How an MLM’s Extraordinary Claims Required Extraordinary Evidence.

How an MLM’s Extraordinary Claims Required Extraordinary Evidence. July 23, 2013

One of the quotes going around the atheist movement is this one popularized by Carl Sagan: “Extraordinary claims require extraordinary evidence.” And that sentence would have spelled the end of my belief much faster if I’d heard it many years ago. It’s definitely on my list of “Stuff I Wish I’d Heard About Before Getting Serious About Christianity.” The quote means that the weirder or more remarkable the claim, the more evidence it needs before it can be taken as credible.

English: A simple binary tree diagram illustra...
English: A simple binary tree diagram illustrating the hierarchical structure of a multi-level marketing compensation plan. (Photo credit: Wikipedia)

Let me explain a bit using something a little less polarized than religion. Today I had a long back-and-forth with a nice British fellow about multi-level marketing (MLM) schemes. For those blissfully ignorant of such things, an MLM is a private home business run by someone who signs on to resell goods to other people for an umbrella business; the seller makes a small commission on sales, with the person who recruited that seller into the business (the “upline”) getting a slightly larger percentage, and that upline’s own upline getting a larger one still, and so on up the chain until you reach the founder/owner of the umbrella business who is feeding off the commissions of all the sellers beneath him or her. Obviously, the more people one recruits, the more money one makes, and also obviously, each person who gets recruited will need to recruit others to sell underneath them if success is to be achieved. If you know about Amway/Quixtar, that’s an MLM, as is Herbalife, Mary Kay Cosmetics, Scentsy, Pampered Chef, and a host of others selling everything from sausage to adult novelties.

These businesses are technically legal as long as they really do have a product to sell and actually do try to sell that product, though one hallmark of an MLM is that success with them hinges upon recruiting other sellers to be a downline. These sellers will in turn purchase demonstration and information kits that may cost upwards of $1000, and of course the sellers must buy their own stock (which won’t generally be returnable should sales falter) and host innumerable prospect meetings and sales parties all on their own dime. Actual sales of product to end consumers tend to be a low percentage of the business’ volume.

As the economy’s gone down the tubes, MLMs have risen in popularity among the desperate. These businesses claim to require next to no investment of money or resources, and that anybody can “make them work” with enough effort and positive thinking. Here’s a very interesting study done about MLM participants in Idaho wherein an astonishing 6% were involved with one or another of the beasts (which means that one workplace I was in with 800 people would have had almost 50 MLM distributors throwing parties, which, by the way, is about what it seemed like given the invitations I got every week).

MLM Mastermind Event #2
MLM Mastermind Event #2 (Photo credit: ArtJonak). Now think: almost all of these folks are losing money.

I’ve had friends involved with these over the years, and they are encouraged to buy tapes and books (never share–sharing is evil and shows you aren’t dedicated enough), never ever criticize or even investigate anything that might reflect negatively on your “business” (Amway called this “stinkin’ thinkin'”), get professionally-printed business cards and car signs, visit exotic-car dealerships to sit in the Lambos and Porsches so when you imagine getting rich from your “business,” the power of positive thinking can propel you higher, and of course attend expensive sales conferences meant to bolster your confidence and maybe teach you some soft skills to get further in your “business.” I’m using scare quotes because, obviously, I don’t regard most of these enterprises as real businesses.

I’ve got a long history with Amway and other MLMs. My mom sold various MLM products when I was a kid–obviously, we never saw profit from it. When I worked at a print shop as a network manager, I dreaded seeing MLM folks in the store–they tended to be flashy, pushy, and constantly recruiting my staff. If you’ve ever heard a restaurant worker complain about Christians leaving tracts instead of tips, know that we felt the same way about MLM distributors except at least Christians don’t tend to also proselytize constantly during a meal.

The problem is, MLMs are actually very difficult for most people to manage. They require aggressive sales techniques and cutthroat marketing tactics which most people either don’t know how to practice or feel uncomfortable practicing on others. They also tend to require a lot more time and investment of money and resources than most people can afford. And they rely upon ever-growing numbers of people to fill the serried ranks of the “downline,” when almost none of those people will ever see a profit from their “business.” And indeed, one blogger’s written a compelling case for the MLM business model actually depending upon a high failure rate in recruits. So you won’t be shocked to hear that in that paper I read about the high rate of MLM participation in Idaho that tax year, not a single one of those participants reported a single dingle itsy bitsy teeny weeny penny in significant profit. That link also references quotes from tax preparers and H&R Block managers saying they don’t remember ever hearing about anybody making a profit at these things, either, except one guy who blazed to profit and went bankrupt the next year. Given the super-high participation rate, that’s really a damning blow to the idea that MLMs are a legitimate business opportunity, and such hard evidence flies in the face of what MLM participants are saying about their success with them.

And when (not if) someone fails at an MLM, the reaction is often the same one ex-Christians see when they leave the religion: the recruit didn’t do something right. They weren’t dedicated enough. They didn’t imagine success well enough. They didn’t buy enough tapes or books or go to enough lectures or rah-rah conventions. I’m not the first person who’s noted the similarities between MLMs and fundagelical Christianity, I’m sure, nor the first person who’s noted how quickly and easily such Christians fall for the promises the MLM makes.

Now that we’re all on the same page, now that you have all this in mind, you can imagine the red cape fluttering in front of my eyes when this innocent British MLM-er innocently chirped that his MLM was awesome and pure and honest and profitable. What’s really interesting, though, is that as we talked back and forth (in a shockingly sane, civil, and productive way, I might add–YouTube, I’m so disappoint), what emerged was an interesting discussion about just what “evidence” entails and what would be acceptable evidence, all in a discussion where I didn’t really have a dog in the fight–I was in no danger of being recruited to his downline, and I don’t really care how someone chooses to waste his or her money. He was the one eager to prove that his MLM was morally pure and non-predatory to me, and I wasn’t averse to changing my mind about his MLM if it proved to be the gem in the dungheap. I was willing to listen. And he was willing to talk. So we did.

Remember that whole burden of proof thing we just got done talking about? That’s how this went down. He made a claim: “My MLM is morally pure and non-predatory.” That is remarkable because most MLMs are not pure and most of them are incredibly predatory. So he had to come up with evidence. My job, in the dialogue, was to assess the credibility of his evidence. We could not let it rest as a difference of opinion, because the toxicity of an MLM is an objective and easily assessed and measured quality. If he was claiming it was not toxic, and I was thinking it was, then we could not both be correct. I’m going to take you through a guided tour of my mind as we talked. Hang onto the rails and don’t unbuckle your seat belt at any point during the ride.

By the way, I defined a “toxic” MLM as one in which most of its members will lose money and not see profits even after concerted effort.

First MLM-Dude claimed to have a spreadsheet declaring that most of the people in his group were profitable (I’m not identifying his MLM; please forgive me here, but I actually liked this guy and don’t want to post anything that might identify him too much, and besides, as you’re going to see, his MLM isn’t actually that stunningly different anyway so who cares which one in particular it was?). It took a while for him to fess up to the name of it, but he did eventually and I saw his spreadsheet. “Where’d you get these numbers from? They’re pretty remarkable,” I said. Indeed, they indicated that most people who invest even a modicum of time and money in this MLM get profitable within six months, a rather surprising figure given that the FTC asserts (see the links I gave up there) that fewer than 1% of MLM participants ever see profit.

“From their website, but it got hacked so the spreadsheet’s not there anymore. I grabbed it before the hackers took it down.”

“They didn’t put it back up?” I asked, curious about why an MLM with such a shockingly good success rate wouldn’t be keen to get that evidence back into the public eye as quickly as possible. “And where did they get these rather interesting numbers from?”

He didn’t know. I pointed out that without verification, anybody could say absolutely anything. But he said he trusted the numbers because he was doing very well at his MLM participation, making a rather tidy sum of money for a part-time venture, and that he didn’t care about recruiting so it was almost all sales, and he felt the numbers accurately reflected what he saw going on around him.

I’m not comfortable with accusing someone of lying without good reason to do so–I try to do that whole “arguing in good faith” thing–so I conceded that he might indeed be doing well with his venture. That proves nothing, though, except that he was individually succeeding at this MLM. Online, I could see reviews of his MLM that indicated that it really wasn’t quite as toxic or predatory as some of the others one might join (its compensation structure was not quite as tilted in favor of the upline and its commissions were slightly higher than the MLM norm), but there were still plenty of burn victims talking about very negative experiences and significant losses of time, revenue, and investment; moreover they all said, even the ones who’d succeeded in his MLM, that recruitment was an absolute must to do really well–in fact, several mentioned a figure of 1-2 downline recruits signed up per day. This venture wasn’t MLM-Dude’s primary source of income, though, so that might explain why he wasn’t as spazzed out about recruiting. And he might well simply be a personality that flourishes in the tough world of direct sales. So his personal anecdote about doing well, even if taken in good faith, didn’t prove his claim that his MLM was “pure.” All it meant was that he personally was doing well. I didn’t need to worry about his personal anecdote; it was irrelevant.

Instead I focused on how he knew those numbers accurately reflected what he saw in his fellow participants. How did he know?

He chose to answer by describing the incredible personal wealth of his MLM’s founder. He’d been to the guy’s house, you see, and it was large and very pretty. The founder had a lot of money and nice things too.

“How do you know that?” I asked. Well, MLM-Dude had seen invoices for these things, and he’d seen a statement from the guy’s bank that the house was paid for. I don’t know how valid these statements are (I’ve read elsewhere that banks don’t typically give such statements to American homebuyers), but he’s in another country, so I had no way of really working with that. It didn’t really matter anyway. All receipts prove is that he had the money to buy something at one point, but not where he got that money or how solvent he is right now. They are, like his anecdote, irrelevant.

“Yes, but those are not really indicators of the guy’s actual profit from his business, are they? Did you see his tax return?”

And that’s where we got stuck.

See, real businesses have a lot of rules about income reporting and stuff. Banks get really tetchy about a business running a deficit, so such doomed businesses don’t tend to last long once they start limping down the spiral of death. I don’t know what the UK is like, but in the USA, corporations must release their tax returns to the public, and I’ve seen other businesses do this as well to indicate their health levels. And, too, when a business is really failing, you know it within about 10 minutes of walking into the business. You’ll see stocking issues, or cleanliness problems, or sub-par staffing levels. If you don’t believe me, watch “Kitchen Nightmares” sometime (the UK version where Gordon keeps taking off his shirt–seriously, WTF? WHY GOD WHY).

But an individual MLM distribution business consisting entirely of reselling goods, like Amway or this guy’s MLM, so it doesn’t have any of those rules hanging over its head. I’ve personally known MLM participants who struggled for years under a negative cash flow. They get money in other ways–either through a day job, or else through sympathetic relatives (or friends, and I paid enough MLM friends’ car notes and rents to last me a lifetime!), or else through financing their houses, or borrowing from banks or other sources. People have literally numberless ways of getting by when they must.

You just can’t assess an individual person’s wealth level or their profit from external displays of possessions or from receipts from purchases. There’s no way to know if those receipts and displays are really indicative of wealth, or of desperate borrowing and chicanery to maintain appearances. And… there is this painful fact too: I know, from personal experience, that showing off wealth and possessions is the standard operating procedure for the most predatory of MLM leaders. I personally saw several of them doing this, in both conference videos and in person, and heard them talking about their wealth in Amway voicemails in my friends’ possession (wow, won’t that date me!) and in promotional tapes my friends had purchased. They all do this. It’s how they wow the rubes. Look at what you, too, could achieve! is the unspoken–or sometimes even spoken–message. But in truth, later on I hear that these same folks are financed to the nipples; the gorgeous houses are either about to get foreclosed or are HELOC’d to kingdom come; the money is borrowed; the success is thanks to a nice inheritance/trust fund or a spouse’s income.

That’s where my good faith arguing ends. I can’t just take MLM-Dude’s word for it that his leader is loaded and running a fat profit. That’s a claim that needs to be proven objectively before we can assume he really is, and that’s a claim that is pivotal to his argument.

Really, there is just one credible, verified, legally acceptable document that would conclusively show how much income and profit a person is making with an MLM. There’s only one way for sure to know how much money someone really makes on an individual level for a home business with no other external markers of true success. I bet you know what that is. Say it with me: a tax return.

Whoa, whoa, whoa, hang on there, Captain Cassidy! you’re saying. That’s invasive! I can’t release that–it’s private!

Exactomundo.

Very convenient, isn’t it?

Now, MLM-Dude was already predisposed toward believing his founder’s claim. By his own admission he’s doing fairly well for himself in the MLM, so when he sees his founder waving cash and fancy real estate around, these things are credible to him. The claim that his MLM is honest and makes its participants good money is fairly credible to him. What else does he need to know?

But to me, his leaders’ claims are not credible. Because of my friends’ involvement in the MLM industry and their subsequent attempts to recruit me, I had to learn a lot about these businesses. I’m a bit out of date with the current MLM darlings, but overall I’m an upline’s worst nightmare: an educated consumer who knows how to spot the logic errors, economic malfunctions, and psychological predation that goes into almost all MLMs. Because I know that all MLMs claim to be profitable for hard-working participants and that their founders all do the same things with wealth displays to impress newbies and recruits (nice houses, receipts for fancy jewelry and cars, even bank statements), those aren’t enough for me to be convinced that this MLM is different from all the scam artist schemes I know are in the market. Knowing that one person is doing decently at the MLM isn’t enough for me to think that anybody conscientious could succeed at it. I know better.

I pointed these things out about how all MLM founders act that way and have similar documentation, so it was a red flag to me that his founder was doing the same things I know fraudulent founders do to reel in the unsuspecting. If he was following the fleecing manual to that extent, what other similarities might this guy’s MLM share with ones I knew were predatory?

MLM-Dude kept going back to the stuff that I’d already mentioned was not compelling to me. I already knew that predatory MLM founders had invoices and receipts and garages full of exotic cars. They all waved around bank statements like that proved anything. I’ve only ever heard of a couple of MLM distributors who did actually release tax returns, by the way–and that honesty is always so refreshing, though again, all it demonstrated was that they happened to be individually very good at MLM sales, not that their organization was actually a real business opportunity with real potential for profit for conscientious participants. The overall picture is either unverified or damning.

You see, the founder’s tax return was not going to be the entire picture even if he’d made that document available (and don’t imagine for a heartbeat that someone in his position somehow wouldn’t know that this document would be definitive proof of his income). To get a real picture of who was succeeding in MLMs, a slew of tax returns would be needed. We’d need to know, definitively, who was actually seeing a profit and who wasn’t, and how long it took to get profitable. And there’s really only one way of doing that, but it involves a rather serious peek into someone’s privacy, and most of us aren’t willing to ask for that. Me, though, I’d probably shock you with how far I’d go to be sure about something when my financial future is on the line.

You just can’t take someone’s word for stuff like this. My friends in these scams constantly lied about how well they were doing. I caught them doing it all the time. Part of the time they wanted to exercise positive thinking by naming and claiming success. But I think a lot of it was also shame–nobody wants to admit to being fleeced. Their duplicity shocked me at first because I’ve always tried to be honest, and these folks were all fundagelical Christians like I was at the time. While I was lending one friend money for rent, he was busy telling prospects that his bank account (with a printed statement, of course) had thousands in it. Of course it did. Quite a bit of it was my money that I’d loaned him! But the prospects didn’t need to know that. He claimed to be making thousands a month with his “business.” And yes, he was; I had helped him arrange orders for delivery and I saw the forms he was filing with his upline. But only $100 or so was landing in his pocket as profit–for a 40-hour workweek, even though he made it sound like any day now he was retiring at 30 to his own private island. So pardon me if I just don’t find bank statements, receipts, and personal testimonies to be all that compelling.

If I had only known honest MLM participants up till today, or if MLMs had not been shown time and again to be a pack of predators licking their chops over increasingly gullible and desperate people, what MLM-Dude had as evidence might have been more compelling, but I’ve just seen too much deception to let his claims of moral purity slide. Without accusing him of lying about his own personal success, I instead asked for objective corroboration of group success. And he couldn’t do it.

What MLM-Dude didn’t have was verified, credible profit and loss statements like tax returns. And that was the only piece of evidence I could think of that’d adequately prove his claim that his MLM was different from all the rest. I tried to think of anything else that’d demonstrate a clear income stream from the MLM, but I just couldn’t. We briefly tried to work together to think of something else that was objective, verified, and credible. But everything else he claimed as proof of his assertion was either hearsay or easily managed through trickery or subterfuge. In the end, that’s where we had to leave the discussion. He simply didn’t have the evidence I’d asked for, and I’d already dismissed what evidence he thought he had. We parted on good terms. Maybe he learned a bit about how to assess a claim. And I learned about an MLM that was only somewhat predatory rather than completely predatory.

I still leave the door open that our collective inability to think of any other piece of hard evidence doesn’t necessarily mean there just isn’t such evidence to be had–maybe we just couldn’t think of what it might be. And, too, his inability to prove his case doesn’t mean his claim is untrue, just that I remain unconvinced of his claim. And I don’t think I made him feel like I was attacking his own integrity; I tried very hard to convey my actual feelings, which were that he seemed decent but maybe just had a real flair for this sort of work and would have succeeded regardless of whether or not most people would fail. Do I really think he is doing that well at it? One quirky success story doesn’t really matter in the long run to the MLM’s overall toxicity or effectiveness, so I’m willing to give him the benefit of the doubt.

I bet you’re seeing the same parallels with Christianity that I was during this discussion, especially toward the tail end of it. At first it was just the usual rough-and-tumble YouTube comment spat I get into, just a really polite one. But as we talked, I began seriously thinking about this subject and seriously working with him to assess his claim and find ways of objectively establishing his claim.

In the same way that MLMs do, Christianity makes some astonishing claims that don’t fit reality. Because those claims are remarkable, Christians who make those claims have the burden of coming up with the evidence to support them. There are some objective pieces of evidence I would accept as validation for those claims. But those pieces of evidence do not exist. I know they don’t because some of them are physically impossible or have been categorically refuted already, and others haven’t materialized thousands of years after Christianity got rolling.

I will say though that I have a real soft spot for Pampered Chef. I’m a fool for kitchen toys. I am. It’s awful. If I designed my own house, it’d be 1200 square feet and 400 of it’d be kitchen. And there’d be a little study right off from it with all the cookbooks I have (I have a vintage cookbook collection, of course). You guys’ll never know how close you came to reading a blog about making your own ricotta cheese. So yeah, I’m kind of sad about the whole thing being a setup.

Next up, I’m going to talk briefly about what kinds of things I’d regard as objective validation for Christianity’s various claims. You’re invited! Bring the kids! We’ve got plenty of snakes and lizards for ’em to play with…


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