consider the absurdity of an MLM company selling something that cost them $3 for $50 – a $47 margin, but then deciding they can’t afford a better $7 product because a $43 margin wouldn’t be enough (that’s still over a seven hundred times mark up). Or that a manufacturing company would tattle on their clients like this and risk losing literally millions of dollars in business. Kind of hard to believe, isn’t it? It would be great if we were able to verify Taylor’s sensationalistic anecdotes, but unfortunately he does not place the same level of substantiation and verification on his own claims as he demands we do on ours.
        There are pyramid schemes, and there are legitimate, legal network marketing businesses. There are numerous laws and countless legal precedence spanning several decades supporting this delineation. This dichotomy has been defined and refined by literally hundreds of judges, attorneys, law enforcement personnel, the FTC, Attorney Generals, district attorneys, and various other local, state and federal regulators, as well as the Better Business Bureau and Chamber of Commerce. We are now asked to believe that they are all wrong, and Jon Taylor is right. At one point in Taylor’s manifesto he rhetorically states, “While researching this subject, I often asked myself why is MLM so pyramidal in concept, motivation, and effects, and yet has been so successful in avoiding the label of ‘pyramid scheme.'” In researching Taylor’s position, I often asked myself why he so utterly fails to accept, or even acknowledge the simplest, most obvious answer – because they’re not.

        The last two installments of this series will deal with general anti-MLM concepts and accusations, such as market saturation, exploiting relationships, and high distributor failure rates, among others. I’m done with rebutting specific anti-MLM zealots – unless there’s another one you think deserves the scrutiny. If so, please let me know.
        For the record, all those individuals discussed in this column were invited to provide supporting data to defend their expertise of this subject. Jon Taylor did provide a short, general outline of his research, but refused to provide any financial data to support his claim of past “success” in MLM. Dean Van Druff’s response was mostly a rude, childish attack on my intelligence. Ruth Carter referred only to her personal experience in Amway several years ago. Robert FitzPatrick never responded at all.