Anti-MLM Zealots –Part VIII

Product Based Pyramid Schemes – Jon Taylor

        The most prolific of the anti-MLM group is Jon Taylor, Ph.D., a graduate of Brigham Young University with an MBA is Applied Psychology, who has over 30 years of sales, marketing, and entrepreneurial experience.
        Mr. Taylor has spent several years cranking out anti-MLM material, including a 40,000 word manifesto titled “Product Based Pyramid Schemes.” Its essentially a 5,000 word thesis with the same points repeated over and over. The basis for Taylor’s argument is that he was, in fact, a “successful” distributor who one day had a lucid moment and decided to turn hostile witness. He came to believe that no one else after him could become successful since they were now at the “bottom” of the pyramid
        Taylor claims he spent two years researching MLM, first as a distributor determined to give it “every chance of proving what it claims to be,” then as a researcher determined to find out if everyone had as much trouble as he did making “large amounts of money that were promised to the diligent.” First, I’m not sure if a less-then-two-year participation in one particular MLM company (out of hundreds) could be classified as “diligent” nor provides an entire industry “every chance” to prove itself. It seems as if Taylor feels that if it didn’t work for him, in this one company, there must be something wrong with the entire industry. Secondly, I thought Taylor was a “successful” distributor? Indeed, he claims to have been among the “top 1% of the distributors.” What’s more, the company he was in was Nu Skin. If he genuinely achieved the success he claims to have achieved, in less than two years, with one of the industry’s most challenging break-away compensation plans, in an already huge company like Nu Skin, his own experience would seem to completely contradict his own position. The fact that it was unexpectedly “tough” only goes to discredit the manner in which he was presented the opportunity, and his own investigative skills. Surely he does not believe that the way one group of distributors for one company pitched him is indicative of how all seven million of us operate. Does he?
        In detailing his MLM experience he describes how he “jumped in with both feet” and dropped all of his other business interests. He then later discusses how he “had financially fallen behind to a significant degree” due mainly to “all the product (he) purchased to maintain artificial qualifying standards (quotas) for ever higher bonus and commission levels.” Also due to “not having any alternative income during that time.” Now he seems to be contradicting his own rebuttal to those who claim his MLM attacks are due to “sour grapes.” He responds to such claims by claiming he was “not a failure” and “rose to the top 1% of all those who tried this program.” Yet, literally on the same page of his report he claims he “came away empty.” The only way to logically reconcile his seemingly contradictory story is to assume he earned a substantial gross income, but due to his excessive expenses earned no net income. This begs the question, who held a gun to Taylor’s head and forced him to quit his other businesses and buy a garage full of products to artificially meet his quotas? Indeed, these were conscious, voluntary decisions made entirely by Taylor. Nu Skin’s “group volume” requirements were to be produced by Taylor – and his group! By buying into the “Executive” position out of his own pocket he allowed himself to earn higher override percentages on his downline, that’s true. But if his downline were large enough to warrant such an action then most or all of the group volume quota would have been met by his group’s volume. Otherwise, his upfront purchases would have only earned him higher commissions on a downline that didn’t exist yet! How ever you look at it, these were simply poor business decisions, the responsibility for which were entirely Taylor’s. What’s more, MLM income is residual and not dependent on those expenses continuing (other than his personal volume quota which was $100 at the time). Most successful distributors plow much of their income back into their business the first few years, then back off and live off their handsome residual overrides. That’s just how MLM works. For that matter, that’s how business works. The challenge Taylor describes related to his own MLM experience have nothing whatsoever to do with the MLM model or it’s legality and everything to do with his own misguided expectations and those individuals who misguided him. In other words, his problem is really with the packaging, not the content.
        Yes, many Nu Skin reps back then (very early 90’s) were pushing front loads and stockpiling of product, and the income hype was rampant. In fact, that’s the reason I quit Nu Skin back then! Such actions are indefensible. However, Taylor states that “had a government investigator… gone undercover as a MLM distributor… he/she would have probably come up with similar conclusions.” But – they did! Nu Skin was hit hard by various state and federal authorities soon after Taylor and I departed. The catalyst for these actions were the very things he attacks. This was a very high profile case resulting in a lot of media play. Did he completely miss it?
        For the record, Nu Skin has settled all their legal issues from back then and have since reformed many of their marketing practices.
        In an effort to prove his contention that very few people ever succeeded in MLM, Taylor sent a survey to 60 prominent MLM companies requesting detailed pay out data (such as the monthly earnings of the “top 1%” of distributors). Today he presents the fact that not a single company responded to his survey as supporting evidence of his position, rather than due to any lack of credibility he had with these companies, or the fact that his survey was grossly flawed in that it did not take into consideration something as simple as the size and age of the company.
        In Taylor’s “Twelve Tests for Evaluating A Network Marketing Opportunity” he stumbled on the very first sentence where he refers to “Gifting Network” among a list of network marketing aliases (such as MLM, Consumer Direct Marketing, etc.). I believe this mistake is due more to his obvious bias towards the negative rather than due to a lack of research on his part. Even the most cursory investigation would have revealed that gifting clubs are patently illegal, cash based operations (there are no products involved) far removed from legal MLM programs, and the terms have never been synonymous within the industry, or at any regulatory level.
        One of his “evaluation test” questions is “are numerous levels of distributors allowed?” Of course, there are numerous (if we assume that to be more than five) levels in virtually every MLM company. The idea that more than two or three levels of pay out constitutes an illegal pyramid is an invention all Taylor’s. No legal authority in U.S. history has ever held the same opinion.
        Yet another example of surprisingly shallow thinking on Taylor’s part (who is otherwise clearly a bright guy) is the statement that “in some programs, quitting merely enhances the income of your upline – because income ‘rolls up’ to those above you.” Okay, let’s think about this. If someone were making any significant amount of income, why would they quit? If they were making very little income, then very little would roll up. As most experienced MLMers would attest, “roll up” is a very overrated income generator. The vast majority of upline reps would benefit more by the commission they earn on their downline’s personal purchases and sales than they would from roll up of their income if they quit. To suggest otherwise demonstrates a gross ignorance of basic MLM theory.
        In yet another example of loaded questions he advises you to ask (there are many throughout Taylor’s work) he suggests prospects ask distributors who have only been working the business two or three months if they are turning a “respectable profit,” then goes on to say that if they are not, then they are only “fattening the pockets of their upline.” Taylor has a penchant for “set up” lines like this. Very few reps would be making a profit of any amount after just two or three months. Indeed, to suggest significant profits can be earned in that short a time is the very type of hypey, over-stated promise that Taylor warns against! Furthermore, typical income progressions, based on real-world analysis of those who’ve worked a good opportunity long enough to create one, show a very slow growth pattern in the early stages followed by more rapid growth months later. Inevitably, the rate of increase will begin to increase, creating a “momentum” phase within an individuals own organization. A typical income progression chart would not show a 45º diagonal line, but one that looked more like the path of an airplane taking off from a starting point at the beginning of the runway. This income acceleration may not occur until the second, or even third year. The fact that most distributors choose to drop out long before then is a failure of their own tenacity and ignorance of how incomes truly progress in MLM – not a failure of the MLM concept. So, even after this magnitude of research performed by Taylor, are we to believe he still doesn’t understand a typical, common MLM income progression?
        Another “set up” question he suggests you ask of your MLM company is for net pay out data, after subtracting product purchases, for all distributors who ever signed up! Yes, even those who quit many yeas ago. Is he really so naive to think that such data exists, or even if it does, that any company would provide it? Of course he isn’t. He already knows they won’t, or can’t provide it (based on his own attempts). So why would he suggest you all try to acquire the same information? Besides, can you imagine the accounting nightmare, not to mention the data storage requirements, for major, decades old companies like Amway, Mary Kay, Shaklee or Herbalife to be able to accommodate such a request. Of course they are not going to provide it – and Taylor knew they wouldn’t when he wrote his “Income Disclosure Test.” It’s just another set up.
        We’re set up again by Taylor’s suggested “acid test” as to potential profitability of an MLM distributor. He suggests you ask your sponsor to show you his/her last year’s tax return. Again, this is wrong on multiple levels. First, a tax return is a document designed to show the least possible amount of income legally allowed, which factors in a wide variety of common expenses that may still have been incurred but otherwise not be deductible (if they hadn’t been running a legitimate MLM business). Also, how does the success of your prospective sponsor in any way effect your potential success? So what if that one individual had a bad year last year? Does that mean you will? Furthermore, asking someone how much money they make is a rude, very personal question to ask, isn’t it? It certainly is in every other profession (its also hypocritical for Taylor to suggest it considering he refused to provide me with any evidence of his own alleged “success” in MLM). And finally, to abide the question can be illegal! Using income claims, especially by showing checks, 1099s, or 1040’s, as an inducement to join an MLM program is considered one of the most taboo practices by the MLM industry at large. There is much legal precedent that Taylor’s own proposed question could be an act of entrapment. In fact, this very issue was a major part of state and federal actions against Nu Skin back in the early 90’s – the very MLM company Taylor claims to have once been so closely associated with!
        Taylor suggest you get a copy of your sponsor’s genealogy, including upline, giving no regard to the fact that this is tantamount to asking for a company’s client list (which, of course, would be a foolish request), or that genealogies that include uplines (other than the sponsor) are rare. What’s even worse is that he suggests you get this information for the purpose of polling reps at various levels to see how many of them have achieved “time freedom” with no regard to the fact that, as I described earlier, one’s time investment in their MLM business typically takes on a bell shaped curve spread over several years. It would seem obvious that one would be able to quit their job and comfortably live off “residual income” only after months or years of time consuming work. Once again, either Taylor is genuinely oblivious to what is common knowledge to any experienced MLMer, or he’s fully aware of this basic, fundamental fact of MLM life and he simply disregards it in a biased attempt to manufacture a negative argument.
        Taylor continues his string of trap questions by proposing that prospects should check to see if the company offers training, audio and video tapes, and various other sales aids for free, or are you expected to pay for them as another profit center for the company and upline? Are we to believe that he never thought of a third possibility – that the tools are sold at or below cost? Of course, Taylor surely knows that every MLM company charges something for their training and sales tools, so why suggest you even ask? Furthermore, in the vast majority of MLM programs operating today, these tools are indeed sold at or very near cost. To mark up videos and audios significantly would mean the company itself would be making money by recruiting (since only recruits would buy sales aids), which would be a huge red flag to regulators. Companies are just as forbidden from making money from recruitment as distributors are. Also, no legal MLM company pays commissions on training and sales aids (sure, a few do pay on training, but notice I said “legal” MLM companies, which are the vast majority, and which do not pay on training). Furthermore, all but a very few, albeit very large, MLM companies don’t even allow their reps to produce and resell training and sales tools at cost, let alone at a profit.

        I’ve only just begun to pick apart the illogic and ignorance of Taylor’s anti-MLM material. In coming issues I’ll show you his evidence that playing the slots in Vegas provides a greater financial return than an MLM opportunity. He’s even got a graph to prove it! And wait to you hear his solution to the non-existent “saturation” dilemma. And you’ll find no greater example of “selective memory” than the interview he did of a pro-MLM authority in his alleged attempt to get “all sides” of the issue before presenting his findings. He interviewed me. His portrayal (betrayal?) of my information is so self serving and skewed as to suggest deliberate deception. See ya’ next month!