Whenever I explain The MLM Gas Station and $8/Gallon Gas or Tim Sales Scams to someone who is not affiliated with MLM, they either understand it right away or think it is ridiculous that I even have to write such articles.

Conversely when I show either of those to an MLM distributor, I get an illogical argument. Much of the time they'll ask who I am rather than concentrate on the issue directly. A similar thing happens if I point out that their company qualifies as an illegal pyramid schemes according to the FTC. I can give them the exact pages and quotes from the FTC's website and they disregard it completely. Sometimes they'll focus on enforcement of the law rather than the legality itself with an argument of: Then Why Hasn’t [My MLM] Been Shut Down by the Authorities?

For some time it perplexed me as to why an MLM distributor is unable to process very simple straight-forward logic that non-MLM distributors can. Then I read somewhere that it is something called congnitive dissonance. That's a psychology term that is new to me. Rather than explain what it is, it is best to give this example from Wikipedia:

"An example of this would be the conflict between wanting to smoke and knowing that smoking is unhealthy; a person may try to change their feelings about the odds that they will actually suffer the consequences, or they might add the consonant element that the smoking is worth short term benefits."

In short, a person will invent a new reality to suit their belief system. Wikipedia gives another example which explains the number of health-related MLM Scams:

"After someone has performed dissonant behavior, they may find external consonant elements. A snake oil salesman may find a justification for promoting falsehoods (e.g. large personal gain), but may otherwise need to change his views about the falsehoods themselves."

This explains why someone in an MLM that is an illegal pyramid scheme can discount the logical truth... they've changed their view about the falsehoods they tell until it is their reality.

On the other side of the coin, there is a percentage who knowingly participate in a pyramid scheme. My theory is, why take the risk? Avoid MLM, and the risks of losing your business overnight, altogether.

However, a Cage the Elephant song comes to mind: Ain't no Rest for the Wicked. It tells the story of three people knowingly performing illegal acts, because they got bills to pay and mouths to feed. Surely that plays a large role in some distributors minds as well.

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Time after time I've seen MLM proponents make a silly argument that everything has to be black and white - either good or evil. For example, they'll stuff like, "Not everyone fails at MLM." and "MLM isn't for everyone." These statements, and similar ones are largely meaningless and only expose the person saying them as either ignorant of logic or openly trying to scam others. Let's take them in order:

"Not everyone fails at MLM."

The first place to start is at the use of the word "fail." That word alone requires a lot of defining in the world of MLM, since no one seems to agree on what it means. Also, in any pyramid scheme, whether it be an MLM or not, there are people who success. This statement does nothing to defend MLM, when it also applies to illegal pyramid schemes.

"MLM isn't for everyone."

I could easily say that "Robbing banks isn't for everyone." or "Picking pockets isn't for everyone." Both statements are true. It doesn't help advances the cause for MLM at all.

Bottom Line: The MLM proponent tries to make a case that if it is okay for some people, it is should be okay for all. This is a huge logical fallacy. Let's me give an extreme example. "Crashing airplanes into skyscrapers is not for everyone." Clearly the act is for terrorists. We can't justify the act simply because it is okay for some people. We have to look at it objectively and say, "Hey there were thousands of innocent people killed! This is not a good thing!" When it comes to MLM, don't let such arguments influence you from looking at it objectively. Remember the business of MLM, is a terrible one indeed.

(Note: The extreme example was given to prove the point about the lack of logic, it does not serve as a comparison. Please refrain from any comments saying that I compared MLM to terrorism. I did not.)

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Many MLM distributors will try to reject someone's well-formed logical argument due to the fact that they have no real life experience in MLM. This is an attempt to avoid the well-formed logical argument with a red herring, which is defined as "a piece of information which is intended to be misleading, or distracting from the actual issue."

There are many, many real world cases where we rely on external perspective instead of real life experience. If someone were say that the ramifications of jumping off a bridge generally involve serious injury or death, would you ask that person if they have real life experience of jumping off a bridge? No, you would use common sense from an external perspective and evaluate the ramifications before being a part of it.

MLM distributors dismiss those with external perspective to limit any opposing views to people who have real life experience in MLM. Those with real life experience in MLM either were successful in making some money (the less than 1%) or lost money (greater than 99%). The MLM proponents will then say that you shouldn't listen to those who "failed" to make money, because they didn't know what they were doing. This leaves only one set of people that the MLM proponents deem as having the right experience to listen to... the very few people who happened to make money in MLM because they were in early and at the top of the structure. Of course, these people are going to say great things about MLM, especially because they stand to benefit if more people are recruited into MLM. This is a common tactic of Tim Sales.

The reality is that the people who aren't in the MLM are the ones with the most valid opinion. They are the ones who are not biased. They don't stand to gain or lose any money if you decide to join or not. It is the MLM proponent that wants you to join - they stand to make money if you do.

Need another reason why not to listen to those in MLM? Look at the overly optimistic probability bias of sunk costs. That's a mouthful. However, it goes a little something like this:

"In 1968 Knox and Inkster, in what is perhaps the classic sunk cost experiment, approached 141 horse bettors: 72 of the people had just finished placing a $2.00 bet within the past 30 seconds, and 69 people were about to place a $2.00 bet in the next 30 seconds. Their hypothesis was that people who had just committed themselves to a course of action (betting $2.00) would reduce post-decision dissonance by believing more strongly than ever that they had picked a winner. Knox and Inkster asked the bettors to rate their horse's chances of winning on a 7-point scale. What they found was that people who were about to place a bet rated the chance that their horse would win at an average of 3.48 which corresponded to a "fair chance of winning" whereas people who had just finished betting gave an average rating of 4.81 which corresponded to a "good chance of winning". Their hypothesis was confirmed: after making a $2.00 commitment, people became more confident their bet would pay off. Knox and Inkster performed an ancillary test on the patrons of the horses themselves and managed (after normalization) to repeat their finding almost identically.

Additional evidence of inflated probability estimations can be found in Arkes and Blumer (1985) and Arkes & Hutzel (2000)."

Bottom Line: Once someone is invested in MLM, like betting on a horse, he/she is going to be more optimistic about the prospects of it. When you combine that with his/her financial incentive, the result is that the person is going to give the predictable positive response towards MLM. It is the external perspective that is free of financial bias and not clouded by their investment.

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MLM distributors quite often make arguments for their products in public forums. Many times they'll use an analogy or comparison. If only given a quick glance the analogy seems logical. However, when you spend a little more time breaking them down, it becomes clear that they are trying to mislead you. Here are a few of the many poor analogies I've seen used over and over again:

Product Pricing Analogies

Many distributors claim that their product is priced competitively when compared to a product at another location. Popular examples include coffee at Starbucks, soda and popcorn at the movies, and beer at a ballgame. In all these cases, it is the location that raises the price of the products. Coffee, soda, popcorn, and beer are generally many, many times cheaper when bought at your grocery store freed from the overhead of locations needing to pay baristas, movie stars, and ballplayers.

Comparison to Other Business Models

Many distributors claim that MLM is similar to other trusted business models. Here are a couple of poor, highly flawed comparisons they make.

  • Real Estate Agents - They make a comparisons to being a real estate agent. I have bought several homes and I know dozens of people who have done the same. At no point did the real estate agent ever try to convince me to become a real estate agent. If he had, he wouldn’t have received bonuses related to my sales. As the FTC says in its guidelines of the MLM and pyramid schemes, the differences rely greatly on how much recruiting is being done and how many sales are made to the public who are NOT distributors.
  • Franchising - Many distributors claim that MLM is just like owning a franchise, similar to McDonalds or a Subway. I have been a customer of McDonalds and Subway many times and never has the owner of the franchise approached me about buying a franchise. Referring to the statement above they do zero recruiting and nearly 100% of sales to people who do own franchises in the same company. Owners of a franchise do not earn on-going commissions or percentages of sales of people they recruit.

Bottom Line: It is clear that the real estate agent and franchise comparisons aren't accurate. Anyone involved in the MLM industry using it is either trying to swindle you or doesn't know what they are talking about. In either case, you want to ignore what they say and distance yourself from them and the pitch they are making.

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The title consists of three terms that actually mean the same thing in the MLM universe. That may seem to hard to believe for a person not involved in MLM. However, each time that an MLM term gained a negative connotation because company after company collapsed, a new, more ambiguous term arose from the ashes.

Let's take all three terms in turn:

  • MLM - First there was MLM - multi-level marketing. This was very straight-forward. It describes a system of marketing a product and getting paid on various levels or tiers.
  • Network Marketing - Networking Marketing is a more ambiguous term as it can apply to the standard MLM definition above, but it could also apply to many other companies. For example, an agent for a movie star builds a network of contacts and markets his/her clients to those contacts. This could also be called network marketing, but in this case the focus on various levels or tiers is hidden. A network one-level deep is still a network, but it is not necessary MLM.
  • Direct Selling - Like network marketing, this term further obfuscates the levels and tiers, but also the networking aspect. If I buy an orange at a grocery store that is direct selling of that grocery. If I sell a Pez dispenser on Ebay that is a direct sale. If a little girl sells a glass of lemonade from the lemonade stand, that is direct selling. None of these examples describe any kind of MLM structure.
  • Update: Incentivized Referral Plan - One24 has started playing even more word games. They say that they aren't an MLM, but have an Incentivized Referral Plan. However, if you watch how their green ticket system works, it's clearly an MLM.
  • Update: Community Commerce - Not to be outdone by One24, after more than 5 years of being in the MLM business, MonaVie has started calling their MLM, "Community Commerce."

Shakespeare in Romeo and Juliet wrote that "a rose by any other name would smell as sweet" with the meaning that the names of things do not matter, only what things are. This is wise advice in this case. These companies are constantly changing how they categorize themselves, because as millions of people lose money in them, the news spreads that they should be avoided. For example, most consumers know to avoid MLM, but they might still be tricked into getting involved in "Community Commerce." It sounds as if it might even spruce up your neighborhood, doesn't it?

Bottom Line: When someone uses the term network marketing or direct selling to refer to something that is MLM, it may be because they are trying to group an MLM in a very recognizable legitimate form for business. One question to ask yourself, "If they are trying to disguise what the business really is, what else do they have to hide?"

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