The World's Fastest Growing Industry (is a Pyramid Scheme)
If you have any female friends on Facebook between the ages of 18 and 60, you are probably bombarded with offers from "independent salespeople" for makeup and jewelry and essential oils on a daily basis. These schemes are HUGE right now, with 10 million people in the US (and 20 million worldwide) estimated to be involved with multi-level marketing (MLM) companies.
The idea behind these businesses is simple: They sell you products, and then you try to sell them on to family and friends. You can also make more money by recruiting other sellers (your "downline") and getting a cut of the money they make. It all sounds great on the surface, but here's why you need to run screaming the next time someone brings up an amazing moneymaking opportunity you just have to hear about.
They Have Been Fooling People Forever
Currently, MLMs make $30 billion a year. To put that into perspective, $30 billion is higher than the GDPs of half the countries in the world, and would keep you in beer and classic Star Wars toys for the next million lifetimes. And yet none of the actual sellers seem to make any money (more on that later).
Technically, these schemes have been around as long as direct selling has existed. Merchants figured out a long time ago that it was a lot easier to make money by selling a large amount of products to people who would then go do all the hard work selling small amounts to consumers themselves. In that way, direct marketing companies have been around for thousands of years.
Rich people know better than to do a hard day's work.
But this business model really started to take off in the 1800s. Then Charles Ponzi came up with his famous scheme in 1919, paying off old investors with the money from new ones. Finally, in the 1930s, Carl F. Rehnborg started the Nutrilite company ...
Now available from Amway!
... which became the first to combine the philosophy behind both direct selling and the Ponzi scheme, and created multi-level marketing.
One of the reasons people have been taken in, over and over, decade after decade, is the recruitment practices these companies use. When you get right down to the way that most of these MLMs recruit people, you can't help but start thinking that they sound like cults. The companies draw people in with a sense of community and the bonds of personal relationships, but when you decide you want to get out, they use those same things against you. People will choose to keep losing money over losing friends and their support structure. Some families of MLM members get so desperate they actually hire people to get their loved ones out of the programs, just like with cults.
Everyone Is (Usually) Just This Side of Legal
Technically, there is a difference between a pyramid scheme and a MLM, although I'm using the names interchangeably in this article because there is A LOT of overlap between the two. Pyramid schemes, in theory, emphasize recruiting new sellers over actually selling product, but in the end, they do both. MLMs supposedly emphasize selling product over recruiting people, but in the end, they also do both. You can see why this gets confusing.
So many options!
But pyramid schemes are illegal in most states, while MLMs are not. And everyone, from the participants to the people who wrote the actual laws, is really confused about where the line is between the two. This results in a lot of lawsuits against supposedly on-the-level companies. In November, Herbalife agreed to pay $15 million to settle a class-action lawsuit about their discounting and recruiting process, things that made them look like one of those gosh darn illegal pyramid schemes. It's not the first time their policies have been called into question, and even after the settlement, the Federal Trade Commission is still investigating them. They are far from the only MLM to cross the line and get in trouble for it. Companies have been sued for everything from failure to accept refunds to false advertising to friggin' fraud and racketeering.
MLMs are not held to the same accounting standards that most other companies are by the federal government. While you can look up how much money Google makes a year before taking a job there and know those numbers will be accurate, MLMs usually don't have to provide that kind of information. So recruiters are free to tell you how they make shitloads of money, even if they are thousands in the hole. Lies like this are not just common -- they are part of these companies' business models.
Lies are just a dyslexic terrible speller's way of saying love.
Once a company has reached market saturation in one area, they often rebrand into new companies, so that the same people they already screwed over will see them as a brand new opportunity to get rich quick, FOR REAL this time. For example, Nu Skin has also been known as IDN, Big Planet, Pharmanex, and Photomax over just 30 years. Amway is sold under so many different names that I can't give you a definitive number because I kept finding new ones, but rest assured it is more than 20. Again, this is all perfectly legal, despite being objectively terrible.
Some of Them Are Actually Evil
While the rules may be a bit fuzzy in America, in other countries, these schemes are often free to do what they want, and mostly what they want to do are bad things. In China, members of a group working to rescue people from pyramid schemes have actually been physically attacked by the ringleaders of said schemes. In Albania, two-thirds of the country invested in combination pyramid / Ponzi schemes that were tacitly approved by the government, leading to a rebellion in 1997 after everyone lost their money.
But even stateside there are really scary companies. Amway has been called everything from a cult to a "private political army" for the creepy devotion of its participants and its right-wing Christian theology. But while political and religious views aren't a crime, talking shit about your competitors can be. Over the last two decades, some Amway distributors have been spreading a rumor that Proctor & Gamble is satanic.
I trust everything makes sense now.
Obviously, they were just warning the public out of the goodness of their hearts, and not because P&G sells a lot of competing products. This all came to a head in 2007, when a jury awarded $19.25 million to Proctor & Gamble for the loss of business these rumors cost them.
Hey, remember last year when we were all freaking out about Ebola? Well, little did we know we were safe the entire time. According to tweets by sellers, the essential oils sold by two different MLM companies, doTERRA and Young Living, could help in "treating the symptoms of Ebola Virus." While those companies at least had the intelligence to claim they never told anyone to make those claims, another MLM, Natural Solutions Foundation, stood by their statement that their products, "effectively kill Ebola." And I know we have pointed out before that people were trying to make money off the deaths of thousands and the fear of millions, but adding another group to that list doesn't make it any less evil.
Market Saturation Happens Faster Than You Think
Because I am ancient in Internet years, I am old enough to remember the 1980s. And that means I remember when Heather Locklear was selling shampoo, encouraging us all to try Faberge Organics, and then tell two friends, who would each tell two friends, "and so on and so on and so on." The idea was that, eventually, everyone in the world would be using this amazing shampoo, and the owner of Faberge would have enough money to die by shoving an actual Faberge egg full of cocaine up his or her butt.
Good luck, sir!
This progression works wonderfully when only a handful of people are making all the money from it. If everyone in your town uses one shampoo, no one loses out and you all have fabulous hair. But MLM programs mean that instead of just recommending your friends try a new nail polish or jewelry or essential oil, you actually need to encourage them to sell these things as well in order to make money from them. And they need to encourage more people. And so on and so on and so on.
Soon, way too many people in one area, or with the same group of friends, are selling the same thing. How soon? Well, if one person starts out and recruits two people, and they each recruit two people, etc., it would only take 28 recruitment cycles for virtually EVERYONE IN THE USA to be selling the same product.
And there is no guarantee that you will look like this.
Take a moment and think of the poor people of Utah, who know this all too well. Forget Mormonism -- because of looser laws on MLMs, Utah is the Promised Land for these companies. According to one report, in a single county, 56 percent of households had been approached to join an MLM in the past year. Only 4.6 percent of those people joined, but that still meant that there were four sellers for every person that actually ended up buying something from one of these businesses.
Even if you live in a relatively large town (and outside Utah), it won't take long for the market to be overrun by people selling your product. And since you don't determine the price and usually can't offer discounts to undercut your competition like a normal business would, you are all on a level playing field. Except it is a crappy playing field, where there are 100 people on a side and no one wins anyway. That is because ...
NO ONE Makes Money
Hand on heart, no matter how many amazing stories you read online about people making thousands and their spouse retiring and sending their kids to private school, I promise that you will not make money from these companies.
Here, let's make a bet. If you are an agent for one of these schemes and you make money out of it after, say, a year, I will give you $100. But if you lose money, you have to give me $100. For simplicity's sake, I'll let 100 of you get in on this bet. Do you know how much money one government report says I will have after that year? $9,800. That's because 99 of you will have paid me, and I will only have to shell out to one of you. So basically, by sitting on my ass and gambling, I will have made almost $10,000 more than anyone who worked their butt off for a year for one of these companies. According to that report, even ACTUAL gambling that isn't heavily stacked in my favor would still be a better bet (pun intended) than joining a MLM scheme.
Me rolling around in your terrible life decision.
Herbalife, the company getting lawsuited all over the place that we discussed above? Of all their sellers, 99.92 percent lose money. And that is just when you are a part of the scheme. When I asked friends about their experiences working for these types of businesses, most of them said they had hundreds, even thousands of dollars' worth of stock left after they finally got out. The companies were not about to buy that back -- they just had to add the loss to their other ones.
I get the attraction. You can stay at home with your kids and go off to girly get-togethers at night and drink wine, and it seems like the perfect way to supplement your income. That's why these things have been around and popular for almost 100 years. But there are flexible part-time jobs, even work from home jobs that pay regularly and don't require you to invest your own money.
So, please. Learn from the mistakes of those who went before you. There is no get-rich-quick scheme that works, and these companies virtually always leave you worse off than before.
For more from Kathy, check out 5 Eerily Familiar Things Animals Do When They're Drunk and 4 Everyday Things That Caused Huge Panics When They Were New.
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