MLM Analyst

I’ve really enjoyed some recent comments posted on the site. Some of my favorites are those riddled with stories of how the author knows a guy who knows a guy who makes a billion dollars a month, etc. etc. They are usually provided as evidence that one network marketing company or another outperforms all the rest. Take this one for example,

“…i have a personal friend named [deleted] who makes 13k a week and i know this because i saw it and his dad is a black diamond that makes 1.5million a year and i also saw that so i know its not fake…”

Many of you know that if you’ve exposed yourself to enough companies & products, you hear the same basic stories from them all – people were healed, the most unlikely people became crazy rich, and so on. I suppose the storytellers can’t be faulted. If you want someone to take action, you typically want to appeal to their emotions. Emotions motivate. And stories touch our emotions.

In fact a few years ago I read an article in the Harvard Business Review by a famous screenwriter, Robert McKee. In it, McKee argues that, “executives can engage people in a much deeper–and ultimately more convincing–way if they toss out their PowerPoint slides and memos and learn to tell good stories.” I agree. In fact, since reading the article I find myself telling more stories to illustrate points when I deal with clients and business partners.

But you can pry on someone’s emotions to persuade them to do something stupid just as easily as to persuade them to do something good, right? I’ve become a bit jaded by anecdotes of people becoming unbelievably wealthy or suddenly healthy. Of course those people exist. I know many. But is it wise to base important personal and business decisions on someone else’s stories? Do those stories necessarily relate to you and your future?

I’m going to say “no” – with a caveat. Let me start by defining the term, “Anecdotal Evidence,” which is, “non-scientific observations or studies, which do not provide proof but may assist research efforts.” Stories are anecdotal evidence. They are nice and can serve a valuable purpose, but only when they reflect more scientifically valid evidence.

Successful businesses do not make decisions based on anecdotal evidence. If they do, their success will be short-lived. A long time ago I was part of a technology start-up that had an owner who told us he had spoken to dozens of potential customers and that they all wanted a certain type of billing system. As evidence of this conclusion, he would tell a single convincing story to the other owners about a conversation he had with a potential customer.

We were all supposed to take that as evidence enough of what all of our future customers would want. When a few of us asked to see his data he became very defensive and threatening. So we trusted him and designed and built the system. It took 6 months and cost us a bit more than $1 million to build. It was a complete bust. Our sales peaked at around $10k/month.

So those of us more interested in reality (and surviving as a company) went out and interviewed a number of potential customers and found that they preferred something completely different. It was simpler and much less sexy than what our outspoken storyteller insisted on. It took us a month to build and we did it entirely with existing resources. Within a short while, monthly sales passed $200k.

Now, what will you do with my little story? You could dismiss it as not representative of typical successful businesses. Or you could use it to start your own research, reading articles and studies that show how successful businesses make successful decisions. After that you’ll conclude that my story is realistic and useful and you’ll try to make important decisions in the same way.

So here’s “the moral of the story” for those working in, or looking into, the network marketing industry. The next time someone tells you a great story, or two, about their product or opportunity consider using some of these statements and questions in your responses:

• Wow, that’s a good story. Now show me all the data you have.
• What percentage of your company’s distributors make at least $1,000 per month?
• What percentage make at least $10,000 per month?
• What scientific studies have been performed on your product?
• What about independent tests performed on your company’s specific product formulation and processing methods?
• What percentage of revenue does your company spend on ongoing research and development to ensure the quality and viability of current & future products?
• What percentage of revenue does your company spend on distributor support and in what form do they offer that support: mass advertising, sales materials, etc.?
• What percentage of product sales are due to retail sales as opposed to distributor purchases?
• What does your company do to regulate fraud and other inappropriate distributor behavior?
• I’m certain you could (and should) think of dozens of other important questions.

Stories are fun, and they might sometimes reflect reality. But smart business people ask a lot of smart questions and legitimate companies with long-term prospects have solid answers. The more smart questions you ask, the more MLM companies will have to disclose valid information.

The less fair MLM companies may also finally be persuaded to invest more in making their products and business practices more legitimate instead of plowing extra millions into the pockets of a few chosen elite. But if things continue as they are with certain companies, we’ll only be sure to hear more and more stories and less and less useful facts.

In my last post, Why I’m Blogging About Network Marketing, I mentioned hearing about the MLM 500 Top Earners list from a soccer teammate. He was excited because it seemed to be evidence that the MLM company he’s associated with was one that produced an inordinate number of top earners. It made me suspicious. So I decided to look into it.

Here’s some of what I’ve found so far. The people producing the list are certainly not doing so for altruistic reasons. You can see from their site that accessing it now requires a subscription. That’s fine. Capitalism is a good thing. But did they purposely disseminate inaccurate information in order to create an uproar and then profit from it? Don’t know. More on that later.

I found the list posted elsewhere. Right at first glance you can see some issues. Of the top 20, 9 are from MonaVie and 6 are from Amway.Those 2 companies have produced 15 of the top 20 earners? Really? Want to guess how many of the top 65 are from MonaVie? Why, 46 of course.

Is it at all disconcerting that from number 29 through 65, every earner is from MonaVie? Umm, yes. Consider the block of Amway distributors that monopolize all but 3 of the 60 positions from #77 to #137. Statistically speaking, how does that happen?

Is there any possible way that this data could be legit? I’m pretty sure there’s not – partly because while I was viewing the list my college statistics professor came back from the grave and began screaming at me to close my web browser before he died a second death.

Even without a ghostly visit, or a college degree, or a 7th grade math class for that matter, any rational person would toss the list out as meaningless.

Still, I couldn’t help but notice a few more oddities:

• Usana shows up only 4 times in the top 150?
• There’s only 1 Herbalife distributor in the top 100?
• There are only 2 Xango distributors in the top 100?
• Nu Skin only shows up 6 times out of 500 and not until #158.
• There is only 1 Melaleuca distributor in the entire top 500?

Ok. So the list is clearly bogus. The people putting it together either didn’t even try or perhaps had ulterior motives. I think that deserves some analysis.

Uh oh, I think I just felt my ethics professor roll over in his grave. Gotta run. I’ll be back with more later.

My analysis of the top MLM earners list continues in this post about motivations behind such a list.

If you wonder, like I do, why an MLM company would publish their top earners’ numbers, and why a typical distributor would publicize that, you might find this article interesting: Which MLM Comp Plans Screw the Typical Distributor?.