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The Tax People: Response & Rebuttal

January 4, 2013 1 Comment

For those of you who are following the saga of Renaissance/The Tax People and have read my original expose’ (first published in November, 2000), you might also be aware of the alleged response by TTP CEO Michael Cooper. I say “alleged” because I do have doubts as to how much, if any, involvement Mr. Cooper actually had in constructing this response. Michael Cooper is a smart guy. These responses are not smart. I suspect they are actually the work of a TTP supporter who may have been working on behalf of Cooper. However, since Cooper has now had ample opportunity to disassociate himself from this response, I am going forward with this rebuttal assuming he at least has sanctioned it.

Let’s begin with the statement that introduces Cooper’s response: “CEO Mike Cooper’s point-by-point response of Len Clements widely read ‘case study’ of TheTaxPeople.net. Clements was apparently involved in several MLM organizations in the past with Mike.”

We’re off to a bad start. I was briefly involved as a distributor with a company operated by Cooper called Network Institute back in 1992. That’s it.

1984: Michael Cooper discovers network marketing. He has initial success as a distributor only to see the company fail. TRUE

1989: Cooper is the Executive VP and founder of National Energy Specialists Association (NESA). FALSE

ONLY PART-TRUE – NESA was incorporated as a not-for-profit trade association in 1984 with Mike Cooper as Executive Director, where he served until 1989. In 1989 and 1990, he was Executive Vice President of Eagle Shield, Inc., in Dallas — where he helped to build annual company sales to over $100 million a year.

REBUTTAL: Okay, he was the Executive “Director” of NEPA in 1989, not the Executive “VP.” Otherwise, the entire statement is not only TRUE, the response just confirmed it.

1991: Cooper is the National Director of Training for American Gold Eagle, a gold coin MLM, and one of the early pioneers of the binary compensation plan. AGE is eventually shut down for securities and pyramid violations (they claimed the Gold Eagle coins were a great “investment”). The pyramid label was due mainly to AGE reps buying product solely to acquire additional income positions in the compensation plan (the emphasis was on recruitment, not actual sales of the products — keep that in mind for later). [Comment: The founders of AGE, David and Martha Crowe, will go on to found Gold Unlimited (without Cooper), which will also be shut down with 11 criminal counts against David and 10 against Martha. The Crowe’s fled prosecution and were recently featured on the TV show “America’s Most Wanted”]. FALSE

ONLY PART-TRUE – Mike Cooper was only with them for only a few months, questioned their ethics and reported in writing irregularities of the business to the North Carolina Attorney General’s office — which lead to his being one of the “key” prosecution witnesses against the Crowe’s. When asked to testify against them, he paid his own airfare and hotel expenses to North Carolina — and refused reimbursement from the government.

REBUTTAL: Again, the response to the statement labeled as “FALSE” essentially confirms the statement. Note that all I said about Cooper was that he was the National Training Director for American Gold Eagle. I made no comment as to the duration of his tenure, his motivation for leaving, nor his post-participation actions. Every word of the events described concerning AGE are accurate (which Cooper does not deny). So, exactly what was “FALSE” in my original statement?

The point of this statement was not to question the ethics of Cooper, but to point out his close, first hand experience with what was deemed to be an illegal pyramid scheme. This experience should have made him acutely aware of what defines such a scheme. That being, the paying of commission on sales volume that is only produced by distributors (thus requiring recruitment to get paid). This experience should have made him acutely aware of the legal vulnerability of offering $1,200 “Founder’s Packs” and requiring $400 per month (for redundant monthly services) to qualify four business centers.

1992: Cooper is the founder and President of Network Institute, also a binary, which deals primarily with productivity tools. The main product is the Management Action Planner (called MAP), an elaborate, leather bound time management and productivity system. The MAP sells for $295. There is a monthly $30 charge that includes supplies for the MAP, access to a phone training system called “One Minute Manager” and a tax deduction tracking system called Tax Tracker. TRUE

1993: Cooper sells Network Institute to his partner and takes the position of Executive Vice President of a start up long distance reseller called TeleFriend (which used a unilevel comp plan). Soon after, Network Institute is merged into TeleFriend as a distributor support system. FALSE

ONLY PART-TRUE – Mike Cooper and John Meadows use the Institute training systems to build the largest and fastest growing downline in TeleFriend, which prompts the company to buy the company and move both of them to their home office in Tennessee, where Mike is made Executive Vice President.

REBUTTAL: So, everything I just said is TRUE, except that I claimed Cooper sold Network Institute to his partner before taking the corporate position with TeleFriend. Well, the only reason I made this claim is because that’s what Michael Cooper told me he did! I have a very clear memory of him saying to me, during a phone conversation, that he had sold the company to John Meadows.

1993: Later this same year Cooper leaves TeleFriend on unfriendly terms. 1994: Cooper assumes the position as President of a small network marketing company called Truly Special (TRI). TRI sold specialty foods manufactured by it’s parent company Briarwood Farms. FALSE

ONLY PART-TRUE – After a year long dispute with TeleFriend owners on behalf of his downline and all other distributors because the company is not providing the telephone service promised nor paying the distributors. The owners then share their plans to bankrupt TeleFriend and launch a new company to begin selling a $200 telephone debit card pyramid. Mike refused to participate, resigned, and took a computer consulting position with Truly Special in October, 1994. In December, he was named President of Truly Special just days before legal action is taken against the company for promoting the sale of their stock before Mike joined them. Mike never promoted the stock, and as the new President, immediately prohibited the promotion of the stock just days before legal action commenced. But as the new President, he was a company officer and was named in the action as well.

REBUTTAL: Here is perhaps the single most damning response. Either Michael Cooper is outright lying, or the author of this response is, in fact, NOT Michael Cooper (thus, the author who wrote this response is outright lying about the responses coming from Cooper).

First, note the three sentences in the original point. Once again, the response specifically confirms each sentence, word for word (yet, once again, the author labels the point as “FALSE”).

“In December, he was named President of Truly Special just days before legal action is taken against the company for promoting the sale of their stock before Mike joined them.” Now I get to say it… FALSE. I have in my possession a tape recording of two separate live presentations (one a conference call the other a meeting) given by Cooper in early November of 1994. Several times during the meeting he refers to “last Tuesday” as being “the very first day of the company.”

“Mike never promoted the stock, and as the new President, immediately prohibited the promotion of the stock just days before legal action commenced.” FALSE. During these recorded presentations he heavily promotes the stock sale. “We have a very simple monthly stock purchase plan. Any associate can participate if they wish, it’s $25.00 per month minimum.” He also states, “Most multilevel companies can’t even begin to be approved in all the regulatory manners that need to be to be on the stock market. Our company already is.” [Emphasis mine] Truly Special was not approved to be on the stock market, nor was it approved to sell stock.

November, 1994: Cooper and other senior personnel of TRI begin holding meetings where potential incomes of $100,000 are touted with an initial “investment” of $100. Also, shares of common stock in a company called Aunt Myra’s (AMI), a non-MLM marketer of ground beef seasoning, is offered for sale to participants in TRI. During this time Cooper also conducts live, national opportunity calls. [Comment: On one such call, which I was listening in on, Cooper questions the reasoning behind distributor requests for him to focus more on the value of the products. He responds, “If I told you you could make $10,000 a month selling horse manure, would you care what the product was?”] FALSE

ONLY PART-TRUE – Mike Cooper never promoted “investments” in any MLM. A gift box of gourmet foods, similar to a large basket from Hickory Farms was sold for $100. Mike Cooper NEVER used the “horse manure” example. He did use the “peanuts, popcorn, or pantyhose” example as a theoretical discussion of analyzing the profit potential of a business before starting one. Whether you like the idea of selling pantyhose, wouldn’t you like to have been the first to market “Peter Pan,” “Orville Reddenbacker,” or “Leggs” pantyhose? (whether you wear them or not)?

REBUTTAL: During these recorded presentations Cooper uses the terms “invest” and “investment” numerous times. At one point Cooper rhetorically asks the audience if they’d become involved if the “total business investment was $100 [to make] $100,000 per year?” And yes, he absolutely did use the “horse manure analogy (I was on the call and heard it with my own ears).

December, 1994: Truly Special, Cooper, and other senior management are hit with an “Emergency Cease and Desist” order by the Securities Division of the Kansas Attorney General’s office for selling unregistered securities without a license. Aunt Myra’s is not a public company and it’s stock cannot be legally sold. Furthermore, there are charges that TRI itself is an illegally sold security based on the $100 “investment,” and the heavy emphasis placed on recruiting others to invest, rather than product sales. The state’s charges also include various full-disclosure violations, such as; they failed to disclose to investors that in 1987 Aunt Myra’s was hit with a Cease & Desist order for having violated various provisions of the Kansas securities laws, and in 1989 AMI’s President and Chairman Gary Kershner was found guilty of two felony counts of selling unregistered securities. FALSE

ONLY PART-TRUE – Aunt Myra’s was, and to the best of our knowledge, is still a publicly traded company whose stock can be legally bought and sold (but not highly recommended at this time by anyone we know). It went from inactive at $0.02 to over $0.18 (900% increase in price) in less than 90 days with Mike Cooper as President, and back to inactive at about $0.02 or less in the months immediately following his resignation to start Renaissance.

REBUTTAL: I conducted several searches, including an EDGAR search at the SEC web site, and found no record of a public company called “Aunt Myra’s.” That doesn’t mean there wasn’t in 1994, so I’ll concede that is was a public company. But that has nothing to do with the point! (It’s a nice dodge, though). Whether it was public or not, neither Truly Special, nor their reps (or Cooper) were licensed to sell stock. That was the issue. Also, Cooper was not the president of Aunt Myra’s. Aunt Myra’s was the parent company of Briarwood Farms, and Truly Special was the marketing arm of Briarwood Farms.

Early 1995: TRI and Cooper are again under investigation by the KS AG’s office. This time the focus is on pyramid violations rather than securities violations. Once again, the catalyst to the investigation is the heavy emphasis on recruitment rather than product sales. Within weeks, Cooper closes down the company. FALSE

ONLY PART-TRUE – The securities action based on the stock option plan of the company, and the AG investigation of the MLM program were concurrent, and both resolved in short order with consent orders admitting none of the allegations, and no charges were pressed.

REBUTTAL: Reread the original statement declared “FALSE” and then try to find anything in the response that even begins to debunk the statement. So the two actions overlapped. So what? Where did I say they were not concurrent, and how does this disprove the statement? In fact, the consent order for the securities action was signed by Cooper in December of 1994 and the order regarding the pyramid action was signed in April of 1996. But why are we even wasting time on this one? It appears to be a desperate attempt to place “FALSE” after as many statements as possible.

June, 1995: Cooper launches Renaissance Designer Gallery, a marketer of high ticket goods such as jewelry, art, collectibles, and gourmet food. He is the majority shareholder, owning 64.04% of it’s common stock. FALSE

ONLY PART-TRUE – Renaissance was originally a marketer of some of the most highly DISCOUNTED priced goods in the jewelry, art and collectible fields. Renaissance expanded into additional product lines from Wrangler blue jeans to gourmet foods as we grew. Mike Cooper was the majority shareholder, owning 90% of the stock, the other 10% “gifted” to the two other principles in gratitude for their steadfast loyalty and hard work over several years they had worked with him through their painful experiences in TeleFriend, Network Institute, and Truly Special.

REBUTTAL: So, the only thing “FALSE” about the entire statement is the 64.04% figure (the response, once again, confirms the accuracy of the rest of the statement). Actually, it is true that he didn’t own 64.04% of the stock in June of 1995. He owned 64.04% of the common stock in September of 1998 when he was again accused of securities violations (we’ll get to that in a moment).

April, 1996: Cooper signs a posthumous Consent Judgment pursuant to the KS AG’s investigation of Truly Special. He agrees to be “permanently enjoined from engaging in those acts and practices alleged to be deceptive or unconscionable… (and) agree that engaging in such acts or similar acts, after the date of this Consent Judgment, shall constitute a violation of this order.” [Comment: Cooper also agrees, and is now legally obligated, to disclose the existent and provisions of the Judgment to all of his (not Truly Special’s) future employees, agents and representatives for the next two years. Allegedly, he has not done so.] FALSE

ONLY PART-TRUE – The consent order only required the company Truly Special and Mike Cooper to disclose to Truly Special employees, agents and representatives those provisions. As Mike Cooper was no longer affiliated with Truly Special, he had no control over what that company disclosed or not.

REBUTTAL: I’ve got a copy of the Consent Order. It clearly states that Cooper must disclose the Judgment to all of “his” future business associates. Furthermore, his failure to disclose this Judgment was cited in the 1998 securities action against Renaissance.

November, 1997: Advantage International Marketing (AIM) is formed as a division of Renaissance to market tax related products and services. By the end of 1997 AIM has 489 distributors. AIM would eventually be known as The Tax People. March, 1998: Renaissance purportedly has 20,933 distributors. AIM now has 1,648. May, 1998: During a special interactive teleconference call several hundred AIM reps are introduced to “Commitment 2000.” Cooper himself describes how all AIM reps who will commit, in writing, to simply remaining active in the company until January, 2000 will receive 1,000 shares of stock in the company “regardless of whether they ever make a sale.” He further explains that an additional 1,000 shares of stock will be issued for every sale (of the $300 Tax Advantage System) that is made. In addition, he claims 1,000 shares of this stock is “worth today over $40,000.” He concludes by cautioning against promoting or advertising the deal by means other than private invitations. He refers to the information related on the call as “double secret stuff” and further comments “There are no misdemeanors in securities violations.” FALSE

ONLY PART-TRUE – Based on what was believed to be competent legal advice, the C2000 stock was promised to IMAs at that time as a GIFT for believing and sticking with the company through the year 2000. It was “secret” only to the extent that they were warned not to make the stock part of the sales process as it was only for IMAs in the company prior to the upcoming annual convention, and no others. This call, which was recorded, specifically attached no value to the stock, but contemplates that it may or may not be valuable in the future, just as Prepaid stock went from 50¢ to as high as $40 per share.

REBUTTAL: I got my information from the Notice of Intent to Invoke Administrative Sanctions (Docket No. 99E027). If you were to obtain this document (which you can – it’s in the public domain) you can see for yourself. For example, Part 16, Section (e) quotes Cooper as saying the stock of Renaissance is “worth today $40 a share.” However, there appears there may have been some confusion on the part of the state’s investigator as to what Cooper was referring to when he mentions the value of “prepaid” stock. It looks like Cooper was using Prepaid Legal’s stock as an example, and the investigator may have thought he was referring to Renaissance stock. I’ll give them the benefit of the doubt on this one, so let’s strike the line “In addition, he claims 1,000 shares of this stock is worth today over $40,000.” Otherwise, every other word of this section is verifiably factual.

June, 1998: Cooper files form SB-2 with the SEC in preparation to register common stock in Renaissance for the purpose of sale and distribution to distributors per the “Commitment 2000” announcement made in May. FALSE

ONLY PART-TRUE – The SEC filing was made in a proper and orderly fashion to effect a normal initial public offering for the company stock, and had nothing to do with C2000.

REBUTTAL: Really? So, three years after Renaissance opens for business Cooper announces the stock promotion, then one month later files with the SEC to offer stock, and that’s just a coincidence?

August, 1998: Cooper applies to the SEC for withdrawal of their Registration Statement citing their inability to secure a broker/dealer required for registration purposes in several states. FALSE

ONLY PART-TRUE – Based upon the Kansas Securities office advising us that they had a problem with the C2000 stock “gift,” the IPO registration was voluntarily withdrawn until this issue was resolved. The company did have multiple broker-dealers and market makers ready to handle the IPO and sales of company stock in a totally proper and legal manner.

REBUTTAL: Again, strong evidence that Michael Cooper had nothing to do with this response. Surely he would know that anyone can go to the SEC web site (www.sec.gov) and simply look at this withdrawal application, which states “The Registrant has been unable to secure a broker/dealer required for Registration purposes.” Also, he would have nailed me for getting the date wrong. This withdrawal application was actually filed on February, 2000.

September, 1998: Cooper is again sanctioned by the Securities Division of the Kansas AG’s office. Again it’s for offering unregistered securities (stock in his company, which was not yet registered) and for “omissions and misrepresentations” concerning the offer. For example, disclosure documents filed by the company revealed that the tangible book value of the stock was less than 0.005 cents per share — not $40 per share as was announced on the “Commitment 2000” call. The proposed offer price was 10 cents per share. Plus, distributors were never told during the call that not only was the stock not registered, there had not yet even been any action taken to register it. Cooper is forced to rescind the “Challenge 2000” offer to the 1,196 who signed up for it. [Comment: It should be noted here that based on the definition of a security (SEC vs. W. J. Howey Co., 1946) the “investment” made in exchange for stock need only be “consideration.” That being; money, gold dust, chickens, labor — anything of value. Indeed, the SEC has even defined a “promise” as being “consideration.”] FALSE

ONLY PART-TRUE – The consent order in this matter was based simply on the conflict of semantics and legal interpretation. We were told that we could give away our stock for FREE if we wished. The state decided to view this as an “offer to sell” for ZERO cost. An “offer to sell” must be made by a broker dealer of a registered security. Only by this definition or interpretation could any “sanction” be levied, which was a $10,000 fine in this case. All promised stock has since been delivered to over 1,100 IMA/stockholders, as ONLY FOUR people out of almost 1,200 took the refund which was offered as part of this settlement.

REBUTTAL: Yet again, the response confirms the original “false” statement. Cooper was sanctioned for selling unregistered securities. What, exactly, was “false” about my statement?

October, 1998: The Kansas Attorney General’s office appoints a Special Agent to begin a formal investigation into the business practices of TTP.

TRUE/FALSE? Who knows? Investigators are assigned to investigate companies as a daily practice in an investigative agency.

REBUTTAL: I know. Because I asked an investigator in this case when the Special Agent was first assigned.

May, 1999: Dan Gleason, President of My Tax Man, resigns from the Board of Directors of AIM/TTP citing a difference in product philosophy. My Tax Man is the company hired to fulfill the monthly tax services supplied by AIM/TTP, such as audit protection, 1040 preparation and review, telephone consultation, etc. FALSE

ONLY PART-TRUE – Gleason tenders, then withdraws his resignation in an attempt to triple his fees while not providing the contracted services. This was the only “difference in product philosophy” discussed. After carefully explaining the several terms of Gleason’s contract that were not being fulfilled by Gleason, Gleason then agrees to continue with the company, and is issued a five-figure check for providing June services to our customers, then not only does he fail to deliver the contracted services, but is actively on national conference calls for a new competitive tax service making negative comments about TheTaxPeople.net.

REBUTTAL: Dan Gleason tells a very different story (to me, and to the court, under oath). All I said was that he resigned in May of 1999. He did.

June, 1999: My Tax Man sends a “Termination of Service” to Cooper announcing they will no longer be providing the ongoing monthly services. [Comments: This may well be one of those “you can’t quit ’cause you’re fired” deals. Gleason claims there was a falling out between him and Cooper resulting in a demise of contract negotiations, so he terminated the agreement. Cooper claims he terminated the services of My Tax Man which may explain why no further contract negotiations were offered by TTP. We’ll likely never know who really terminated who first. However, Gleason did initiate his company’s separation from TTP.] FALSE
ONLY PART-TRUE – Gleason does send a termination of service letter to TTP, but only after the phone call where he was called to answer for his unethical conduct, and Gleason’s contract was terminated on that call by the company — and both parties confirmed that termination via mail.

REBUTTAL: Again, there is no need to rebut anything since the response confirms the original statement.

July, 1999: TTP comes under investigation by the Securities Enforcement Division of the Attorney General’s office of Hawaii for possible pyramid and securities violations. TRUE/FALSE?

ONLY PART-TRUE – Yes, Hawaii regulators did their job, investigated TTP and no action was taken against the company. Many other states have inquired for information from TTP over the years, and some could call these “investigations” if they wished. However, we view it as regulators simply doing their jobs, and upon review of our materials and company, no state but Kansas has taken any action against TTP.

REBUTTAL: First of all, this was not an “inquiry.” I spoke directly to a representative of the SED who said the “investigation” was concerning the “possible” operation of an illegal pyramid. Also, when a home state AG issues a Temporary Restraining Order and is seeking an Injunction against a company, it is non uncommon for other state and/or federal investigations to lay back and await the outcome. Obviously, it makes no sense for Hawaii, or any other state, to continue to use up resources investigating a company that may be put out of business soon by another agency.

Summer, 1999: The Missouri AG’s office begins an investigation of TTP. FALSE

ONLY PART-TRUE – See above.

REBUTTAL: The statement is verifiably true and the response essentially confirms it. This is one of many cases where the respondent, whomever it is, just likes to put “False” after everything.

August, 1999: My Tax Man is issued a subpoena by the KS Attorney General’s office demanding the TTP member database. That same month Dan Gleason is deposed by the KS AG’s investigating attorney. An agent from the Criminal Division of the IRS is present for the deposition. FALSE

ONLY PART-TRUE – We have reason to believe Gleason / “My Tax Man” instigated this subpoena through proactive campaign to smear TTP’s name and reputation. The very same tax strategies and marketing he endorsed as a paid contractor for TTP are now marketed by “My Tax Man” as the “Tax Toolbox,” yet he keeps a straight face while he says we are “bad,” but his copycat program is “good.” TTP filed suit against Gleason, which is ultimately “settled to the satisfaction of all parties.”

REBUTTAL: You are probably seeing a pattern here. Regardless of the alleged impetus for the AG subpoena of the TTP database or the deposition of Gleason, these events absolutely did occur during the date specified. Not one word of the response in any way disproves one word of my statement which was labeled “false.”

August, 1999: Sandy Botkin, founder of the Tax Reduction Institute and author of TTP’s “Tax Relief System” officially parts ways with TTP, demanding that TTP discontinue use of his products, name and likeness. [Comment: Botkin claims he verbally requested that TTP stop using his name and material as early as May. The Tax Relief System was the up front $300 product purchased by new TTP reps which activated their position in the compensation plan.] FALSE

ONLY PART-TRUE – Botkin was hired in early 1997 to be the voice on the “Ex-IRS Agents Don’t Lie” audio tape scripted, produced and owned by TTP. The Tax Advantage System (TAS) sold at that time was written and printed well before TTP even knew Botkin existed. He was never listed as an author and was never paid anything for or on the sales of the TAS, of which he had no interest.

REBUTTAL: In an interview with Botkin he stated that it was his material. But then, so did Michael Cooper on the a fore mentioned audio tape! Botkin refers to “the program we put together” and “my system” right on the tape, and Cooper, who is interviewing Botkin, refers to the TAS as “your course” and twice as “your program.” But again, debating this issue appears to be an attempt to deflect attention from the real concern: that being, Botkin no longer wished to be associated with TTP and did demand to have his name and material disassociated with it – and TTP continued to use this tape long after Botkin was gone.

January, 2000: Sandy Botkin sues TTP for continuing to use his name, and for using promotional material that suggested they were still using his tax education package as their Tax Relief System. [Comment: Several months after I had first heard that Botkin had completely disassociated himself with TTP I received in the mail, unsolicited, an audio tape featuring an interview between Michael Cooper and Sandy Botkin praising the benefits of Botkin’s “Tax Relief System.” I discovered that, in fact, the tape was still a TTP supplied sales aid even though the product being sold by TTP was no longer Botkin’s.] FALSE

ONLY PART-TRUE – TTP sues Botkin in September, 1998, in order to terminate his contract. The lawsuit is ultimately “settled to the satisfaction of all parties.” Botkin never sued TTP. The “Ex-IRS Agents Don’t Lie” audio tapes were always owned by TTP, not Botkin, and many independent reps used their inventory as they wished even after TTP stopped promoting Botkin in any way. The tape was one of many successes for TTP.

REBUTTAL: Botkin’s version of events is practically the exact opposite.

April, 2000: Cooper and TTP are the subject of a moderately negative article in The Kansas City Star newspaper [Comments: Within the article Cooper responds to questions concerning his involvement with Truly Special by saying he took the president position weeks before the legal complaint was filed and was unaware of the company’s legal problems. However, within that complaint it is stated, “Defendant Cooper is an individual who was President of Truly Special, Inc. during the time the acts alleged in paragraph eight occurred.” It further states, in paragraph eight, that “…the following acts and practices by Defendants Cooper and (co-defendant) were deceptive and/or unconscionable and violate the Kansas Consumer Protection Act….” Cooper’s signature appears at the end of the Judgment.] FALSE

ONLY PART-TRUE – Allegations are just that, and are often more misleading than any actions of the defendants. This is why it also states in that document that the defendants specifically DENY ALL ALLEGATIONS made herein, and that NO ADMISSIONS are made as part of agreeing to such an order.

REBUTTAL: Another attempt to deflect attention from the point, which has to do with the timing, not the validity of the accusations. Revisit the Rebuttal to the 1993/1994 Response above. Based on this evidence and the above assertions in the legal complaint, Cooper’s claim of ignorance and innocence regarding the 1994 action seems dubious – and curiously ignored in the response.

April, 2000: The Criminal Division of the IRS demands the latest TTP member database from My Tax Man, which they supply. FALSE

ONLY PART-TRUE – Again, we have reason to believe that a vindictive Gleason / “My Tax Man” instigated contact with the IRS with the intent to disrupt our business. As TTP was plaintiff in a suit against Gleason, he may have asked for these demands to be made of him so that he would not violate or compound the litigation. So, this may or may not have happened, but as Gleason had no access to TTP databases for almost two years, it is largely irrelevant.

REBUTTAL: I wonder if having your records sent, by demand, to the IRS is “largely irrelevant” to the 20,933 distributors they allegedly had two years earlier. Also, note the response essentially says this statement is “false” because it “may or may not have happened.” I hope who ever wrote this for Cooper is not a defense attorney.

May, 2000: W. Bradford Murray sues TTP in Federal court for copyright infringement claiming much of the tax advise in the new Tax Relief System was taken verbatim from his work. The company claims it acquired the rights legally through an intermediary. FALSE

ONLY PART-TRUE – TTP has never seen any work published by Bradford, and would not even know who he is, other than being told by Botkin that he and his former partner, Bradford have an ongoing conflict as to who really authored or owns Botkin’s workbook titled “Tax Advantages in the 1990s.” Bradford’s suit against TTP has been dismissed.

REBUTTAL: This one’s strange. My statement is only two sentences. The first one describes the negative event, the second one offers TTP a defense. The response confirms the negative event (Murray did sue TTP), and denies the defense. The Murray suit would have been dismissed after my article was written.

May, 2000: The KS AG’s office reports 27 formal complaints have been filed against Renaissance, AIM and TTP dating back to 1995. Fourteen are still open (unresolved). FALSE
ONLY PART-TRUE – These “formal complaints” consist of “letters” asking for unreasonable refunds, generally following many months (or years) of tax services provided, and often following earning thousands in commissions and bonuses. Several were prompted by Gleason/Botkin fans who quit TTP to work with Gleason/Botkin in new competitive ventures. With over 80,000 customers in three years, over 5,000 reasonable requests for refunds were met with immediate refunds by TTP over this same period, and only 27 complaints. That is less than .0003 (3/10,000ths) of sales!

REBUTTAL: Most of the 27 complaints I am aware of would have taken place before Gleason or Botkin left. There were “several” others after they left (over 100 actually), which would be in addition to the 27. What’s more, TTP’s VP of Operations confirmed in court that they only had about 30,000 customers/IMAs in June of 2000. So 5,000 refund requests would be 16.7% of total sales. How ever you cut it, five thousand refund requests over four years is not good. The main point here is actually magnified by the response – if you are going to gladly pay refunds to 5,000 people, why not 5,027 and save an Attorney General investigation?

[Comments: The TTP spin from the field was that this was par for the MLM course. Not true. This is, relatively speaking, a substantially high number of complaints for a five year old company.] FALSE

ONLY PART-TRUE – Clements is totally wrong on this one. We have one of the lowest complaint/customer ratios in the history of sales. As a comparison, we have been told that the local Walmart store in Topeka currently has over 100 complaints from just the one local store. Nationwide, all companies have a small percentage of people (3/10,000ths) that nothing seems to satisfy, no matter how hard you try.

REBUTTAL: You’ve got to be kidding. In the history of sales? All sales? Hyperbole aside, comparing the complaints at a local Walmart to an MLM company isn’t exactly apples to apples. A WalMart in any major city likely has more customers in one month than TTP has in a typical year. A better comparison would be to other MLM companies, and 27 is a very high number, relatively speaking.

June, 2000: In an internal IRS newsletter within an article titled “Tax Alchemy” they warn, “In a multilevel marketing scheme, unsuspecting investors may be told they can convert their personal expenses into home business deductions by selling the tax shelter program to their friends.” This is the first public hint that there is an IRS investigation of TTP. FALSE

ONLY PART-TRUE – That internal newsletter does not refer to TTP, and the IRS may well be investigating dozens of investment/tax schemes at any time. TTP is not a marketing scheme and we do not have investors in our MLM marketing efforts. We do have customers and IMAs that benefit from our services and programs.

REBUTTAL: Who ever produced these responses obviously didn’t read carefully enough. I clearly said that the IRS document referred to a “multilevel” marketing scheme which sold tax shelter programs. I am aware of only one such company in June of 2000 – The Tax People. It should also be obvious that the IRS document was using the term “investors” as a general term for those investing in their business, not a security.

July, 2000: TTP now claims to have over 50,000 representatives. FALSE

ONLY PART-TRUE – We had over 50,000 customers (now over 80,000), some of which are also IMAs.

REBUTTAL: It’s almost funny (almost) to hear how reps bragged about the 50,000 IMA’s they had amassed, but when they need to show in court a high customer-to-IMA ratio (thus demonstrating that IMAs weren’t the only one’s buying the product) suddenly only 5,000 we IMA’s and the rest were retail customers. If they did have 50,000 people paying for the monthly service (what ever you want to call them) in July of 2000, then my statement was TRUE (as the response just confirms). And if they had 30,000 in June of 2000, it now looks like my figure may have been much higher than the actual figure (there’s no way they brought in 20,000 new people in the month of July alone). The TRO and federal raids occurred in October, so are they suggesting 50,000 new members came in from July 1st (when they now claim there were 30,000) through September (80,000)?

August, 2000: The North Carolina Attorney General advises Cooper that TTP is an illegal pyramid and they should stop soliciting NC residents. FALSE

ONLY PART-TRUE – An employee of the North Carolina AG office sent us a letter concerning a “fax blast” made by an IMA that went to a state facility, which is unlawful in NC. They advised us in that letter to C&D all fax blasts. We notified the entire field to C&D any fax or e-mail blast, and received written conformation from the NC AG office that the issue was resolved and no further investigation was planned.

REBUTTAL: According to court documents, on August 31st, 2000 Michael F. Easley of the Consumer Protection Section of the North Carolina Attorney General’s office wrote to Michael Cooper and advised him that “we have received information concerning The Tax People.net. Based on verbal descriptions [emphasis mine] and written material, we have made a determination that TTP is an illegal pyramid scheme… You are to immediately cease soliciting North Carolina residents for The Tax People.net…” A subsequent letter from the NC AG’s office specifically states that no further investigation is underway as it is their policy to not pursue a company under federal investigation until those proceedings have been concluded. The letter further stated that NC’s inaction does not mean they believe TTP is in compliance with NC law.

September, 2000: Cooper and TTP are the subject of a harsher, although not entirely negative article in the New York Times. The article is primarily critical of the tax strategies taught by TTP. FALSE

ONLY PART-TRUE – The reporter in this instance told several of us he thought “TTP is a brilliant method of mass merchandising tax planning and services to the public.” He made many positive comments that were not in his biased article.

REBUTTAL: Fine. But my statement was about the article, which the response, once again, validates.

September, 2000: TTP is the subject of discussion during a segment of The O’Reilly Factor, a Fox News television program. An ex-IRS commissioner is also part of the on-air discussion. The lone TTP representative (not Cooper) spends most of the ten minute segment deflecting accusations of pyramiding and defending their tax strategies. [Comment: The segment ended on it’s only positive note with the host suggesting TTP’s $40 per month fee for audit protection “sounds like a good deal.” However, Mr. O’Reilly apparently didn’t have a calculator handy. More on this in the final commentary.] FALSE

ONLY PART-TRUE – TTP was the subject of TWO national news broadcasts on FOX. In the first, the commentator tried to set up a confrontation between Steve Kassel and a former IRS commissioner. He not only failed to create the confrontation, but the commissioner did end up saying it sounded like a good deal. In the follow up broadcast a few days later, Mike Cooper was simply asked to explain the benefits of TTP, which he did in a positive manner.

REBUTTAL: I’m confused as to why the person writing these responses continuously writes “FALSE” after my statements then provides a response that confirms the statement. Yes, there was a Fox News program, and the host was confrontational. However, the former IRS commissioner did not say TTP sounded like a good deal, he was specifically referring only to the too brief description he was given regarding the $40 per month audit protection service.

October, 2000: The North Dakota securities commissioner issues a cease and desist order to halt “recent” offers of stock in Renaissance/TTP to at least one NC resident as an incentive to keep them participating. [Comment: Unbelievable.] FALSE

ONLY PART-TRUE – The has never been any stock offers in TTP other than C2000 described earlier. No stock has been ”recently” offered in North Dakota or anywhere else for any reason. This unfounded action by North Dakota is under investigation and resolution at this time.

REBUTTAL: Denying the allegation does not make my statement “FALSE.” In fact, yes, once again the response confirms the statement. While TTP may eventually be vindicated, that doesn’t change the fact that North Dakota took the action.

October, 2000: The TTP home office is raided by the Criminal Division of the IRS as well as the US Postal Inspection Service. TRUE

ONLY PART-TRUE – The offices were raided as part of an ongoing investigation. No charges have been filed, and we expect to be fully vindicated at the completion of the investigation.

REBUTTAL: It’s very likely that no charges have been filed because the feds are waiting to see what happens with the state action. You can’t close down a company that’s closed down. Doesn’t that make sense?

October, 2000: The Kansas AG’s office receives inquiries about it’s investigation of TTP by 8 other states, including California and Florida, as well as from the SEC and FTC. TRUE/FALSE?

ONLY PART-TRUE – We understand the AGs have weekly conference calls to share information, just as we do. With all the growth and recent headlines we have generated, we would be surprised if only eight other states requested information.

REBUTTAL: This information came directly from the AG’s office. And yes, I’m surprised it’s only eight as well.

October, 2000: TTP agrees to a Temporary Restraining Order (TRO) requiring them to shut down their web site, halt all new sales and enrollment of new reps, and discontinue the paying of commissions and bonuses. The company’s assets are frozen, although the order does allow for the ongoing fulfillment of various services, such as audit protection and tax advice, and the payment of basic operating expenses. [Comment: This is a state action and it separate from the federal investigations.] TRUE

ONLY PART-TRUE – The only option was to agree, or to stop ALL tax services, audit intervention, etc. We currently provide all tax services, advice, and audit intervention as normal to all customers pending the resumption of new sales activities in the near future.

December 11th, 2000: A hearing will take place to decide the resolution to the TRO. Either it will be lifted, modified, or the company will be permanently enjoined from doing further business. FALSE

ONLY PART-TRUE – The hearing is scheduled for Feb 12th, at which time we expect the facts, rather than opinions and allegations to speak for themselves, and we hope to be fully vindicated at that time with the voluntary Temporary Restraining Order being lifted so we can resume business as usual.

REBUTTAL: Of course, this article was written previous to the original hearing date of December 12th. The hearing was postponed to February 12th, and the ruling is now scheduled for sometime after March 16th.

In the KS AG’s Petition to the court (to be decided upon December 11th), there are several key statements. A listing and analysis of each follows: FALSE

ONLY PART-TRUE – The petition contains opinions and allegations of a handful of people. Their statements of opinion are just that, and our expert opinions will dramatically differ from theirs. The additional text of this message consisted of Clements’ biased opinions of allegations pending in this legal action, and cannot be commented upon. However, as he only saw fit to share partial truths, lies, and distortions earlier, you judge the value of his slanted, one-sided conclusions.

REBUTTAL: I blew it on two dates, one corporate title, and I’m giving them the benefit of the doubt on the status of Aunt Myra’s in 1994 and the “prepaid” example of stock value. Other than that, not only does every word of my “Case Study” stand up to scrutiny, the respondent essentially confirmed 16 out of 30 allegedly “false” statements!

What is most curious is that this chronology section of the Case Study was not the meat of the article. The second half dealt with the specifics of the allegations and why those allegations exist. My commentary was not based on just opinion, but decades of legal precedent and personal experience. I think the analysis stands on it’s own merits. The entire article, including the half that was avoided in this response, can be viewed at www.marketwaveinc.com.

What I am most critical of, more than anything, is the “partial truths and distortions” (which I’m so ironically accused of) that I feel Michael Cooper and others in a leadership role have been perpetrating on TTP loyalist who are patiently awaiting the outcome of the TRO hearing (and probably getting pretty tired of hearing “it’s almost over.”) What they are not being made fully aware of is that:

1. The hearing regarding the TRO is only the first step in the state’s action. If the TRO is lifted the state then has the ability to, and very likely will, take their case to a jury trail. This is the same right Cooper has should he not prevail in the TRO hearing. In other words, all the hoopla over “vindication” and “getting back to business” after the judges decision is sadly misguided. The state action alone could take months, or even years, to finally resolve.

2. There is still two federal investigations to contend with. Even if the TRO is lifted (a possibility) and the state declines to pursue the action further (highly unlikely), there is still a pyramid investigation by the US Postal Inspector’s office (they were part of the October raid), and a criminal investigation by the IRS.

3. It was extremely unlikely that the judge’s decision regarding the TRO would take place immediately following the conclusion of the hearing, as Cooper and others assured followers was the case. This is not The People’s Court where the judge comes back after a commercial break and makes a ruling. It is routine for there to be several days, if not weeks, before a final decision is made in hearings such as this. Why did Cooper, for weeks previous to the hearing, continually imply to his followers that the conclusion of the hearing would be the conclusion of the TRO? Not only did he suggest this, he has even stated publicly that they felt the state’s case was so poor they could have asked for a judgment without even posting a defense. However, defense attorney’s routinely request a “motion to dismiss” after the conclusion of the prosecution’s case – just as they did in this case! And the motion was denied! Wasn’t Cooper notified of this?

4. The previous action by the KS AG against Cooper when he was the President of Truly Special was due to his actions. He was not an innocent bystander.
Here are some excerpts from the two recorded presentations made by Cooper. These first ones are from the live conference call.

“You approach somebody about this business – very simple proposition to ask them one question: ‘Would you invest $100 in your business that has the potential of making you $500 a day, over $100,000 per year?’ The typical response is, Well, what is it? And my response has been, regardless of what it is, if there is a viable, legitimate, honorable business that cost $100 to invest in that could make you $100,000 per year, would you put your $100 up? The next thing I ask is, ‘Could you find two people that would do the same? Could you find two people who’d invest $100 in their financial future, no other requirements, monthly requirements, none of that garbage – put in $100, find two people to do the same thing.”

Note the common usage of the term “invest” and the complete void of any reference to a product. In fact, he asks if you would pay $100 for something to make $100,000 “regardless of what it is.” Sounds a lot like the “horse manure” claim, doesn’t it? And yes, he was knocking those companies that have monthly volume requirements, like TTP. He went on to say that Truly Special had:

“No ongoing monthly production requirements, no check qualification requirements, all the things people dislike about a program.”

Next, he acknowledges, in a positive manner, a “top” distributor who has “multiple business centers.” He states, “There is the opportunity to qualify multiple business centers and a lot of people are doing that… a lot of people start with 3 or 7 business centers.” Cooper then introduces “Eric” who claims to have “come in with” seven business centers (making a $100 product purchase for each).

If there’s any doubt left, here’s a quote from the recording of the live meeting:

“I’d venture to say if I was willing to pay you 500 bucks to get me two apps tonight – find me two people that would be willing to put $100 into a business to make $500 a day and you could make your first 500 just that quick – would I get two apps tonight? For 500 bucks wouldn’t you find two of your friends that want to make some money?… Next month your two find two people (who find two, and so on)… as 64 turns into 128, you’ll get about three payouts that month.”

He then describes a $100 autoship system that only deducts $100 (for product) from the distributor’s next check when needed to qualify for another “pay cycle” (as opposed to buying them because they actually want the product). He goes on to state that reps use this system so as to “never miss a pay check.”

And remember, this is all coming from a man who turned state’s evidence against the owners of American Gold Eagle which was declared an illegal pyramid for essentially emphasizing the sale of business centers rather than product. Again, not that Cooper was responsible for that then, but certainly he should have known not to do it with Truly Special. And after two such experiences, why would he allow the promotion of Founder’s Packs to facilitate acquiring more business centers?

Was Michael Cooper really unaware of the legal vulnerability of American Gold Eagle when he first joined it? Was he really unaware of the legal vulnerability of Truly Special when he first took over? Was he really unaware of the legal vulnerability of Renaissance/The Tax People the first four-plus years he was in control of it?

You be the judge.

Filed Under: Articles Tagged With: Len Clements, MarketWave, Michael Cooper, MLM, multilevel marketing, network marketing, Pyramid Scheme, Renaissance, The Tax People

The Coming MLM Boom!

January 4, 2013 Leave a Comment

It seems the network marketing, or MLM, industry has been on the verge of an “explosion” for about as long as, well, there has been an network marketing industry. Certainly there have been growth spurts in popularity over the years, but the business just never really – exploded, at least for any sustained period of time. Even those occasional growth pops were always followed by slumps in the MLM economy. Yet, throughout it’s history, even in the midst of those slumps, and especially over the last two decades, many of those who would promote it would tell us that, soon, the network marketing industry is going to, dare i say it again… EXPLODE! Ah, if I only had a dollar for every time I’ve heard any derivative of the word “explode” as it relates to network marketing I’d be a wealthy man. About as wealthy as I’d be if I got a dollar for every time an MLM distributor used the term “revolutionary,” but that’s another subject.

The various promoters of this alleged upcoming MLM boom have always had at least one good reason for believing their claim. It wasn’t entirely on hype. Nothing more than the monumental and numerous advantages that network marketing offers to those who want to start a home based business certainly should have been reason enough to think that, soon, the masses are going to discover those advantages and flock to MLM en mass. We could surely forgive them for their optimistic delusion.

As history has shown us in many industries, the merits of a product alone won’t necessarily sell it. When Ruth Stafford Peale said “find a need and fill it”, she was close. Personally, I’d rather find a “want” and fill it. Obviously, people would be more likely to obtain something they want as oppose to need, and they’ve not flocked to network marketing en mass for no other reason than they simply can’t want something they neither

understand nor even know exists! There is overwhelming evidence that the reason this industry stands at a little over 7 million distributors is because, for the most part, those 7 million network marketers are all pitching their opportunities – to each other. This has created a great ignorance about network marketing among most Americans. And I use the word “ignorance” deliberately here, which does not mean unintelligent. Ignor-ance means simply, to ignore readily available information. And the vast majority of the U.S. population has, at least up until now, utterly ignored network marketing not only due to a lack of want, but a lack of knowledge as to it’s benefits, or that it even exists.

But that is all about to change… forever.

For the first time in network marketing history, there are solid, logical, verifiable, reasons to believe in an upcoming network marketing boom. In fact, there are eight reasons, any one of which could result in a significant expansion of network marketing in the U.S. over the next few years, and these eight factors will soon by overlaying, one on top of the other, creating the “perfect storm” so to speak, where we have the convergence of several powerful economic, demographic, and psychological factors all hitting at the exact same time and place in network marketing history. Finally, we can make claim to an upcoming MLM explosion and it won’t be just wishful thinking. It absolutely will happen, and here’s why:

Reason #1: The Economy

I have always had the belief that the condition of the U.S. economy did influence the condition of network marketing, somewhat, but not significantly. I based that belief on the simple conclusion that there was never an economy where people didn’t want more money and more free time. In fact, a few months ago I set out to write an article debunking this age old assumption that bad economic conditions favor network marketing. I began to really do some digging to find as much evidence as I could to support my contrarian position. And what I soon discovered was, I was wrong. The fact that one of the strongest growth phases in network marketing history, which occurred between 1990 to ’92, also coincided with the last economic recession should have been a clue. But there was so much more.

First, an analysis of unemployment rates over the decades is key here. After all, the want for network marketing is created by the desire for alternative sources of income, and income sources that we have control over. And when we compare the popularity trends of network marketing to unemployment rates, on a semi-decade basis, there are some intriguing and very exciting revelations.

Although multilevel marketing existed as far back as 1936, for all intents and purposed MLM really began in earnest in the 1950s. So let’s start there. Now, tracking MLM popularity trends is somewhat subjective, but surely there would be no argument that network marketing was far more popular in the second half of the 50’s than the first. Not a single company of consequence launched from 1950 to 1955, however industry giants Shaklee, NeoLife, and Amway all came into existence from 1956 to 1959. The unemployment rate the first have of the decade averaged 4%, and was the second lowest in U.S. history in 1953 at 2.9% (only during WWII was it ever lower). However, it averaged 5.3% the second half of the decade reaching it’s highest level since the Great Depression in 1958 at 6.8%. Although the difference may seem small from a statistical standpoint, translated into todays numbers that would mean almost 6 million more people becoming unemployed between 1953 to ’58.

The first half of the 1960’s all types of direct sales continued to flourish with the launch of Mary Kay Cosmetics in 1963, and companies such as Avon, Fuller Brush and Tupperware all achieving momentum. Although the industry continued to grow from ’65 to ’69, it was not nearly at the same pace with no new major company launches taking place. The unemployment rate the first half of the decade was significanly higher than the second half when 2-and-a-half million unemployed people went back to work.

Let’s jump ahead to the 1980’s. Again, few MLM veterans would disagree that the first half of this decade

definitely outperformed the second. Although there were about as many company launches in each half of the decade, there are actually more companies that launched during the first half that are still in business today than during the second. While network marketing flourished from 1980 to ’85, the rest of the decade saw some of the worst fiasco in network marketing history. Also, another indicator of MLM economic conditions is the number of legal actions. During industry slumps companies and distributors tend to be more aggressive and take greater risks. The number of law suits almost doubled during the second half of the 80’s compared to the first. And, while network marketing was thriving the first half of the 80’s, unemployment continued to rise. In fact, in 1982 it was at it’s highest level in 40 years at 9.7%. During the second half MLM slump unemployment dropped considerably, and by the end of the decade the number of those out of work was almost half of what it was at the beginning of the decade.

The 1990’s saw perhaps the clearest distinction between halves of any decade with more major company launches and more companies going into momentum than any other time in history. There was also more wealth being created by way of MLM from 1990 to 1994 than any other 5 year period in network marketing history. The second half, as many of you probably still remember, wasn’t exactly the best of times for network marketing. In fact, if there ever was such thing as an MLM recession, we had one from about 1996 through 1999. Why? One reason may have been the very high unemployment rate from 1990 to ’94, and the sharp drop during the second half of the decade where it hit a 30 year low at 4.2% in 1999.

The only exception to this half-century long pattern is the 1970’s, but that was an exceptional decade. Remember, the last half of the 60’s industry growth slowed as unemployment dropped to a post-war low. During the first half of the 70’s network marketing started rocking again as unemployment rates jumped. Unfortunately, all that rocking started rocking some boats, and the result was over five times as many MLM related law suits from 1970 to 1974 than all of the 50’s and 60’s combined. These included landmark cases involving Koscot, Bestline, Holiday Magic, Culture Farms, and others, and in 1975, there was a federal action which essentially questioned the legality of network marketing in general. Fortunately, one company, Amway, had the financial ability to defend themselves, and in essence, the entire multilevel marketing industry. This case lasted until late 1979 when the court eventually ruled in favor of Amway and as a result there was, for the first time, a clear delineation between illegal pyramids and legitimate network marketing companies. So, obviously, there was a pretty dark cloud hanging over the industry the last half of the 70’s and there wasn’t a lot of expansion in spite of the even higher unemployment rate.

The last, and arguably greatest MLM growth phase began in 1990, the same year we went into our last economic recession. And, again, from 1980 to ’84 were boom years for network marketing and we experienced recessions in 1980, part of ’81 and most of ’82. Nineteen-seventy to ’74 were also boom years, and our economy was in recession almost all of 1970, and 1974. Remember how the last half of the 50’s and into the early 60’s were years of great MLM expansion? We were in recession from ’57 to ’58 and most of 1960. In deed, every severe economic downturn in the last 50 years has been during, or immediately preceded every period of network marketing expansion.

We’re not done yet. According to figures supplied by the Direct Selling Association, not all, but most of which is made up of network marketing companies, U.S. sales increased from 1990 to 1992 by an annual average of 9.25 percent. That was during our last recession. From 1997 to 2000, at the peak of our last economic boom, annual sales within the direct selling industry increased by a little more than half as much. Clearly, the condition of our national economy absolutely does effect the condition of the network marketing industry.

So where does this lead us? Well, as I write this it’s early 2002 and we are in a recession, and have been for several months. Most recessions last around 12-18 months, but that doesn’t mean that when a recession is over, so is a slumping economy, or high unemployment rates. And again, it’s rising unemployment rates that are most closely tied to rising interest in network marketing. Here’s a rather remarkable fact – we’ve had eight recessions in the last 50 years, and during the 12 months immediately after the end of the recession the unemployment rate went up! Every time. What’s more, most economic experts today are predicting a much slower recovery than that which followed previous downturns, followed by volatile economic swings for the next several years.

And remember, we’re only on reason number one. Let’s move on to what I feel is an even more powerful reason to believe in a coming network marketing explosion.

Reason #2: Demographics

Although the network marketing industry offers almost every conceivable product or service imaginable, most product lines are made up primarily of personal care products, diet, and health related products. These are all products that would be of most interest to again baby boomers. Now, this concept of what Dr. Ken Dychtwald refers to as the “Age Wave” in his book of the same name, is certainly not a new concept as it relates to network marketing. Purveyors of personal and health care products have been emphasizing this concept for several years now. But it does warrant a brief overview.

Baby Boomers are those born from the years of 1946 to 1964. The reason for this baby boom doesn’t need a lot of explanation. During the great depression, immediately followed by WWII, folk just weren’t economically, psychologically, or geographically able to make a lot of babies. So, once WWII was over they had some catching up to do – and they did. There were about 76 million babies born during this 18 year period, which at the time accounted for almost one-third of the entire U.S. population. This explains why diaper and baby food companies flourished in the later 40’s and early 50’s, or why rock&roll records and drive ins were so popular in the mid- to late 50’s. It also explains why more grade schools were built in the early 60’s and more college campuses were built in the later 60’s than any other time in our history. Think back to the 70’s and early 80’s. How many athletic clubs, health stores, or ads for energy or weight loss products did you see? Very few. Today, they’re everywhere! Why? Because most of those 76 million people are now in their 40’s and 50’s. You can see exactly where this giant bubble in the population is at any moment in time by simply looking at what products are most popular. And when in comes to charting the market size for what most network marketing companies offer, we’re not even half way up the curve yet! The market for products that will make us look and feel younger is going to continue to expand for at least another 25 years, and will expand most dramatically over the next 5 to 10 years where some predict it will more than double.

But this baby boom is exciting for another completely different reason. The age of contractual consent in most states in 18, that’s why virtually all network marketing companies require distributors to be at least 18 years old. Well, guess what happened about 25 years after the baby boom? Those 76 million baby boomers had about 75 million babies. And about 41 million of them will turn 18 over the next 7 years. At no other time in history, other than the original baby boom itself, have this many people been added to the body of eligible MLM prospects in this short a period of time.

Of course, the number of people eligible to join is not as important as the number actually joining. So, let’s take another look at the annual survey of the direct selling industry conducting by the DSA. According to their analysis, there was a net gain of direct sellers of 400,000 from 1997 to 98. By “net” I mean 400,000 more joined than quit. There was a 600,000 net gain from ’98 to ’99, and a 700,000 distributor gain from ’99 to 2000. Not only is the number increasing, but the rate of increase is increasing, which is one of the indicators of impending momentum. However, if we did nothing more than take this 700,000 annual growth rate of direct sellers, figure about 470,000 are network marketers, assume the rate of increase never goes any higher, and extend that forward for another ten years, we end up with 4.7 million additional network marketers. To put that in perspective, it took us over 50 years to get to 7.5 million distributors, and we’re conservatively projected to add another 4.7 million in just the next ten years, which means, by the way, your average downline will be 37% larger – and this isn’t even factoring in any of the things were discussing here that will cause this growth rate to increase! This is just assuming everything stays the same.

And as far as a demographic reason for believing in an upcoming MLM boom, these aren’t even the best ones! Check this out:

According to Gallup Polls, the average age of all Americans when they first decide to invest in a residual income producing vehicle, such as stocks, bonds, real estate, or perhaps in a business venture, is 42. The average age when we invest the most into such devices is 47. If we were to then chart on a graph the number of 42 to 47 year olds in the U.S. we’d find that starting about 1988 the line begins to point upward at almost a 45º angle as the boomers started turning 42 – and that line continues to rise at a level never before seen in history all the way to the year 2009. We’re barely past the half way point of that upward curve!

Does this really benefit us, as network marketers? Are 40-somethings more open to MLM opportunities? Well, the average American is 36 years old. According to a Marketwave survey of over 6,000 network marketers from 1990 to 2000, the average network marketer is 38.6, and that number has consistently risen over the years of the survey. Other MLM surveys have found the average age to be almost 40. An exceptional number of those over 40 do participate in network marketing, and this segment of the population which is most ready, willing and able to invest in a residual income generating business venture is going to continue to increase dramatically for another seven years!

Reason #3: Wall Street

Securities investors are, for the most part, a pretty savvy group of people. Obviously there are a lot of exceptions, but generally, these are men and women who research and analyze public companies in an effort to try to determine which ones have the strongest growth potential. Based on their due diligence they eventually invest their funds in companies who’s growth they expect to go up. These are people who are, in general, pretty adept at knowing what signals to look for that might indicate an upcoming boom. So, what do they see when they turn their magnifying glass on network marketing companies? Well, first let’s take a look at what they’ve seen.

There are over 20 publicly traded network marketing companies, but the bottom third or so are so small and trade so infrequently they’re really meaningless as far as overall industry trends, so let’s focus on the top 12. These are the larger, well established companies. Well, if you were to chart their stock price over the last 5 years, starting December 1996, in almost every case you’d see a line that looks a lot like the path of an airplane — coming in for a landing. With very few exceptions, MLM company stock values have flattened out at their all time lows and stayed there for about two to three years. Clearly, Wall Street wasn’t impressed with network marketing’s growth potential the last half of the 90’s

So, what do they see now? Well, the S&P 500, an index that gauges the overall condition of the stock market, reached it’s peak in September of 2000. By mid-December 2001 it was down by 23%. However, over the exact same period of time our index of the top 12 network marketing companies was UP by 7.3%. And again, this is from a basket of stocks that, for the most part, haven’t budged upwards in years. And now, all of a sudden, in just the last 12 months these network marketing companies are outperforming the overall stock market by over thirty percent. Go to your favorite investment web site is and take a look at the stock charts of these companies. What you’ll see is than plane coming in for a landing, taxying across the bottom of the chart, and then, right at the end – they’re just starting to take off again.

So don’t just take my word for it. There are a few thousand other trend analysts out there that seem to also be very optimistic about the future growth potential of this industry.

Reason #4: Supply and Demand

I read an article a few years ago that described how network marketing was “booming.” The author validated this claim by siting the huge growth in the number of MLM companies. Of course, anyone who got even a C- in Economics 101 could tell you that an industry booms when the demand for it’s product dramatically increases. In deed, when there is only a tremendous increase in supply, this often times results in an industry slump. And sure enough, during this massive proliferation of MLM companies the last half of the 90’s, which there very definitely was, we had a pretty tough industry slump.

A very prominent MLM publication published a survey they had conducted from 1994 to 1997 where they polled all the major MLM company software providers to try to determine how many MLM companies were launching in each of these years. They found that in 1994 there were about 700. In ’95 over 1,000. There were about 1,400 company launches in 1996, and 1,800 in 1997. These are not cumulative totals, this is each year. And there is a lot of anecdotal evidence to show that there were about as many start ups in 1998 and 1999. What’s even more troubling is that those in the software businesses estimate that perhaps half of all MLM start ups don’t go to the major software houses, but rather hire in house programmers. Do you understand what that means? It’s possible that the actual number of start ups could have been double these numbers. As many as 13,000 network marketing companies may have launched from 1994 through 1999, and at least as many as 8,000, yet we only had a net gain of about 600 companies, from 900 to 1,500. For many years distributors for older, mature network marketing companies often warned prospects away from start ups with the claim that 95% of all MLM companies fail in the first two years. Up to this point, it was really just a scare tactic based on a wild guess. However, what this survey inadvertently did was verify the figure!

Yet, during this same period, based on a consensus of various educated sources including the DSA, the number of network marketing distributors in the U.S., during the last half of the 90’s, only increased from about 5 million to 7.5 million. That means the number of distributors went up about 50%, but the number of companies increased by three times that much! If you do the math, you’ll discover that this means the average distributor’s downline shrunk by 40%. There is no question that the supply of MLM opportunities was far exceeding demand the last half of the 90’s.

So, what’s the good news? Well, some very encouraging things began to happen in the year 2000, not the least of which is, it seems would be MLM company owners finally began to realize that starting a network marketing company in the U.S. market was an entrepreneurial death wish! Also, more and more of those considering starting MLM companies are coming to realize that it really defeats the whole purpose of getting involved in network marketing – they’re essentially creating for themselves a 12 hour a day J-O-B. Instead, they could apply their resources to building an organization in an already well established, stable network marketing program and make just as much, if not more money with far less effort, and fraction of the responsibility and risk. And understand, this isn’t just my assumption. I’ve been a consultant to start up companies, more of a Devil’s advocate for hire, actually, since 1992. So, not only from my own consulting experience, but by scanning the ads in all of the various MLM publications, interviewing other consultants, trainers, and suppliers, visiting the on-line MLM message boards, reading the abundance of MLM related spam I receive, and interviewing literally hundreds of prospects and distributors every year, it’s very clear that the number of start up network marketing companies has declined significantly since the beginning of 2000.

This fact, along with the increasing number of company mergers and acquisitions that are taking place each year, will only make the industry stronger. The last half of the 90’s the whole industry was groaning under the weight of this massive overload of MLM companies. As more and more companies entered the market the national distributor base was spread thinner and thinner. The result was smaller downlines, higher attrition, and generally fewer success stories. But, think about it. If there were just as many distributors, but half as many companies, the average downline would be twice as big. I’m not suggesting the number of companies will contract to half, but any reduction in supply will certainly help spur an increase in demand as more and more distributors are condensed into common downlines, which will then increase the number of those getting into profit, and those reaching their income goals. The more success stories we have, the more motivation and less resistance we have to building our downlines even larger. Even larger downlines mean even greater motivation, even lesser resistance, resulting in even larger downlines – and the cycle continues upward, rather than down or flat as it has in the past.

Reason #5: New Blood

Almost every network marketing company today would like to think, and most claim, they are about to go into momentum. Momentum, as it applies to network marketing, is the stage in a company’s growth cycle where sales volume begins to increase geometrically and the company doubles, triples, perhaps even quadruples in size in a relatively short period of time. Most momentum phases last about 6 to 24 months. Much like buying a stock low right before it goes up in price, most distributors want to attach themselves to a pre-momentum company right before it explodes. Thus, practically every distributor will try to make a case that their company is “about to go into momentum.” How do they know? Eh, they don’t. No one every really knows exactly when momentum phases kick in. Some MLM theorists have claimed it commences at a certain sales volume, or around a certain number of year in business. Yet, the exceptions far outnumber the rule. But much like stock picking, we can look for clues – for historical trends and patterns to help us make better guesses. And if we go back and study every major post-momentum company and analyze what happened right before they went into momentum, there is a common event. Although they each may have accomplished this in different ways, every momentum phase in MLM history was facilitated by massive numbers of people moving into the opportunity, either as reps or customers, who have never been involved in network marketing before. No company has ever went into a momentum phase by this ebb and flow distributors roaming from company to company. Momentum is caused by a massive injection of new blood.

Where is this new blood going to come from? How are we going to expose massive numbers of people to our products and opportunities that we’ve never been able to reach in the past? Of course, from… how many you saw this coming?… the internet.

Now, some of you may be thinking, yeah, but the internet’s been around for years. Where is all this new blood? Well, the internet may have been around in 1990, but it didn’t go into it’s own momentum phase until after 1995 when only 14% of Americans used the internet. By 1998 that number had almost tripled. Today it’s over 60% and many predict that virtually all of Americans will be using the internet in some capacity by the year 2010. And it wasn’t until around 1997 or so that the network marketing industry really began to use, or a better term might be “abuse” the internet. Certainly there are exceptions to this, but for the most part MLMers got a little over zealous in their utilization of this amazing new technology. Rather that use it to help us build our downlines and sell our products, it was, in way too many cases, used in an attempt to have it build our downlines for us. The result was, in some cases, big recruiting numbers, but very little sales volume and overwhelming attrition. The reason is obvious. People get into network marketing with the goal of quitting their jobs and doing this for a living. In other words, they are potentially making a career choice. That’s a pretty serious decision, isn’t it? Well, how serious could a prospect have taken this decision when they only based it on a few pretty pictures and some jazzy words on a web site?

The internet was also abused in other ways. Like so many other dot.coms, there were a lot of company failures. Some were ugly, miserable failures. There were numerous legal abuses as well resulting in several well publisized closures. The network marketing industry painfully cut it’s internet teeth from about 1997 to early 2000. And now, as this shake out comes to an end and the smoke clears, what is just beginning to emerge are the remaining responsible, visionary companies that knew all along that the awesome power of the internet was not in having it do all the work for us, but rather having it help us present our products and opportunities faster, less expensively, and to far, far greater numbers of people. New people, who’ve never been exposed to network marketing before. They’re are our future superstars – our future MLM leaders.

The internet is a sales, training and recruiting tool with unimaginable potential that we are only just now beginning to effectively and intelligently utilize, and it’s an industry itself that looks to expand by 100 million users domestically over the next ten years. And as this happens, the network marketing industry will soon go into momentum the same way everyone of it’s post-momentum companies did so – by a mountainous wave of new prospects and within it these future leaders. They say a rising tide raises all boats, and in this case, this tidal wave could even cause an unprecedented event in network marketing history – the secondary momentum phase, where large, post-momentum companies actually achieve momentum again!

But the internet isn’t the only reason why I believe we’re on the verge of massive “outer circle” recognition. There’s another reason that’s so compelling I’m making it a reason unto itself.

Reason #6: Positive Media Exposure

Radio, television, magazines and newspapers all exist primarily, if not in some cases exclusively, on advertising dollars. Network marketing is an industry that, for the most part, doesn’t advertise in the mainstream media. After all, we’re a “word of mouth” business. So not only has the media had no financial incentive to promote MLM, it actually has a financial inceptive not to. Now, I’m not suggesting there’s some grand conspiracy among these various media to hold network marketing down, but there certainly has been a consistent pattern of negative expose’s of MLM companies over the years, some certainly deserving, some not, but curiously, very few corporate or individual success stories, in spite of the huge number of them to choose from.

Well, that too is changing. The mainstream media is just now discovering how to cash in on network marketing without ad revenue. The first big step in this direction was back in 1994 when Success magazine, a well respected newsstand business magazine, featured a front cover montage of network marketing companies and a lengthy and extremely positive feature article about our industry. Sure, the companies that knew they were going to be mentioned did break from tradition and ran display ads, but that’s not where Success made the most money. The people of this credibility starved industry, long deserving of such positive recognition, sold out the entire run of that issue. In fact, Success magazine broke their all time single issue sales record by almost twice the previous record. The result, obviously, was a lot more positive portrayals of network marketing companies in future issues. Unfortunately, in spite of this bold demonstration of exactly how profitable it could be for doing nothing more than being fair and balanced and also presenting the positive side of network marketing, few other mainstream publications followed Success’s lead. So, several network marketing trade publications decided, let’s do it ourselves. Soon, we had several glossy, full color, network marketing focused magazines hitting the newsstands. At the moment, none of these publications have taken the country by storm – in fact, most have struggled – but understand, the fact that they even exist is a giant step forward for network marketing, and anyone who truly cares about the well being of this industry should support their efforts in what ever way they can.

But this isn’t where the greatest promise lies as far as positive media exposure. What about this idea: Let’s say, instead of paying for an advertement, you worked out an arrangement where you enrolled the media itself, got the exposure for free, but the resulting sales volume and downline that was generated from the campaign went under the company? They could potentially make far more income from overrides than from ad fees, even after the ads stop running. It’s a perfect win-win scenario – we get the positive mainstream exposure, the media could get even more money from us that if they charged us for the ads. Would this work? It already is. Slowly, quietly, such a movement is taking place. I know for a fact that there are currently over 100 radio stations in the U.S. attempting this, and some are succeeding, big time. Yet, virtually the entire network marketing industry is oblivious to the fact this is even happening. It’s simply a matter of time until the mainstream media’s grapevine picks up on this alternative ad revenue generator.

Finally, let’s not overlook the public image boost we’re getting from the various athletes, celebrities, political figures and medical authorities network marketing is attracting like never before. And no, not all are just paid endorsers, and many of them have careers that are based on their reputation and positive image, and they’ve openly and willingly attached their good names to network marketing. We’ve also got well respected mainstream authors and speakers such as Richard Poe, Paul Zane Pilzer, Mark Victor Hansen, Brian Tracy and Robert Kiasaki extolling the virtues of network marketing. This kind of powerful, third party validation has never happened before, nearly to this extent. And it’s just starting, and it’s growing.

Reason #7: Regulation

Earlier we discussed the cyclical nature of network marketing as it related to the economy. I hope you picked up on the fact that the first half of every decade outperformed the second half – and that’s been the case for the last 40 years.

But there were more than just economic reasons for this cycle. The regulatory climate often times influenced the mood of distributors and our prospects, and therefore, has effected the condition of the industry to an extent. The most obvious example being the previously mentioned federal actions back in the 70’s. Legal attacks by state or federal authorities on high profile network marketing companies do occur from time to time, and curiously seem to peak in pre-election years, but that could just be a coincidence. Most of those larger companies, by the way, not only survived the attack, but are considered models of legality today who’s policies and enforcement systems are emulated by younger companies. Yes, there have been many situations where pyramid schemes have been shut down, and typically the action is described as “the network marketing company that was shut down because it was an illegal pyramid scheme.” It drives me nuts when I hear someone make a statement like that. It’s kind of like saying “A really honest man was exposed as a lier.” Well, then he wasn’t an honest man, was he? Either you’re an illegal pyramid scheme, or you’re a network marketing company. You can’t be both. I want to make this very clear before we go any further on this subject: Illegal pyramid schemes often times try to disguise themselves as network marketing companies because they want to appear legal. Unfortunately, when the media reports on illegal pyramid schemes, we do suffer a guilt by association, and again, that does have an effect on our ability to retain distributors and acquire new ones, at last temporarily.

The good news is that the last few years we’ve seen really no significant legal attacks on network marketing companies, and several closures of illegal schemes. Not only does this make the industry stronger due to a smaller pool of opportunities, legal or otherwise, but it also increase our ability to build, because we don’t have the negative stigma of a well publicized regulatory hit creating greater resistance toward the industry. Not only that, but it also demonstrates a greater ability among regulators to delineate between pyramids and good, legitimate MLM programs. This should be especially encouraging and comforting to those who’ve built substantial incomes in “high profile” opportunities, or those who intend to be high profile.

And, once again, I’ve saved the best news for last. There is active lobbying going on right now by the DSA and others, to enact legislation that will create federal regulation of network marketing. As it is now, and always has been, operating a network marketing company in the United States is kind of like trying to do business in 50 little countries. Each state has it’s own set of laws pertaining to business opportunities, some specifically to MLM, and all have statutes pertaining to pyramid schemes. Although, for the most part, each state’s definition of an illegal pyramid is consistent with the other 49, the interpretation and implementation of those laws has been somewhat haphazard and arbitrary over the years. It’s true that there was a significant legal precedent created by the federal court’s decision in the Amway case in 1979, but even that has been utterly ignored in more recent cases such as the infamous Webster vs. Omnitrition case in 1994 where the 9th circuit court of appeals (the most overturned appeals court in the land) chose to disregard personal consumption by distributors as a legitimate, commissionable sale. Fortunately, this decision didn’t create law, just a seldom followed guideline. In fact, several individual states in recent years, such as Texas, Oklahoma, Louisiana, and Kentucky have created statutes that specifically recognize personal consumption as a legitimate sale, and there’s legal precedent in California that they’ve also adopted this position. But still, the enforcement actions over the years have been inconsistent not only between state and federal precedent, but from state to state, and sometimes even from case to case within the same state.

Not only will federal regulation create a clear, consistent path for all network marketing companies, and state regulators, to follow, but, much like the federal regulation of franchising back in the 60’s, may eventually require truer and fuller disclosure. Now, as I understand it, that’s not what’s in the current draft of legislation being proposed as of this writing. However, if this ever did come to pass, and many believe it will, it would absolutely be a good thing. Very good. Not only will it tremendously strengthen the industry by weeding out the bad apples, it will cause this massive turnover rate among start up companies to drop to a fraction of it’s current level because most won’t even start up in the first place. Gone will be the days of usually ex-distributors sitting around a table saying, hey, let’s get a few thousand dollars together and start our own MLM company – now, what can we sell? And the ones that do launch will have to be serious players with solid backing. So not only will more distributors be packed into fewer companies, but those companies will be only the highest quality opportunities. Federal regulation will also greatly increase the respect and credibility level of our industry. This will create a tremendous boost to all established U.S. based MLM companies. Not only do I not fear the concept of federal regulation, I find the vision of this new era of network marketing to be absolutely exhilarating!

Yes, there are some people who are still apprehensive about the prospect of federal regulation. I’ve heard the argument made, as I’m sure many of you have, that back in 1963, congress came within 11 votes of outlawing franchising. Well, not only didn’t they but the post regulatory era of franchising has created an industry that now moves over one-third of all the goods and services in this country! Federal regulation was the catalyst to the biggest boom in franchising history.

In their attempt to tidy up network marketing from a regulatory standpoint, might the feds throw the proverbial baby out with the bath water? Not a chance. Not only are there over 1,200 network marketing companies in this country, employing tens of thousands of tax payers, and generating literally billions in sales and corporate tax revenue, there are about 5 million MLMers out there who are also registered voters. That may not be a huge percentage of the total population, but as our last presidential election clearly demonstrated, it’s enough to make a huge difference in the political landscape of this country. Not only that, but there are even a few network marketers in congress, and some of our larger MLM companies have been quite generous in their political contributions.

Network marketing isn’t going anywhere – but up.

Reason #8: Industry Growth Rates

There are a lot of little hints out there that the interest in entrepreneurship is on the rise, such as a recent report by Barns & Noble that the percentage of business related books sold in the U.S. has risen the last five straight years. Also, not only has the number of small businesses increased annually since 1991, what’s most exciting is that the rate of increase is just beginning to accelerate.

There’s anecdotal evidence when we look at the supply vs. the demand for 800 numbers. It took 29 years to use up the 7 million 800 numbers available, and 888 numbers were introduced in 1996. It took two years to exhaust the supply of 888 numbers, and the telecom industry is already planning to roll out not only 866, but 855 numbers. Not only does this indicate a growing market, due to the increase in small, home based, and internet related businesses, but certainly it’s more due to the dramatically lower cost and corresponding increase in availability. This could easily be a nice seguey into yet an entirely new reason for believing in an upcoming network marketing boom – the increase in technologies once affordable by only large, million dollar corporation that are now emerging in small and even home based operations. And this trend towards technological advancement, availability and affordability is still at the very beginning of that curve.

Although this tangent really deserves further discussion, let’s get back to growth trends.

Based on information supplied by the Office of Employment Projections and the Bureau of Labor Statistics, the total number of self-employed workers in the U.S. changed very little from 1986 to 1996. However, they project an 11% increase from 1996 to 2006, with sales related occupations being the largest segment. However, according to the Small Business Administration, the number of self employed people actually dropped slightly from ’96 to 1999, likely due to the robust economy and abundance of good paying jobs. This means that for these projections to hold true, the entire 11% increase would have to occur from 2000 to 2006.

But let’s get to the bottom line: What are the growth trends of the network marketing industry itself?

Since the top twelve publicly traded MLM companies provide the most reliable information, and they make up the majority of the largest, most well established companies, I’m again directing my analysis towards them, although an informal survey of unaudited data provided by private MLM companies reinforced these results.

From 1990 to 1995 annual sales growth averaged about 16%, and some years was as high as 30%. However, if we track the growth of these public companies, based on U.S. revenue only, you’ll find that the average annual sales growth from 1996 to 2000 was 8.7%, reaching a low of just over 6% from 1999 to 2000. And the entire direct selling industry’s growth rate dropped to a ten year low of 4.5% around this same time. Based on this information it would seem that industry growth was about to come to a grinding halt. But instead, the growth rate of these companies from 2000 to 2001 was 14.6 percent, more than double the previous year’s rate! Without question, the slowing trend has reversed. This is by far the strongest signal of pending momentum, when there is not only an increase in growth, but the rate of growth is also accelerating. Now, one year of doubling growth rates certainly does not guarantee a boom, however, one thing is certain – every company momentum phase throughout MLM history began with that first period of doubling growth rates.

There you have it folks. Not one, not two, but eight solid, powerful, verifiable reasons for finally believing in an upcoming network marketing explosion. No one knows exactly when it will happen, it could be next month, it could be next year, if could be anytime the first half of this decade. All we know for sure is, if you get involved now, and stay involved, you will be there when it happens. So hop on, strap in, and get ready for the ride of your life. It’s gonna’ be a blast!

Filed Under: Articles Tagged With: Boom, Len Clements, MarketWave, MLM, multilevel marketing, network marketing

The Quintessential Qualifying Question

January 4, 2013 Leave a Comment

You have a prospect. Now what? Should you lead with the opportunity, or the product? If so, which product? Do they want to lose weight, look younger, or have more energy? Or are they looking for more money, and if so, how much? Great wealth, or maybe it’s time freedom their really after and all they want is to make enough so they can quit their job. Or, perhaps just enough to make a car payment. What should you lead with? What should you focus on?

Why not ask them?

One of the greatest challenges with the proverbial “simple, duplicatable system” is that many are too simplified. By employing a no-brainer, cookie cutter system of finding, qualifying, and closing prospects we’re essentially shooting at a target with our eyes closed. Sure, repeating the exact same scripted presentation, sending the exact same info-pack, and providing trite, prefab responses to every objection (or worse, just sending everyone to the exact same web site) is certainly simple, and quite duplicatable – and utterly ineffective. Yes, opening your eyes and aiming at the target does take a little more work, that’s true. But it’s not rocket science, and you’ll hit the target ten times more often!

Of course, it is a bit awkward to call a prospect, introduce yourself, then ask, “So, Bob, what would you like me to lead with?” That probably wouldn’t work very well either. But there is one, simple, tactful, qualifying question you can kick off any prospecting call with. A question that will provide you with all the information you’ll ever need in locating the unique bulls eye for each prospect, and they’ll never even know that’s what you’re trying to do.

Just ask them (insert drum roll here…), “Have you ever been involved in network marketing before?”

At this point your prospect must give you one of three possible answers: No, I’ve never been (or perhaps the equivalent response, “What’s that?”); or, “Yes, I was once, but not anymore;” or, “Yes, I am right now.” Each has attached to it an obvious follow up question (no script necessary for this system). If they responded that they have never been involved before, ask what sparked their interest now (we’re assuming for the moment that you’re dealing with folks who have expressed some interest, in some manner, in at least some kind of MLM or home based business). If they said they were involved in MLM before, but not now, ask them what happened before. If they claim they are currently involved in an MLM program, you’ll want to know why they are looking for something different (or, are they looking for something in addition to it?).

After your second tier of questioning, just sit back, listen, and take notes. Your prospect will now reveal exactly what they want you to lead with.

If they said they were involved in the past, but lost their downline when the company went out of business, should you lead with your fantastic new energy drink, or the power of your compensation plan’s matching bonus, or perhaps should you focus on the stability of your company? What if they said the company they are involved in right now has lousy sales tools and their sponsor is providing no support. Company stability, great products, lucrative comp plan – or your company’s wonderful sales aids, your upline’s effective training tools, and all the love, encouragement and support you’re going to provide them? You don’t have to wonder – they just told you.

What if they respond to your first question with “What the heck is network marketing?” Or with the dreaded “Aren’t those all pyramid schemes?” You could safely assume here that they’ve probably never been involved in MLM before, and you may want to postpone any discussion pertinent to your specific opportunity, take a giant step backwards, and begin by defining or defending the general concept of multilevel marketing. By the way, in the vast majority of cases you’ll be defining, not defending. This is a vital and often skipped step in the process of recruiting MLM-ignorant prospects (less I offend anyone, ignorant means a lack of knowledge, not intelligence). There’s more detail on exactly how to handle this scenario in the article titled “The ABC Technique” on my web site.

What you’re ultimately going for here is to determine what the prospect is looking for. Of course, you could just ask “What are you looking for?” But with this “Have you ever been involved…” approach you’ll not only eventually derive the same information, you’ll also get valuable insights as to what their concerns are. So not only are you defining specific targets to aim for, you’re mapping out land mines to avoid.

Again, take copious notes of the conversation. Capture the key sound bites and record them on index cards (literally or virtually). Not only will it reveal what to lead with during this initial call, but also how you may want to customize the information package you send them, handle their future objections, and focus on in follow up calls. If you eventually do a 3-way call with your sponsor, he or she should be provided with your intel as well.

This even works well with prospective prospects who have not yet expressed any interest. If you’re having lunch with a friend, just ask the unassuming question, “Bob, have you ever heard of network marketing?” In the event Bob responds with only a “Yes” answer, dig an inch deeper with the more specific “Have you every tried it?”

This approach also works well when leaving messages on your prospect’s answering machine, which they always quickly return, right? Yeah, right. This is one of the most common lamentations among MLM distributors throughout the history of, well, answering machines. Prospects rarely return calls. That’s because, most likely, they are expecting a long, heavy handled sales pitch. So what if, on your message, you said you wanted to give them some “free information so I don’t have to explain everything over the phone” but before doing so you wanted to “take only about five minutes to ask you a couple quick questions about yourself.” Not only have you established the fact that you are not going to pitch them on this first, prequalifying call, but you’ve established a precedent as to how the business is done. You’ve created the impression with your prospect that, should they get involved, they too won’t have to give prospects the hard sell. What’s more, rather than ask them to call you back to listen to a sales pitch (akin to asking them to volunteer for an unnecessary root canal), you’re instead requesting that they do something us humans inherently love to do – talk about themselves! Try this approach. You’re call back rate will skyrocket.

Imagine you’re standing in a shooting gallery. One target is labeled “Time freedom.” Another says “Lose Weight” while another reads “More Energy.” The target right in the middle has “Get Rich” painted on it, while yet another says only “Comfortable Living.” There’s even one that says “Personal Growth.” And surrounding these targets are dozens and dozens of others. Hit the right one and your prospect signs up – but which one? Don’t just assume it’s the easy center shot (in deed, for the vast majority of your prospects, “Get Rich” isn’t it, and if hit too often or too hard may even cause you to lose points). Don’t guess, or shoot randomly hoping if you take enough shots you’re get lucky.

Just ask. They’ll love to tell you.

Filed Under: Articles Tagged With: Len Clements, MarketWave, MLM, multilevel marketing, network marketing, prospecting, Qualifying

Begging To Be Mislead

January 4, 2013 1 Comment

If you ever want to determine the level of honesty and/or MLM savvy of the person trying to sponsor you, the best question you can ask is the worst question you can ask…

How much money will I make?

If your prospective sponsor even begins to try to give you a definitive answer to this question, or worse, further defines the amount of time it will take to get you there, they either A); are a naive rookie that honestly doesn’t know any better and is likely just repeating the same garbage they were recently fed by their sponsor, or B) they’re making up garbage on their own and feeding it to you in an effort to tell you what they think you want to hear.

I can’t count the number of times a prospect has asked me for a specific income expectation. Or, as just occurred recently, a prospect will state their income goal then ask how long they’d have to work to achieve it. In this most recent case, my prospect wanted to make “$5,000 per month” and asked if that was “possible” within six months. I then inform him that his question is impossible to answer, knowing full well they my competition is likely responding with an enthusiastic “Absolutely!” Why is it impossible to answer? Let us count the ways.

Such a question is kind of like stating the algebraic equation Y+T+L=5,000, then asking what Y, T and L equal. Mathematically, this would be impossible to answer. Nor is it possible in MLM.

Y=You. Your ability, your efforts, your personality, your contact base (or “center of influence”).

T=Them. Those you enroll, and those they enroll – and their abilities, effort, attitudes, and contacts.

L=Luck. Call it serendipity, call it fate, call it divine intervention. Call it what you will, but call it something, because it counts.

If you were a talented high school basketball player looking for a college to sign with, would you ask each recruiter how many NCAA championships you’ll win? Of course not, because he’d have to predict the Y, the T (in this case it stands for Team), and the L factors.

Even you can’t accurately predict what you will do, how well you’ll do it, how fast you’ll get better at it, how you’ll react to failure (or success), and how long you’ll wish to do it. So how can you’re sponsor possibly judge this?

An even greater wild card is what others will do. You can control what you do, but you can’t control what others do. Nor can you even begin to predict how well they will do and how soon. I know someone who’s been working the same MLM program for over three years, has personally sponsored 55 people, and not one has done a thing. I know another person who, just two months after joining my downline, enrolled a couple who built a leg over over 900 people in just three months. These are good examples, albeit extreme, of how unpredictable the success of others in your downline can be.

The Luck factor accounts for everything else. The more regulatory conscience reader my wince a bit on this point, so let’s be clear. I’m not talking about luck in the sense of a lottery or gambling, per se. I’m talking about that intangible factor that helps us succeed in any type of business, or in life for that matter. Was it skill or effort that put John Lennon and Paul McCartney in the same neighborhood as children? Or that caused a stage hand named Clint Eastwood to catch the eye of a famous director? Obviously, talent was eventually a factor. But how many very talented people never succeed because they just couldn’t get a break? There’s quite a few in MLM as well?

There’s also just the opposite situation. I know someone who was the number three earner in a very large MLM company, yet openly admitted to having little knowledge of MLM, and only a handful of personally sponsored people. Fortunately for him, one of them was the number one earner in the company. You might enroll 100 people in your MLM career, and three will develop into superstars and make you wealthy. And they might be the second, third, and fifth person you enroll – or the 94th, 97th, and 99th person you enroll.

There are external factors to consider. You could have done the exact same things, in the exact same company, using the exact same tools, in 1998 (the midst of our most recent MLM slump) and had twice the success had you done them in 1991 (our last MLM boom). As I attest to in my audio presentation “The Coming Network Marketing Boom” we are coming out of that most recent slump and on the verge of our next boom, so this factor looks positive for everyone right now.

I’ve heard more than one wealthy MLMer claim “The harder I work the luckier I get” in an effort to sarcastically discredit the luck factor. No, the harder they work, the more effectively they enhance the influence of Y and T in the equation. There’s still something to be said for just happening to know the right people, being in the right place, and at the right time.

And when predicting income, all of this isn’t even considering the more tangible factors such as the products, company, support system and compensation plan of the specific opportunity you’re considering. All of these factors, and especially comp plans, tend to perform far differently in actual practice than they do on paper. How closely each of these factors are represented in relation to reality varies significantly from company to company and from sponsor to sponsor.

This is also not even factoring in the issue of net income vs. gross income. Who cares if you succeed in earning five grand in six months if it costs you six grand a month to do it? Okay, so $5,000 in profit then. Well, is that $15,000 gross income and $10,000 in expenses, or $5,500 gross and $500 in expenses? The less you put into building the business the less you can expect out of it. It’s reasonable to assume, as in any business, the greater your budget, the faster you’re reach your profit goal. I’m often asked, “So how much should I budget each month for my MLM business?” My answer is always, “The most you can comfortably afford, but not a penny more.” I have no idea what that number is for each prospect, and more times that not, neither do they!

I’m certainly not suggesting you can’t make $5,000 in six months in MLM. All I’m saying is, don’t ask if you can. You’re just begging to be mislead.

Filed Under: Articles Tagged With: Len Clements, MarketWave, MLM, multilevel marketing, network marketing

Don’t Diligence

January 4, 2013 Leave a Comment

Due Diligence of a Network Marketing Opportunity
is Only as Good as the Questions You Ask – or Don’t Ask.

It is an unfortunate fact that conducting a proper due diligence of an MLM program, before joining it, is a rarely performed process. Even those few who attempt it do so in such a way that they are begging to be mislead. Due diligence is one thing – a proper due diligence is quite another.

There are four ingredients to a profitable, enduring network marketing opportunity: A good compensation plan, a good product line, a good company, and a good support system. Alas, many decisions as to which MLM program to join involve little more than adding up the percentages in the compensation plan brochure. The bigger number wins. Any other contrasting, comparing or appraising of MLM opportunities mainly involves prospective sponsors playing “dueling hype.” The prospect asks each potential success-suiter to basically tell them everything they want to hear – and they all eagerly oblige. The one who spins the best tail of multilevel utopia is the victor.

“We have the highest quality products that sell themselves, the most lucrative, revolutionary compensation plan, the easiest most duplicatable system, and the company is debt free and about to go into momentum.” There is it. Every MLM prospecting pitch ever given. I’m sure you’ve heard it too. But, when your sponsor said this, did you ever ask “How do you know?” Or better yet, “How can I know that all this is true?” Without asking this question, without digging deeper to discover the truth, you can only accept it all on blind faith. So, the first step is to challenge your prospective sponsor to sponsor your due diligence process. Enlist them. By all means, give them the chance to back up their superlative claims with tangible, verifiable, historical, mathematical, or whatever type of proof is necessary.

This is the point where many soon-to-be network marketers who think they’re conducting due diligence fall back on what are utterly useless questions. For example, “Can I really make money at this?” – an actual question I’ve been asked so many times. Or, this more sophisticated sounding but just as useless of a question: “Is the company positioned for long term growth?” Or, “Do the products work?” Or, “Is your system duplicatable?” My first grade teacher once told me There are no dumb questions. I now wholeheartedly disagree. Why ask a question when you already absolutely know the answer is going to be an enthusiastic “Yes!” Wouldn’t a better question be, “How can I make money at this?” Or, “What is your duplicatable system?” Or, “Is the company growing?” and if so, “How do you know it is?”

Of course, this is only the first step to a proper due diligence. Asking your prospective sponsor to validate their positive statements is important, but you still have to validate their validations.

There have been many articles written about how to evaluate an MLM program. Most list basic, seemingly common sense actions such as; call the Better Business Bureau, call the Attorney General’s office, get a D&B credit report on the company, study their financial statements, find out what the top earners are making, are their testimonials or scientific studies to support the product claims, and so on. In a perfect word, where all this information is available and accurate, a proper due diligence would swift, easy and simple.

This isn’t a perfect world.

Let’s take these one at a time. First, a BBB report is essential. However, don’t put so much weight on the number of complaints as you do to the number that have are unresolved. It’s better to have 20 amicably resolved complaints than to have ten unresolved. Of course, it’s even better to have none.

Yes, you should call your state’s AG’s office, but more importantly you should call the AG’s office of the state the company’s corporate office is located. Usually, if any other state were to close them down, they just don’t do business in that state. If their home state closes them down, their probably done. Also, keep in mind that most AG’s offices will only tell you if a formal action has been taken (but not about open investigations). Most will also tell you the number of complaints, if any, that have been filed. But beware. Some states, such as California, lump complaints and inquiries (such as yours) into the same total. And, again, place the emphasis on how the company has handled the complaints, not just the raw total.

Personally, I’ve found Dun & Bradstreet reports to be generally unreliable (and not cheap) and would not recommend this step. D&B typically reports information supplied by the company. The type of MLM company that you would most want to avoid is the one that would lie to Dun & Bradstreet. Right?

Studying a company’s financial statements would be an obvious step – if it wasn’t for the fact that less than 2% of all MLM companies are public companies. And you can bet the private one’s are not going to show you their books. What’s more, you have to know how to read a financial statement. Once obtained (go to www.sec.gov, do an “EDGAR” search for the company and pull up their most recent 10k), don’t just jump to the bottom line (net profit). Read all those pages of text. There’s usually very interesting, and very revealing information in there (both positive and negative). Also, don’t just look at last year. Go back at least five and look for trends.

The financial or sales data you get from the company or it’s reps (outside of SEC filings) are usually ripe with hype (which the dictionary defines as “to increase artificially”). One company recently claimed to have “record revenues” for the previous quarter. Although the statement was technically true, their SEC filings revealed that almost half of that revenue was assets the company was selling off. Remember, revenue is not the same as product sales. Yet another company recently claimed to have “record sales” for the quarter. Again, the claim was technically true, although the company also reported it’s first “net loss” in it’s history. Clearly, net profit is more important than sales.

Probably the most common, and most abused financial claim is to be “debt free.” Understand, NO network marketing company is truly debt free, nor would they want to be. First of all, accrued commissions and bonuses is a “payable.” It’s debt. Does the company really have none of this? I hope not. Furthermore, debt can be good and very useful. Without it you may not be able to establish credit terms, which the company may desperately need in the future. Or perhaps the company is “debt free” because they have a poor payment history and can’t establish credit. How do you know? What if the company experiences strong growth? To have the inventory, staff and infrastructure to handle 50,000 distributors when you only have 10,000 usually requires taking on some debt. Debt also frees up liquid capital to grow and expand the business, or to weather down turns. How much debt a company carries is a better question, not whether they have it or not.

Earnings related questions can be the most misleading of all. First, to provide earnings data without numerous other disclosures can be deemed a “deceptive trade practice” by regulators. To use your or another’s earnings as an inducement to join an MLM program is considered taboo. Those who practice it are putting their opportunity at risk. Also, this is basically useless information as far as your ability to earn an income. Comparing the incomes of individuals from different MLM companies to determine which one you want to make your living from is like comparing the sugar content of a single grape from two different orchards to decide which one you want to make your wine from. Besides, most prospects want to get involved with an opportunity before it gets really huge, yet many are seduced by huge incomes – which can’t be developed until huge growth occurs! This creates a paradoxical search criteria.

Due diligence of product claims is tricky. First of all, as far as disease treatment claims, make sure there aren’t any! Even personal testimonials are not safe haven. The company is still liable and may be required by the FTC to provide scientific substantiation of the claim. Even if they could, the FDA could then step in and declare the product an “unapproved new drug.” So, certainly test the products and see if they work on your ailments, then make sure no one is saying it will. Like I said, this one’s tricky.

Unfortunately, space limits me to only a brief survey of some of the “don’ts” of doing a proper due diligence. To really do this subject justice would require about a 50 page analysis (and does, in my book Inside Network Marketing). I hope you’ve at least gleaned from this article the idea that doing a proper due diligence first requires that you do some digging, and that there are rigth and wrong places to dig.

Filed Under: Articles Tagged With: Len Clements, MarketWave, MLM, multilevel marketing, network marketing

The Diamond of Needs

January 4, 2013 Leave a Comment

After two years of intense study of the network marketing phenomenon, and after observing numerous successes and failures, one thing has become clear. The primary reason why 90% of MLM distributors fail is simply because they don’t do what is absolutely necessary to achieve that success. It’s called NETWORKING.

Ask yourself these questions: Is it reasonable that 1 out of 100 people I present my opportunity to will sign up? Can I contact 20 people a day, even if it was to only hand them an audio tape or brochure? Could I close just one a week (out of 140 contacts)? Could I close just 3 a month (out of over 600 contacts)? What amount of success will I have achieved after five years, having personally recruited 180 people?

Obviously, anyone could contact 20 people a day. Less than 10 minutes at the local shopping mall just handing out free audio tapes and brochures would do it (or better yet, twice a week for an hour). And three recruits out of 600 contacts could be achieved almost by accident. At such a pace, even if only a fourth of your recruits worked the business to only the extent of signing up one other person per month, your downline after five years would number into the tens of thousands.

So… if it’s all so easy, why isn’t everyone in MLM rich?

First of all, for most people, handing out tapes to total strangers is scary. It’s not fun. Secondly, at such a pace just described, you would only have about 30-40 people in your organization after the first year. Not exactly a great motivator to continue this drudgery — even if you knew that five years of this pain would result in a lifetime of joy and luxury.

The point is this: If you did have the motivation to go out and take massive action, on a consistent, daily basis, for a period of five years, it appears obvious that anyone could achieve great financial success in network marketing.

Motivational theory is certainly a broad and diversified subject. It is rooted in the basic theories of the American psychologist Abraham Maslow, who devised a 6-level hierarchy (pyramid) of motives that determine human behavior. The base of the pyramid is physiological needs, such as food, water, and the desire to procreate. The second level was security and safety. Third, love and feelings of belonging. Fourth, competence, prestige, and esteem. The top of the hierarchy included self-fulfillment, and culminated at the apex with the desire for total knowledge. Each level of needs must be fully met before the next level could be fulfilled. The fulfillment of all needs in the hierarchy is known as “self actualization”.

I am certainly in no position to question the theories of Mr. Maslow — and I don’t. I think they are, for the most part, right on target. The only challenges I find with this “hierarchy of needs” are these: a) How can I apply this to my daily life, and derive the necessary motivation from it?; and b) How can I present it to others in a simple, duplicatable manner?

These two questions were the genesis of my newest entry into the motivational theory arena, the Diamond of Needs.

Let us say for the moment that there are only four basic needs one needs to fulfill to achieve ultimate happiness, or self-actualization. They are: Who you’re with, where you’re at, what you do, and how you feel.

Who you’re with includes not only your spouse and family, but friends, colleagues, co-workers, admires, and so on. Where you’re at includes not only the geographical location, but your home and general environment. What you do, not only includes your occupation, but your pastimes, hobbies, learning experiences, and other activities. How you feel is specifically your physical condition, or health.

Aside from “ultimate knowledge”, which can only be achieved by God (and which I am not convinced is absolutely necessary to achieve ultimate happiness, at least in human form), the above statements, I believe, have summarized the five primary needs in Maslow’s hierarchy into four simple, understandable, and measurable needs, which anyone can relate to.

By measurable, I’m saying that if you were to draw a Diamond of Needs (imagine a baseball diamond with each base representing each of the four needs described above), and rate from 1 to 100 how fulfilled you think that particular need in at this point in your life, you would be able to better determine which area of your life needs attention. But don’t assume that only that need must be addressed for it to rise to total fulfillment (100).

For example, do you think that What you do, and How you feel might effect Who you’re with, and Where you’re at? Think about that. Do you think Who you’re with might in some ways effect how well you do What you do, thus possibly effect Where you’re at, or even How you feel? Play around with any combination. Think about it long enough and you’ll find that, although certain needs take priority over others, every need is effected and dependent on the other.

The center of the diamond holds the most important need of all. The need to be happy. This primary need is directly tied to all other needs, and can never be rated higher than the highest rating you give any other need. You will find that this “center” need will constantly be in a state of flux, depending on the fulfillment level of the other four needs. The next time you are really sad or depressed, you will inevitably find that one or more of your secondary needs is mostly, or even totally, void of fulfillments. For example, if the Who you’re with need drops to under 10, your center, primary need for happiness will plummet as well.

Even if you are a hermit, and your desire is to be completely alone, your Who your with rating will probably drop to zero if a ski resort is built around your mountain cave, regardless of how much the tourists like you.

So what about the first challenge I mentioned? How can one utilize this concept to build greater motivation to actively pursue their MLM business?

One way many motivational book and tapes have suggested is to put up on the wall a picture of something you greatly desire. Usually this is a large, beautiful home, a fancy sports car, a gorgeous man or woman, or perhaps a picture of a far away paradise where you want to visit or live someday. These all act as good motivators to take action, but each only address a fourth of your total needs and desires. To dream of the red Porche 911, or ogle over the beautiful model, is like flying a 747 on one of the four engines. Sure, it can still move you ahead, but think how much more of a boost you could get if all four engines were driving you forward.

How about this? Get a bulletin board (the cork kind works best, about 2′ x 3′, found at any office supply store) and paste to it a photo or description of what would ultimately satisfy each of the four corner needs. Put that big house you saw, or that post card of Maui, over Where you’re at. Put a picture of a mountain climber, hang glider, deep sea diver, or what ever you want to do, over that corner. How about a blurred picture of a sprinter, just bolting out of the starting blocks, in the How you feel corner. Or someone jumping for joy, or a body builder, or a lion, whatever you perceive to be something that expresses health, power and vitality. If you’re married, the Who you’re with corner should be covered by a photo of your spouse, less your How you feel, and Where you’re at ratings may drop dramatically. Otherwise, you might want to put a picture of a celebrity you admire, a classmate or co-worker you would like to meet, or maybe a photo of a person speaking to a large room full of smiling admirers (or perhaps that is best suited for the What you do corner?).

Now you have a powerful collage of driving, motivational stimuli that can really kick you into gear. You’ve got all four needs firing, not just one or two.

Of course, many people read books and listen to tapes about motivational techniques and goal setting procedures. The real trick is getting the motivation to carry them out. Take the time to build your Diamond of Needs, and don’t just hang it up somewhere and forget it. Take five minutes each morning, and whenever you feel the need for a boost throughout the day, and study your collage. Really feel it. Think about how a successful MLM career will effect, and fulfill, each need.

One final thought. Network marketing is a training and support business. It’s people helping people to succeed and meet their goals. How do you think it might effect What you do and Who you’re with, and ultimately your overall happiness, if you were responsible for many others reaching and fulfilling their goals and dreams? It’s may be the closest you will ever come to self-actualization.

Filed Under: Articles Tagged With: Len Clements, MarketWave, Maslow, MLM, motivation, multilevel marketing, network marketing

Anti-MLM Zealots – Part XI

December 27, 2012 Leave a Comment

This is the final installment of this series. The previous ten parts rebutted the writings of the four highest profile MLM antagonists: Dean Van Druff, Robert FitzPatrick, Ruth Carter, and Jon Taylor (get the back issues!). This edition covers the most common, general criticisms made by virtually all those who are anti-MLM.

Market Saturation

        The more naive of the anti-MLM crowd will typically offer a mathematical progression showing five people who get five, and so on, then gloat over their revelation that by level 14 they would have accounted for the entire population of the Earth (Van Druff uses an even more ridiculous “ten sponsor ten” scenario). However, when an MLMer uses such a scenario to demonstrate the income potential of their plan, the anti-MLMer is always quick to jump all over the absurdity of such a scenario ever playing out. So, why use it then as evidence to debunk an industry based on it’s theoretical occurrence?
        In over 68 years we’ve managed to involve only about 2.5% of the U.S. population. By the end of this decade over 40 million Americans will turn 18, and another 9 million adults will immigrate to the US. I think there’s still some room to grow.
        John Taylor is critical of the lack of disclosure as it relates to local market saturation. He advocates territorial restrictions, believing that when a certain geographical region has reached a certain number of distributors for a particular company, no more distributors should be allowed to participate in that region. The glaringly obvious flaw in this logic is that by limiting the number who can participate in a given region causes local market saturation! Can you imagine someone wanting to join your MLM program but you can’t enroll them – unless they move out of the area?
        Another common anti-MLM concept suggests that those who get involved too late miss out. As Taylor exclaims, he was at the top, but those after him would be at the bottom, thus be too late to achieve any real possibility of success. But… didn’t he start at the bottom? Indeed, has not every single successful MLM distributor in history started at the bottom? There are numerous examples of folks who joined very mature companies, started at the bottom of what was an already large existing hierarchy, and managed to achieve success, like me – and John Taylor! Its happening every day.

Exploiting Relationships

So, you invite your new neighbor over for dinner under the guise of making a new friend. Once desert is consumed you begin your opportunity spiel. Yes, that’s not a cool way to build your business, and you’ll lose more friends than you gain. Fortunately, most MLM distributors don’t practice such tactics. Naturally, those who were victims of deception or had their friendships exploited like to tell their story to authors of anti-MLM propaganda. Unfortunately, authors of anti-MLM propaganda never seem to bother to see how the other 99% of us conduct our business.
Sure I’ve offered promotional material to friends. Some were thankful and joined. Most said they were not interested. No problem. I never mentioned it again, and we’re all still friends. Its not who you ask, its how you ask. The bulk of my recruiting efforts over the years has been conducted the same way most of those I’ve recruited, and those throughout the industry, have conducted there’s – by seeking out already interested people via various lead generation devices. Those who were not invited to their 20th class reunion because they obnoxiously tried to recruit everybody at their 10th are a very noticeable, but very small minority of MLM distributors. The hundreds of MLM-folk that you’ve come in contact with over the years who do not practice overly-aggressive recruiting behavior are never recognized – because they don’t aggressively try to recruit you!

Most Distributors Fail

        Yes, they do. In fact, this is perhaps the strongest argument of all against the imminent saturation theory (although, most anti-MLM zealots make no attempt to reconcile the two completely contradictory positions).
        What most nay-sayers would like us to believe is that this high failure rate in due to some inherent flaw in the MLM model. Some at least concede the MLM concept is sound, but the potential for success is grossly overstated. What they fail to appreciate is that “success” doesn’t necessarily mean getting rich. For some strange reason, anti-MLM zealots see success in MLM as an all or nothing proposition. Either you achieve wealth, or you failed. I don’t agree. Nor, according to a MarketWave survey of over 6,700 distributors and prospect (I base my conclusions on actual research, not theory) do 86% of you who are shooting for a comfortable living income. A nifty $6,000 per month without having to set the alarm in the morning would make most of us quite satisfied. The majority of the rest would be happy with only an extra $200-$300 per month. But, when that person only earns $250 per month, the anti-MLM advocate points to them as an example of MLM’s unfulfilled promise. Several years ago a distributor for a large MLM company was profiled as part of a semi-negative article that appeared, of all places, in Good Housekeeping magazine. The distributor lamented over his net profit of $16.45 after his year long effort. Of course, had this been any other form of business, a first year profit of any amount would have been considered a success story. Only in network marketing is this considered, at least by some, as an example of failure.
        Sure, many of us overplay the income angle, and that’s a problem – but not one exclusive to MLM. Hype exists in all industries. Its a flaw in one’s marketing technique, not the product or opportunity being marketed.
        Is it fair to blame the high failure rate on the MLM concept or model? Well, what if ten people were given free memberships to a gym which even included a personal trainer. Five went once or twice, saw no immediate results and quit. Two went several times but never followed the advice of their trainer and used all the equipment wrong, then quit. Two others never even showed up once. Only one went on a regular basis, followed the prescribed work out regimen, and after a year gained the body and vitality they desired. Then an anti-gym zealot comes along and claims that 90% of all those that signed up for the gym membership and trainer failed to receive any significant benefits. Although technically true, its not the whole story. Anti-MLM zealots are not telling the whole story. A classic example of this is the “Payout Distribution Study” attempted by Jon Taylor. When he requested payout data from 60 MLM companies he required “even those who only bought a starter kit whether or not they have done anything with it… be included in these statistics, including those who have not sold anything or quit, even after one day.” My point is, why would Taylor want to include those who didn’t go to the gym in a study about the benefits of going to the gym?
        The Anti-MLM Zealot can be just as guilty of manipulating data as they often accuse us of being. For example, if ten people join ten MLM programs in succession, then all ten succeed in their tenth company, based on the way Jon Taylor tried to acquired his data, by looking at what percentage failed in each of these ten companies, he could easily show a 90% failure rate (nine of these companies would show these ten people as failures) even though 100% of them are now successful!
        Certainly some people work their hearts out, do all the right things, and still fail, as is true with any endeavor in life. However, with rare exception, MLM failure is voluntary. No one has ever held anyone at gunpoint and demanded that they buy $5,000 worth of water purifiers or vitamins they didn’t want. That was a choice. No one forces anyone to jump in and out of ten MLM program in a year. One reader of this column wrote me recently to let me know that, indeed, MLM didn’t work. He should know. He’s been in 50-60 companies over the last nine years. I wrote him back to explain to him the most likely reason for his failure. He’s been in 50-60 companies over the last nine years. No one has to exploit their friendships, or make ridiculous product claims to succeed. What defines an illegal pyramid and how to avoid one, and how to sensibly pursue a legal MLM business, is easily accessible information for those that seek it. Most distributors fail because they make very emotional, very poor, but totally voluntary business decisions.
        One such decision is to quit entirely. Certainly, in some cases, if someone perpetually fails at something they might want to quit and try something else. But the ease of entry into MLM also makes for a way too easy exit, and far too often it is premature. I once met a woman who claimed she was “failing miserably” at her MLM business. After one full year of effort she was making only $250 per month. I took her actual, and very modest net growth figures and projected them forward one more year. She would be earning just over $3,000 per month which, she said, would allow her to reach her goal of quitting her job and living off her MLM income. If she could just “fail miserably” for one more year.
        What is perhaps the most ironic and hypocritical thing of all about this “failure rate” claim is that the Anti-MLM Zealot’s very anti-MLM campaign has, to some degree, increased the failure rate, thus personal and financial harm, of the very people who’s relationships and finances they claim to be trying to protect!

Success in MLM Requires Extraordinary Talents and Skills

        Not only is this untrue, it is perhaps the single greatest benefit of the MLM business model. If you don’t have the time, money or skills to build a large downline sales organization you can still achieve great success by finding someone who does! If you were to only get two or three people who are good at MLM to join with you, when they eventually succeed you succeed. They’re downline is your downline.
        I’ve heard many stories – including ones that are actually true! – where 70, 80, or 90% of one’s downline was build by one talented person. I recall several years ago speaking to the third highest earning rep in a large MLM company who confessed that he understood very little about how to build a downline and had only recruited a “handful” of people. One of them was the number one earning rep. Another popular story, which I have confirmed as true, tells of an opportunity meeting at a Holiday Inn in Dallas where only one person showed up – one of the grounds keepers at the hotel. He was a 19 year old Hispanic man who knew only a few words of English. This man went on to enroll only one person. That one person was the owner of the Holiday Inn – who went on to become one of the top earners in the company. So would have been the young Hispanic man – if he hadn’t quit after only a month.
        Is MLM for everyone? Absolutely not. Especially those unemployed folks looking for immediate income. And yes, some of us fail to reveal that to our neediest prospects, and that’s a problem. But once again, and for the last time, that’s a challenge with the way some people practice MLM, not with MLM.

Pyramids in Disguise

Robert FitzPatrick epitomizes this position when he states “MLM is a legal form of business under certain rigid conditions set forth by the FTC and state Attorneys General,” but goes on to suggest “Many MLMs are in gross violation of these guidelines and operate only because they have not been prosecuted.” This is a bit like saying “Many honest people are liars.” Either you’re a legal MLM company, or you are an illegal pyramid disguised as an MLM company. And yes, this is unfortunately not uncommon and legitimate MLM companies certainly do suffer a guilt by association. But let’s be clear – illegal pyramids try to look like MLM companies because they want to appear legal!
Most anti-MLM zealots are surprisingly ignorant as to what legally defines a legitimate MLM company. FitzPatrick’s definition of the “70% rule” is somewhat different than Taylor’s, but just as far off base. He claims this rule requires that, “at least 70% of all goods sold by the MLM company must be purchased by non-distributors.” Non-true. The original rule came from the FTC vs. Amway case in the late 1970s, and clearly prohibits a distributor from buying more product until at least 70% of all previous orders have been consumed or sold. It was also simply a suggested guideline, never a law. Yes, subsequent interpretations by state and federal regulators, and even other MLM companies, have been all over the map. Anti-MLM Zealots like to cherry pick the one that best serves them, and ignore the original. FitzPatrick also states that “the very legality of MLM rests tenuously upon a single 1979 court ruling on one company.” For us to believe that FitzPatrick actually believes this, we must also believe that he has somehow forgotten the literally hundreds of other state and federal cases since 1979 that have defined and refined the definition of a legal MLM operation. Or, that the ruling in question involved the aforementioned Federal Trade Commission vs. Amway case (not exactly a minor-league case). Or that, in the very words of the federal court “The Amway sales and marketing plan is not a pyramid plan. In less than 20 years, the respondents have built a substantial and efficient distribution system. Consumers are benefited by this new source of supply and have responded by remarkable brand loyalty.” The government’s position doesn’t sound too “tenuous” to me.

Researcher Bias

        Researcher Bias is a term used to explain why two opposing groups can study the exact same information yet come to completely contrary positions. People see what they want to see. If you have an agenda to debunk the MLM concept the “evidence” is not hard to find, if that’s what you’re looking for. Its no curiosity that when each of the four anti-MLM zealots mentioned above were asked to identify the number of happy, successful MLMers they surveyed, or to list the pro-MLM books or magazines they read, each refused to provide an answer (although Taylor claims to have interviewed “hundreds” of MLM distributors, he also claims the best information source are distributors who have failed). When Ruth Carter and her MLM Survivor followers are shown evidence of those who honestly succeeded in MLM they are always labeled “perpetrators.” Those who fail are always their “victims.”
        Its also no mystery why Carter, Taylor, FitzPatrick and Van Druff describe in their writings the most notorious examples involving only a handful out of the thousands of MLM companies that have existed. They’ll always focus on the most controversial practices employed by Amway/Quixtar (or more specifically, employed by some of their deified Diamond distributors) which tabloid TV shows are quick to back them up on. Then there’s Equinox, of course – the poster Bad Boy of the MLM industry. They’ll never let us forget the trouble Nu Skin was in over a decade ago, or Herbalife two decades ago (long since resolved). Occasionally they’re site Trek Alliance, FundAmerica, SkyBiz, International Heritage and a couple gold & silver deals from 15 years ago, likely because their ammunition was handed to them by state and federal regulators. That’s about it. That’s 95% of all the companies they’re hit by name, which is less than 1% of all MLM companies in existence today, let alone those that have existed since the 1979 FTC vs. Amway decision. The dozens of good, clean, mature MLM programs that have never had any legal challenge, or the thousands of hard working, professional network marketers who practice a conservative, honest approach to their business are completely ignored, as if to create the illusion they do not exist.
        Some anti-MLM zealots are passionate about their cause, and they’ve dug themselves into their position far too deep to ever emerge – the obviousness of their folly be damned. Ego is a powerful thing. If someone tries hard enough, long enough, to make a case that the sky is always red by only showing images of desert sunsets, they’re stick to their case no matter how many times you force their heads upward in mid-afternoon.
        MLM has never even approached market saturation in over half a century of existence. Thousands of distributors succeed in reaching their income goals (what ever that may be), many with mature companies that have been around for decades – and all started at the bottom. The vast majority didn’t exploit friendships, or hype their products. Products which they genuinely love, some with a passion. Most that failed did so due to poor, but completely voluntary business decisions. The legality of network marketing is well defined and based on decades of precedent, the model is sound, and to those seeking a home based business, the benefits are substantial. Evidence of this is everywhere, and easily obtainable – assuming you want to find it.
        To slightly misquote Shakespeare, Me thinks the Anti-MLM Zealot doth protest too much.

Filed Under: Articles Tagged With: Len Clements, MarketWave, MLM, multilevel marketing, network marketing

Anti-MLM Zealots – Part X

December 27, 2012 Leave a Comment

Anti-MLM Zealots are rare. For an industry that’s been around for over half-a-century, composed of over 2,000 companies and with well over ten million participants in the United States alone, you would think there would be more. Especially considering how many “victims” have been so ruthlessly abused by us, at least according to the Anti-MLM Zealots. But the fact is, there are really only four. Robert FitzPatrick, Ruth Carter, and Jon Taylor have all written books on the subject, and I’ve included Dean Van Druff in this list only because, thanks to the internet, the one little anti-MLM article he wrote fifteen years ago has probably been read by more people than the other three subjects combined. There arguments against MLM, although sometimes well dressed, stand up poorly to scrutiny, and virtually across the board are focused on the same two or three companies (the easiest targets).
Readers of this column have asked why various other anti-MLM types have not been mentioned in this series. First, the four I have featured have, to varying degrees, caused some damage to the standing and credibility of this form of business. The others I’m asked about have not. They are little known outside of MLM circles – and I’d like to keep it that way. No sense giving them more attention than they are already not getting. Not that their case is any stronger. In fact, that’s the better reason why I’ve ignored them – for the most part they just parrot Fitzpatrick, Carter, Taylor and Van Druff. It’s always the same, tired, arguments, over and over.

Various Others

        There is, however, a fifth relatively vocal MLM nay-sayer who does deserve at least some attention – Dr. Stephen Barrett, a prominent medical doctor well known for his anti-quackery campaign. Dr. Barrett’s MLM related criticism is the most frustrating to contend with because it is, for the most part, the most valid. His concerns are well founded and his targets well chosen. The only criticism I would have of his work is that it creates the illusion, perhaps unintentionally, that the entire MLM industry is guilty of outlandish, over-the-top product claims. In fact, you will find a small but vocal minority of MLM participants on Dr. Barrett’s hit list. Nonetheless, the list should certainly be smaller, and this is a challenge that does need attention. However, being limited by law as to what we can say about the benefits of our products certainly does not suggest many of those benefits are untrue or overstated. Certainly some are – many are not.
        There have been numerous negative other articles about MLM in various magazines and newspapers over the years. The vast majority were not written by someone I would classify as an “Anti-MLM Zealot,” they were more like one-hit-wonders. They took one hit, and I was left wondering how professional journalists could have been so inept at researching their subject matter. In most cases, it was obvious they just didn’t know what they were talking about. Again, not to say there are not many aspects of MLM that deserve criticism. This industry, or more specifically the way some people practice it, is far from perfect. But the legitimate concerns are rarely the target of the hit.
        The epitome of this is an article by Rhonda Abrams, a syndicated small business columnist. I’m only picking on her because her views are so typical of the MLM-ignorant journalist. They pretty much all say the same thing.
        In her article “Don’t Get Taken By MLM” (Nov. 2002) Ms. Abrams suggests we should “Never, and I mean never, sign up for a multi-level marketing (MLM) program.” Why? Well, according to Abrams, “All MLM programs share the same fundamental flaws.” Which she lists as follows:

1. Recruiting your competitors: If I’m in sales, the last thing I want is more salespeople competing with me. But in MLM, your goal is to get lots and lots of competitors. Why would I want to do that?

About five paragraphs previous to this statement, Ms. Abrams defines MLM as follows: “In a multi-level situation, I make money off my sales and also the sales of those I bring in to the organization.” So, did she forget what she just wrote? Does she really have that little understanding of the most basic, fundamental concepts of MLM? Or, is she so desperate for a negative argument that she has to invent one?

2. You pay to be a customer: Overwhelmingly, buyers of MLM products are MLM salespeople. A legal counselor to MLM programs advises that a mere 20% of sales to outside consumers is high enough to avoid legal scrutiny. Can you imagine any other business where 80% of sales are made to employees?

Abrams apparently doesn’t understand that the majority of MLM programs today have distributor enrollment fees so low (many are free) that any wise retail customer will sign up just to save money on their products. If her findings are accurate, that would mean 20% of all customers are voluntarily choosing to pay full retail when they could simply call an 800-number or visit a web site, sign up as a rep and get 25-40% off. I’m surprised it’s as high as 20%!
And Abrams comparison to “employees” is grossly flawed. Imagine if Ford allowed customers to simply fill out an employment application to get a 25% employee discount on their cars. They never actually had to do anything, just apply. I bet over 80% of Fords would suddenly get sold to “employees,” wouldn’t they?

3. You’ll pay far more: Expect to be required — or pressured — to buy samples, marketing materials, training courses and tapes, seminars, etc. You’re very likely to spend far more than you’ll ever bring in from sales.

She’s just wrong. No MLM company operating in the U.S. today “requires” such purchases as a prerequisite to becoming a rep. Pressured? Well, I suppose that’s true to varying degrees. If someone wanted to start a successful MLM business I would strongly suggest they get marketing materials, product samples, and some training. Is that really unreasonable? Too much pressure can occur, but once again, that’s a problem with the individuals you’re working with, not the MLM model.
Note that Abrams doesn’t say that “most” MLM participants spend more than they bring in, she says you very likely will. How could she possibly know that?

4. Your products are priced too high: No matter how good the quality of your products, consumers are likely to be able to find better deals elsewhere. Just think about it – all those middle layers of salespeople and commissions means higher prices to the consumer.

Yet again, Abrams, like so many of her peers, demonstrates an utter lack of even the most basic MLM concepts. MLM companies don’t have advertising budgets. Their products are marketed by word-of-mouth, and the millions they likely would have spent for advertising and promotion is instead used for commissions to pay those who talk up their products. Furthermore, MLM companies greatly reduce the number of “middle layers” between the manufacturer and customer, because the reps are their distribution system. These facts have been among the most openly and widely promoted benefits to the MLM distribution model for more than half a century!
Having said that, are some MLMed products priced too high? Are some jacked up just to support a better paying comp plan? Absolutely. Is that a valid reason to avoid “all” MLMs. Absolutely not.

5. You turn your friends and family into “prospects:” MLM programs typically suggest you sell to – and recruit – people you know well. Do you really want to be constantly beseeching those closest to you?

How did we go from selling to those we know well to “beseeching those closest to you?” Not only do you not have to even sell to those you know (there are numerous alternative lead generation systems available to MLMers today), but why not offer your product or opportunity to those you know, and if they are not interested, don’t beseech them! In fact, most MLM training today advocates exactly the opposite approach. If someone says No thanks, you say “Next!”

6. You face group pressure: One of the positive sides of MLM groups is the support given to those who spend a lot of money or who try hard to succeed. The flip side is that those who don’t spend as much or believe as strongly in the program are likely to face strong negative judgments from the group.

It amazes me how those who “investigate network marketing” always seem to assume that the way a minority of those involved with only a few of the largest, oldest MLM companies is the way we all do it. Personally, I encourage and motivate, but I don’t “pressure” anyone to do anything – and I’m not alone.
Abrams concludes her article with this: “Personally, I recommend you NEVER sign up for any MLM program. I believe most of them are unethical, many illegal, and all of them a waste of money.” There are over 2,000 MLM companies operating in the U.S. today (have I mentioned that?). I admire the years of research she must have put into her article that allowed her to make a sweeping judgment like that about all of them. And I sure wish I had taken her advice 15 years ago. She could have saved me from a life of sleeping in ‘till 9:00 am every morning, taking a week off when ever I feel like it, and paying taxes on a six digit annual income. Jeez, if I had only known they are ALL a waste of money!

The common theme throughout most all anti-MLM propaganda centers on six issues. One being the product benefit claims made by over-zealous distributors, which, again, is a valid criticism and deserves no rebuttal. The other five crumble easily under the weight of historical precedent, practical experience, and common sense. The final installment of this series will address these issues head on. They include: Market saturation, exploiting relationships, why “Most distributors fail”, the allegation that success in MLM requires extraordinary talents and skills, and of course, the “Pyramid” issue.
I’ve saved the best and most definitive response to these issues for last. Don’t miss part XI!

Filed Under: Articles Tagged With: Len Clements, MarketWave, MLM, multilevel marketing, network marketing

Anti-MLM Zealots – Part IX

December 27, 2012 1 Comment

I’m sure those of you who have been following this column over the last several months have a pretty clear picture of what I’m defining as an “Anti-MLM Zealot.” For the benefit of those readers new to this series, allow me to reiterate – an Anti-MLM Zealot isn’t someone who dislikes MLM. Even those who really, really dislike it are not necessarily worthy of the title. There are a lot of people who are “anti-MLM,” likely due to one failed experience, or more likely due to them borrowing the negative opinion of someone else and making it their own, without doing any of their own actual research. No, the Anti-MLM Zealot is someone who is borderline obsessive about exposing their negative opinions to others – even those who never asked for it. They are someone who spends hundreds, if not thousands of hours of their lives searching for evidence to rationalize their extremist viewpoint. Then they compile and present their observations, theories and opinions to anyone who will pay attention to them in an effort to rid the nation of all things MLM. The fact that there are thousands of good, honest people supporting their families from their MLM incomes, who’s livelihoods would be ruined if their MLM prohibition agenda were successful, is rationalized away by simply denying they exist. Or, creating a dichotomy where all those who do succeed are the “perpetrators.” The rest are “victims.”
There are really only four bona fide Anti-MLM Zealots out there trying to wreck your business, and for many of you, your livelihood. Arguably the most read is Dean Van Druff, the most prominent is Robert FitzPatrick, and the most currently active is Ruth Carter. All have been discussed in previous editions of this series. But by far the one who has churned out the greatest abundance of anti-MLM propaganda is Mr. Jon Taylor, co-founder of the Consumer Awareness Institute, who’s work we barely scratched the surface on in last month’s edition. Let’s dig deeper.

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.

Filed Under: Articles Tagged With: Jon Taylor, Len Clements, MarketWave, MLM, multilevel marketing, network marketing

Anti-MLM Zealots –Part VIII

December 27, 2012 Leave a Comment

        The Anti-MLM Zealot is a rare breed. Oh sure, there are a lot of people who may be “anti-MLM,” likely due to one failed experience, or more likely due to them adopting the negative opinion of someone else as their own, without doing any of their own actual investigation. Then there are those who dismiss our industry as somehow shady due to nothing more than the common geometric misconception that our sales organizations form a pyramid shape (ironically, MLM downlines are the only form of business structure that does not form a pyramid). But the Anti-MLM Zealot is someone who is passionate about exposing their negative beliefs and opinions to others – even to the point of obsession. Someone who spends hundreds, if not thousands of hours of their lives searching for evidence to support their cause, creating prolific amounts of anti-MLM material, and contacting media outlets and state and federal regulators in a vain attempt to get someone to pay attention to them.
        Someone like Jon Taylor, PhD.
        There are really only four bona fide Anti-MLM Zealots out there trying to wreck our business, and for many of us, our livelihoods. Arguably the most read is Dean Van Druff. The most prominent, at least at the moment, is Robert FitzPatrick. The most currently active, at least at the moment, is Ruth Carter. All have been discussed in previous editions of this series. But by far the one who has churned out the greatest abundance of anti-MLM material is Jon Taylor.

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!

Filed Under: Articles Tagged With: Jon Taylor, Len Clements, MarketWave, MLM, multilevel marketing, network marketing

Quotes

The Tax People: Response & Rebuttal

The Coming MLM Boom!

The Quintessential Qualifying Question

Begging To Be Mislead

Don’t Diligence

The Diamond of Needs

Anti-MLM Zealots – Part XI

Anti-MLM Zealots – Part X

Anti-MLM Zealots – Part IX

Anti-MLM Zealots –Part VIII

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