Sunday, January 20, 2013

Is Multi-Level Marketing Just Sophisticated Begging?

People love to shop. Many go to malls regularly because it is fun for them. Others hit the grand shopping areas such as Chicago's Michigan Avenue or downtown Beverly Hills. Others may not enjoy the grand shopping areas but find their own special shopping places. A fisherman may enjoy, for example, spending time looking over new flies at a bait and tackle shop. A baseball card collector may enjoy going to baseball card shows packed with baseball card vendors.

I've been thinking about this since my interview with Doug Wead and our discussion about the multi-level marketing program he is involved with, Isagenix.

There's something that has always bothered me about MLM programs, but until now I just haven't been able to pin it down.  They aren't Ponzi schemes. That's when you take someone's money and pay off a third person with it, while promising to invest the money. That's not what MLM does. But there is something odd about MLMs as compared to other business. I think part of the difficulty in pinning down the true nature of MLM results from the fact that those involved at a high level are very smooth communicators and thus great obfuscaters about what is really going down.

For example, at one point during my interview with Doug, he said that his doctor was "amazed" about his losing weight and his cholesterol going down. But what exactly could the doctor have been amazed about? It's a known fact that cholesterol goes down when you lose weight. The doctor couldn't have been amazed by this. What Doug is subtly hinting at is that the Isagenix milkshakes somehow caused the change in a near miraculous way. His wording is clever, so you can't really pin him down, but bottom line that's the implication of his doctor's "amazement."

But think about it. Losing weight is about cutting back on calories. There are many people who have lost weight by going on a Weight Watchers diet. Lew Rockwell has lost weight on a paleo-diet. There is nothing amazing about Doug's milkshakes and losing weight. Cut your calories and your weight and cholesterol will go down. Take away the Isagenix hocus pocus and it is all about losing weight and there are many, many ways to do that.

I was thinking about this on my way to breakfast this morning. It was a beautiful morning in San Francisco and it was a pleasant walk. Until a very aggressive beggar approached me. He wasn't the quiet type sitting on a the sidewalk holding a sign. He was in my face and very obnoxious. I finally had to tell him gruffly, in my best Goodfellas imitation, to get lost. And then, it struck me. We have all been there. A call comes in from an acquaintance, who says he would like to meet with us. He tells us it is something he can't discuss over the phone. And, of course, we get to the acquaintance's house and it turns out he is hustling some kind of MLM scheme. It's an uncomfortable experience, not much different from that of an obnoxious beggar

This isn't the pleasant kind of shopping we like to do. It is an in your face one product offer.  Yes, you need this, sign up! But, more than your needing the product, your acquaintance needs the sale to advance in his MLM network. Once we all go through this once or twice, we recognize these type calls and avoid the the invitations.

Now, to go back to Doug's Isagenix product. It's a lose weight, nutrition product. If we really wanted this, we could walk into a GNC store, a Whole Foods store and probably any other major supermarket and pick up this type product. The difference between what Doug is hustling and pleasant super-market shopping is the obnoxious pressure that comes when you are being pushed to sign up when the product is being offered through MLM. It's sophisticated begging, with the product and all its supposed "amazing" qualities the cover.

What's really going on is the MLM networker is obnoxiously pushing you, begging you to sign up, with the idea that you will then obnoxiously beg and push others to go out and obnoxiously beg and push even others. To put it mildly, this isn't a pleasant shopping mall experience. There's nothing illegal with verbally pounding a person, until they sign up, if the person is willing to sit there and take it, but it is beggar obnoxious.

If you get your jollies off this way, then MLM is the way to go. If, however, you want to just lose weight, go to Weight Watchers, or better yet adopt the paleo-diet. If you want to make money in sales without having to use a beggar approach, get a job and sell a product where people come to you, or reach out to make direct sales of products, without having to push an entire chain of people to do sophisticated begging for you.


  1. The big problem with MLM, as I understand it, is that most people don't make much if any money by selling the product to actual customers. The money is made by selling inventory to the people underneath you and getting a cut of THEIR sales. Otherwise, why not just make everybody an independent franchisee? In that sense, the program is presented rather dishonestly to new prospects and is like a Ponzi scheme in that the people at the bottom are doing most of the work.

  2. I ain't goin' anywhere near his koolaid, er milkshakes, just yet. Please, more vetting on this highly intelligent gentleman.

  3. You're are absolutely right Robert.

    The issue of MLM for me has always been that the sales are typically predicated first on the basis of relationships(typically sponging off your friends) with the thought about quality/cost/benefit about the product being secondary.

    I have no problems with people that want to buy only from their friends, but it's usually not the best business decision long term...aside from the fact people usually have friends outside of work in an effort to have friendships outside of business for personal growth reasons.

    I also noticed Wead kind of distanced his current MLM from Amway....that's interesting to me. I can't believe Wead doesn't know the total sales that produced a $46K check for him. I think that's total BS. You'd have to be a moron to work on something without having an idea of what you're going to make in doing it.

    1. lmao @ Taylor!

      Listen bud, if you doing stuff for Wenzel for free that's fine...I'm assuming it's a passion for you and there's the greater good issue in play. Also, the exposure you get might enable you to make a living down the road.

      If you want to compare your philo to someone selling weight loss milkshakes(at 67 yrs old, unlike you young man!) in competition with an industry full of them for similar reasons(for free!?) then you are a better debater than me, I admit freely.

  4. I'd take it a step further because that's pretty much how I see ALL marketing. If I want to buy something I'll go looking for it. If I have a need that's not being met, I'll seek out a way to meet it. But when people call my house or send me junk mail or in any other way try to offer me something I'm not looking for, try to manipulate me into buying something, it's the same damn thing as hustling or begging. It doesn't have to be multi-level. That's the nature of ALL marketing.

    1. False.

      Marketing is the art of creating a competitive niche for a product or service-- it is delineating what it is and what it isn't in the "global" matrix of available products and services.

      Advertising is about clueing people in to the product or service's existence-- telling the story, trying to convince people of the value and the need they have.

      There is nothing wrong with either, especially not advertising. Advertising is INFORMATION. You require INFORMATION to make a decision about a product or service. Without INFORMATION of any kind, whatsoever, you wouldn't even know a product or service exists nor who you could buy it from.

      You're taking a specific instance of the class "advertising", which you find obnoxious and lacking in value (you're free to make such an individual judgment) and tarring the entire class "advertising" as if all advertising (read: information related to products and services) is somehow bad.

    2. Spoken like a true marketer. There's a very distinct difference between consumers seeking out the information that they want/ need in order to make informed purchasing decisions ("consumer research"), versus a company forcing it on consumers in an unsolicited manner in a concerted (and largely unwanted) effort to influence the consumers' purchasing decisions ("advertising"). The difference lies in who initiates the exchange of information. When information is provided in an unsolicited manner, the advertiser is essentially staking a claim for the consumer's attention. At best it's just another form of pandering, begging, hustling, propaganda. At worst, it's the blatant theft of the consumer's time and energy. Take junk mail as an easy example. When I open my mailbox each day and pull out a bunch of mailings and catalogs and circulars and etc, the marketer has pushed his way into my life in an unwelcome manner. I have no choice but to sort this crap from my legitimate mail and now I've become obligated for its disposal. That's an unwanted burden. The marketer has stolen from me the time and energy it will take for me to sort through it and dispose of it. That's theft and I find it immoral.

    3. First of all, If I don't want to be called, I put myself on the Do Not Call list and if I don't want junk mail, I go to a website that for free will tell advertisers that I'm not interested in their product. I get no unsolicited phone calls and no junk mail. The fact that you're either too lazy or too uninformed to do this and then bitch about it, leaves you with no credibility.

    4. Lazy and uninformed? That's an awfully presumptuous and offensive comment. I ditched my landline phone so I haven't had to deal with that in a while. Junk mail, however, is a personal crusade for me. I'm on all the major Do Not Mail registries. I keep a list of every mailing and catalog that lands in my mailbox and I call each company to have my information removed. I have called my utility companies, credit card companies, and every other business or organization who has the new address and asked to opt out of all information sharing. Every time I purchase something online or make a charitable donation I leave a comment saying "do not add me to any mailing lists, I do not wish to receive any marketing materials, do not share or sell my information with 3rd parties". I have moved several times in the past couple years and it usually takes about 6 months to get rid of all the junk mail. I agree, it can be done, because I have done it. However, funny thing happens when you move... after you've taken yourself off of every list possible, when you move it all gets reset. Companies who you've PREVIOUSLY CALLED to get off their lists, who you haven't done business with for YEARS, will start sending junk to you at your NEW address. During my most recent move I proactively registered my new address at,, and 2 weeks before I even changed it with the post office or anyone I do business with. It didn't help, the junk started flowing about 2 months after I moved. So now the battle starts all over again. This level and type of harassment is absolutely absurd.

      But more to the point, I challenge what seems to be the basic assumption here: that marketers have some kind of inherent right to harass people in the first place. I challenge the assumption that it's the consumer's responsibility to opt-out, rather than the marketer's responsibility to obtain consent. I would love to see a slew of class action lawsuits against the marketing industry to stop their endless harassment and invasion of privacy.

    5. You're talking about a marketing scheme based upon "access rights" provided by/controlled by the US Postal service and other govt monopolies with their arbitrary rule-making criteria. You're not talking about anything that does or likely would exist in the absence of such regulatory interventions.

      Because you're right, it'd be trespassing in a sane world.

    6. So many anons I can't tell which moron is which but the original guy, if he responded, never addressed my point that advertising is information. Trying to treat ALL advertising (or, as he calls it, "marketing") as an aggressive trespass on his life is nonsensical. I do agree that particular forms (such as receiving mailings you don't want) is a form of trespass, but that is enabled by the USPS and other govt agencies (like the FTC, FCC, etc.) that regulate how businesses can communicate w/ and trespass against potential customers.

      Ever tried to "opt out" of the USPS delivering mail to you? That's the real problem and what allows business advertisers to trespass your mailbox.

    7. @ Taylor: All but the reply at 04:33am is the same anonymous "moron" (as you put it). My name is Scott. In the future I will indicate this at the beginning of my comments. My reply at 2:21am is my attempt to address your point that advertising is information. Of course it is. I'm not sure what else you're looking for there. MY point is that there's a difference between wanted and unwanted information. In my view, the vast majority of advertising falls in the "unwanted" category. I contacted USPS at one point and they assured me that they do not sell information. Not sure I believe them, but that's the info my own research has yielded. I would LOVE to opt out of the USPS. Unfortunately the Private Express Statues (PES) give it a legal monopoly on mail delivery in the US. There is no alternative, it is illegal for anyone else to deliver mail. In other words, the government has made competition with USPS a criminal act. As such, USPS is completely immune from market forces, which is why it sucks so much. And don't get me started on how they exploit this monopolistic position to subsidize their competition with private carriers (UPS, FedEx) in the package delivery sector.

  5. about 10 years ago in the Chicago area, there were tons of jobs advertised for "marketing management" positions. these jobs were basically just people going around as independent contractors, not employees, selling some kind of discount coupon book. get enough sales, advance with the company, get rich, blah blah blah.

    but, just like your analysis here, it was basically just a bunch of people running around door to door and begging people to give them money for some crummy coupon book.

  6. read chapter 15 of Human Action.

    1. No one here is suggesting that MLM is "outlawed".

      If anything, it's the "word of mouth" concept that MLM favors that is simply going the other direction in this case/our discussions.

      I'm sure that there are MLM campaigns that legitimately offer a product or service at a good price for its market segment.

      That doesn't mean that Wead's milkshakes do that, or that MLM's in general represent such products.

    2. umm i believe you got to this part 'Like all things designed to suit the taste of the masses, advertising is repellent to people of delicate feeling. This abhorrence influences the appraisal of business propaganda. Advertising and all other methods of business propaganda are condemned as one of the most outrageous outgrowths of unlimited competition. It should be forbidden. The consumers should be instructed by impartial experts; the public schools, the "nonpartisan" press, and cooperatives should perform this task." and stopped reading any more.

    3. Who said anything about banning anything?

      MLM is not about advertising,although it tries to package itself that way. It is about making people so uncomfortable that they will pay to make the experience go away.

    4. No it uses personnel contacts as a means of pitching the products rather than stupid ads in dead trees or over the airwaves- but i don't see why you would give away money for unpleasantness to go away when a simple 'fuck off' would suffice.

    5. "umm i believe you got to this part" "and stopped reading any more."

      Really, no...I simply don't understand your point then. Please elucidate.

  7. @Robert, I think you, Jay, Nick, are engaging in a few logical fallacies such as argumentum ad populum, an appeal to consequences and an appeal to the emotion of spite.

    MLM compensation schemes are just methods of allocating compensation for sales. Just because most new salespeople lack persuasion and sales skills and result to begging does not mean the entire method of sales generation is composed of begging.

    Anonymous makes a very interesting argument about persuasion and marketing in general. But if persuasion or marketing did not add any value then it would not be rewarded in the economy. And as you have written in many other posts it is perhaps the most important skill an entreprenuer can develop.

    Plus, I think Anonymous is making a logical fallacy when it comes to Hayek's division of knowledge. I am actually extremely grateful to people, whether they get compensated and regardless of the method of that compensation or not, who share their specialized knowledge with me of new products. For example, I will go out of my way to make sure to click on the Amazon links for products I learn about from Lew Rockwell.

    So I think Anonymous's issue is not with the division of knowledge but in the methods used by the salesperson. Additionally, I think as the economy continues to complicate from increased division of knowledge and specialization of labor this form of intellectual distribution will become increasingly important to both learn about and purchase unique high quality products.

    For example, I am not associated with Amway in anyway, I have never bought anything and don't sell it, but form what I understand they have farms and produce products that are much safer, more natural and far superior to the Monsanto produced garbage. How can I trust pink slime producing companies? But companies that are built on word of mouth compensation will likely be more trustworthy than those built on political advantage and regulation.

    Doug Wead is a master persuader and salesman. He can take those skills and sell anything; milkshakes, snakeoil, overpriced cleaning supplies or presidential candidates. And you make an interesting assertion that if you want to make money in sales without using the beggar approach that he should 'get a job … direct sales … without having to push an entire chain of people'.

    But with his tremendous persuasion and sales skills he could easily get a very lucrative job Fortune 500 company selling either direct as a real estate or insurance broker, etc. He would be successful because he has tremendous persuasion and sales skills and also could teach and train other brokers or junior associates at the company. He would probably be a National Sales Director and be training Regional Sales Directors, etc. So a question becomes if he do business that way then why does he choose to do it the MLM way?

    Perhaps it is because the methods of compensation are more effective at allowing him leverage to earn residual income and protecting his business by training team-members instead of potential competitors resulting in higher income with less time and effort and retains the fruits of the investment he makes in teaching and training that 'entire chain of people'.

    A few years ago one of my cousin's husband approached me about selling for one of his MLM's, which I declined, but part of his attempt to persuade me included the 30 minute video Brilliant Compensation. It changed my conclusion about the MLM compensation method and I understood it was just another form of compensation. One which could setup the economic incentives to produce more cooperation and greater corporate accountability than other forms of compensation.

    After a quick Google search I found a copy of it that can be watched. I am in no way associated with the website.

    1. "@Robert, I think you, Jay, Nick, are engaging in a few logical fallacies such as argumentum ad populum, an appeal to consequences and an appeal to the emotion of spite."

      Yet I see no arguments as to the fallacies you suggest exist in our comments. If you were specific that might help us understand each other.

      "It changed my conclusion about the MLM compensation method and I understood it was just another form of compensation. One which could setup the economic incentives to produce more cooperation and greater corporate accountability than other forms of compensation."

      You seem to be more knowledgeable about MLM than most posting currently, so can you explain to us how Wead gets compensated since he could not explain it to Wenzel?

    2. The idea that one can get compensated for a job they've done, without knowing what that job is, is absurd because it implies that their success is random and not related to skills or techniques they can improve through disciplined practice and study.

      The idea of a person who is CONSISTENTLY successful with a random process makes no sense.

      Wead is either a liar, or a dupe. Yes folks, it's black and white. I'm going with the former. And the fact that he's associated with politics and political promotion might tell you something.

    3. Trace,

      I have never written that the most important skill an entrepreneur can learn is sales. Entrepreneurship is about alertness---no other skill required. Sales is a very good job skill to have but it is not part of entrepreneurship.

      As for MLMs, what you tend to find in the industry is phony unique products. Soap products, weight-loss programs etc. These are products that appeal to large groups of people which makes sense if you want to attract large groups to a network. But I have never seen a truly unique product offered via MLM. It wouldn't make sense. If you have a unique product you get salespeople and pay them commissions, or give away free product and then put it in stores or market the products in other ways and put them in stores. iPhones, iPads, Nike sneakers, bottled water, I could go on and on, but none of them are marketed by MLM because it is a very limited way to market and cost prohibitive way to market.

      Again, the only thing that tends to be marketed by MLM are phony unique products. My reference to MLM being similar to begging is not about the sales skill of the MLM person, but the type of relationship between the MLM person and the prospect. Since the product is not really a unique product, the relationship between the MLM person and the prospect boils down to "please give me some of your money for this product and then I want you to go out and do the same thing to your friends." It is an uncomfortable situation to be in and similar to being confronted by an aggressive beggar. In both situations, if you had a magic button that you could push to get either away, you would do so. In fact, MLM is worse, since the beggar isn't trying to get you to create a chain of people that will funnel money via a network into the network with some finding its way up to him.

      People need to be alerted to new products and businesses are doing this all the time. But businesses with such products aren't using MLM. MLM is almost always about very pushy selling of not very important products that causes the same reaction in most people that you get with an aggressive beggar: Get me out of here.

  8. The film "Secondhand Lions" on direct marketing:

    They do end up purchasing a skeet thrower from one salesman who returns after noticing their love of shotguns on his first visit. That is an example of identifying opportunities and also demonstrates Tracy Mayer's observation that marketing is one way we learn about new products.

    I recommend "Secondhand Lions" for those who have not seen it.

    1. What you are referring to is different from MLM in basic concept.

      Except for the one anonymous commenter, I haven't seen anyone here railing against marketing or sales.

      MLM is unique in it's approach in that its "levels" are all people making money on one another.

      If the product is made with enough margin for everyone to collect a piece of the pie yet remain price competitive, great! From personal experience and an also an axiomatic viewpoint I don't think that happens too often. Tupperware is probably an example of a decent MLM, or Pampered Chef....but I don't need to make a list of the bad examples, do I?

      Also, I have the personal preference of seperating most of my business relationships from my personal. I have a few cross overs, like everyone...but when someone is "making friends" surreptitiously and then the MLM stuff comes into play it seems a bit disengenuous at best....versus a "cold call" in which the reason for the marketing is clear.

    2. "First we see what he's selling, then we shoot him." The scene with skeet salesman starts at 4:09 (hilarious):

      Full disclosure, I am not associated with this film. I did, however, sell pots and pans door to door in 1981 and I sold Amway from 90-94 and I sold Excel long distance service in 1998. And my wife buys makeup from Mary Kay. I have no idea how the compensation worked, except not very well for me.

  9. MLM is about getting other people involved. It isn't about selling products.


  11. "Entrepreneurship is about alertness---no other skill required."

    Sorry but I think there is a bit more "required" to being an entrepreneur than being "alert" (even Kirzner would agree here).

  12. How many pages long was Doug Wead's compensation manual?

    Inquiring minds would like to know.

  13. Mind you the two people I know that became involved with Amway repidly lost all their original friends very quickly but it really didn't matter as they had all new ones from inside the organization.

    1. hard is it to sell product in the same circle of friends that are doing the same?

      Or furthur, cultivate drones to sell for you when everyone else is trying to build their own drone base to keep their upstream drone insanity.

  14. Hardly. Its a genius marketing tool and everyone knows it. That's why those who start such companies end up insanely rich.