March 22, 2009 9:27 PM   Subscribe

Why, exactly, are pyramid schemes so bad? Should I try to convince a relative to leave one, and if so, how?

A relative I don't know very well invited me out for coffee, flattered my "excellent people skills" for a while, then pitched me an unintelligible "business opportunity". From her jargon-filled and very vague pitch, I took this to be a pyramid scheme of some type. The specific company was called Network Twenty One, which is affiliated with Amway and Quixtar (not linking them on purpose).

My bullshit detector started beeping really loudly the moment her odd little speech began, but then I realized that while I smell fish, I don't actually understand exactly what I'm being wary of. I have only a shadowy idea of how a pyramid scheme works, why they're so bad, what I would have to pay/do to join, and what she stands to gain if I join.... a percentage of my "business" startup fees? I don't get it. She sells Amway products (weight loss pills, shampoo, etc) on a weird, generic little website, but she wasn't trying to sell me products- in fact, she only gave me her product URL reluctantly. What she really wanted was for me to come to some meeting to hear more about these opportunities.

She's so nice, and frankly kind of pathetic. After being somewhat insulted that she took me for a gullible idiot, I started feeling sorry for her and whatever crappy situation made her vulnerable to this outfit in the first place. I would like to gently convince her to leave this "opportunity" before she gets scammed any more- she told me she invested $600 to start and mentioned some motivational CDs she listens to, which I assume are also part of the scam. I have an idea of what her salary is, and if I'm right, this is more than she can afford.

Any ideas about the etiquette of doing this? I genuinely think she's confused and desperate, rather than scummy or evil. What should I tell her?

Throwaway email is, thanks.
posted by anonymous to Work & Money (27 answers total) 5 users marked this as a favorite
Wikipedia's article on pyramid schemes can get you started on learning more about them.

I agree that a lot of people who get roped into these things are tricked and probably desperate to try to make money after investing a lot of money in startup materials.
posted by IndigoRain at 9:33 PM on March 22, 2009

Because they're completely unsustainable - after 13 stages it requires more people than the world population.
posted by jourman2 at 9:35 PM on March 22, 2009 [6 favorites]

There's a lot of information online about this scam, discussion groups and videos too. (Google amway and scam.) Maybe you should gently show your relative some of this?
posted by CunningLinguist at 9:36 PM on March 22, 2009

Pyramid schemes don't work because cold, hard math dictates that only the first few people involved in any scheme stand a chance of getting their investment back and making any profit. The later you join, the more people you have to bring in, but the number increases geometrically, not in a linear fashion.

See this wikipedia article for some examples. A more detailed explanation of the math is here.

However, it appears that this specific organization has withstood scrutiny in Australia and Amway has come out hard to support them, so your relative may shrug off any criticism because of these failed challenges. You'll find a lively argument between Network Twenty One spokemen and disgusted consumers here.
posted by maudlin at 9:40 PM on March 22, 2009

Because think about it. If you join, it'll be you having this same conversation with someone else, trying to get them to invest for 600. It's a never ending cycle, until someone loses out at the bottom.

Somebody made me go to one of these things for and it freaked me out. They were all these "hot" kids dressed up in suits and they were like zombies.. I couldn't believe it. They feed off naive desperate minds so just tell your friend you need to kick her some reality. Be blunt. If she hates you, don't worry, she'll see the light later on... and thank you for trying to step in.
posted by 0217174 at 9:43 PM on March 22, 2009

Why are pyramid schemes so bad? Because they promise unrealistic returns, which aren't generated so much from things like products sales or genuinely fantastic investments, but rather on the participation of more and more and more people . . . and it's simply not-sustainable.

Amway, Avon and other companies operate what I call quasi-pyramid schemes. One could, in theory, get rich from selling their products like crazy - and that'd be legitimate. But often, these products claim a path to great wealth not on sales alone, but on *your* ability to recruit more and more people to participate in selling. You make a bit off everything they sell. If they recruit more people, you become sort of a "grandparent" participant and make money from the "grandchild" level people. And eventually you would work your way, higher and higher, until you've some sort of god-like level where the money you make from your underlings would far outstrip what you would make just selling the stuff yourself.

Amway (et al) aren't pyramid schemes from a legal point of view, because profits aren't entirely dependent on the participation of greater numbers of people - that's just a sort of "bonus" way of making money. Many people, however, participate in these things and realize that the only way they'll really make money is via more people.

And yeah, they tend to build all sorts of "motivational" messages and new age-like self-esteem-boosting crap into it too, to the point where they seem a little bit like religions. I suppose that when women had less "clout" in the cultural landscape, and few opportunities to work meaningfully, that these messages may have had some benefit. Today in America, I see it all as a scam. In my original part of the world, eastern Europe, some of these same companies seem to play an (almost) positive role for many women, particularly those too old to have benefited from the "opening up" of things, post-Communism.

But fundamentally, they're scams. You can get good make-up, cleaning supplies (etc) for much less money, very conveniently, without the hassles that come with these places. I don't like the idea of these companies very much at all.

Additionally, many of them - like Amway - are very conservative-oriented and downright creepy in terms of their politics and where a lot of the profit goes.

Pointing out all this may help, or it may not. Sadly, these companies have increased allure in bad economic times, and often attract desperate and slightly-crazed people who are just looking for some port in a storm. I just say "not interested" and leave it at that. If someone I were close to got involved, I'd feel obliged to point out the sad way these companies operate and hope that that person would see the light.
posted by Dee Xtrovert at 9:45 PM on March 22, 2009 [5 favorites]

Lots of good stuff here.
posted by Fuzzy Skinner at 9:57 PM on March 22, 2009

She almost certainly is desperate rather than evil, and that's what these schemes prey on; the desperate, or the eternally optimistic. I was an "Amway orphan" with a parent who spent thousands of dollars on motivational tapes and videos and couldn't afford to. The "business" made a loss every year and it seemed clear to me at the time that the "uplines" were far keener on selling motivational materials and recruiting more sellers than they were on selling the actual products.

Sadly, these things are awfully good at sucking people in by encouraing dreams of easy lifestyles, sitting back and doing very little to rake in the cash, having ample money and leisure time, etc. Just like the lottery, only people have to invest a lot more time and effort for about the same chance of success. I'm extremely bitter about Amway and all its ilk; I believe it directly contributed to some major rifts in my immediate family which have ongoing effects even 25 years on. Unfortunately I don't have any advice to offer, although I do recommend visiting the links other people have provided here; these schemes encourage you to see all your family, friends and acquaintances as "prospects" rather than people and to not listen to naysayers. But I do wish you the best of luck.
posted by andraste at 10:11 PM on March 22, 2009 [3 favorites]

To paraphrase what everyone else has said: because mathematically they depend upon the majority of people who participate being screwed - even for just one person to make any money. The more people who actually make money, the more people have to get screwed (and we're talking about thousands or tens of thousands of people getting screwed for each person who makes anything.)

In "real" - criminal - pyramid schemes people get completely screwed: they just end up putting a whole bunch of work in, but they're working for someone else for free.

For the ones like Amway, Market America, etc. that have been tuned so that they're just barely legal, you're technically putting all your work in in exchange for something like a 10% discount coupon on the overpriced retail merchandise they're trying to get you to sell to everyone. A few of their products will be at average retail prices but you'll notice an emphasis on minimum-shipping-cost, maximum-profit items like cosmetics, shampoos, vitamins, or complete snake oil like "health supplements" or gasoline additives.

But IMO an even worse aspect of it is that it encourages people to convert every relationship in their lives into business relationships.
posted by XMLicious at 10:14 PM on March 22, 2009 [3 favorites]

Every pyramid scheme I've seen takes the form of selling materials to other sellers -- and that's the rub. The company behind it all doesn't really make anything of real substance, they merely create sales materials that tell others how to make money, and those sales materials are just to sell sales materials kits to other unsuspecting schlubs.

I know Amway tries to cloak what they do with some products and cosmetics companies do the same, but if you hear about these things and everything comes down to paying for a sales kit, you know you're in a scam of a pyramid scheme.
posted by mathowie at 10:15 PM on March 22, 2009

these schemes encourage you to see all your family, friends and acquaintances as "prospects" rather than people and to not listen to naysayers.

Exactly this. You eventually alienate all your friends and family and only hang out with people who share one common interest with you - making money. They like having you round because you're making them dosh. Not healthy or good.

They also play with peoples dreams in a way I find aborrhent. The main jist of getting people to sign up is to convince them that they reach their dreams without joining Amway first.

"Would you like to do art for a living? Imagine having the money so that you could! Amway gives you these dreams."

So you have to acheive success in Amway before reaching your dream goal. Instead of, you know, working towards the goals in the respective field, which is the real way to get towards what you want. Then they replace these dreams with bullshit like fancy cars and diamond rings and fancy shmancy holidays. Gwarr..... boils my blood.

I could rant about how shit Amway is for pages and pages. My father got into it over 10 years ago now at a time of financial and emotional vulnerability. While I have seen some benefits from him working on it (his self-esteem and confidence has gotten better) he's been working at it, quite solidly, for over ten years and just hasn't gotten anywhere. His superiors just keep changing the timelines for success to keep him going. 2-3 years is all it takes. Now its 5-6 years! All the while drumming into him that the reason it's not working is because he's not working at it hard enough and he can't leave because that would be quitting and quitters are losers (a phrase often said in the inspirational tapes he listens to) It fucking sucks and makes me so angry. I hope to extract him from it soon. I've made it my mission.

My advice - don't be too full-on about trying to talk her out of it. If she's well-deep into it she'll see it as a personal attack akin to claiming her religion is false and I guarantee you she'll have a counter argument for every criticism you make. You may have to just let her find out for herself.

Good luck man.
posted by AzzaMcKazza at 10:48 PM on March 22, 2009 [3 favorites]

Just had to add another funny MLM story...

Went along with a friend to an Agel recruiting meeting. It was the same thing as Amway. Flashing suits, talk of fulfilling dreams but it was all from selling this gross Gel shit that they claimed was better than eating real, natural food. Seriously. No shit.

The head guy gets up to close the deal at the end of the night. This bleached, tanned, wide-eyed twat who looked like slimy salesman. He emphasises repeatedly that Agel is not, in anyway a pyramid scheme. Then explains how the structure of Agel works by drawing a diagram on the board....

consisting of circles made into the shape of a pyramid.

Was dumbfounded that no one else picked it up.

"Our model is the trapezoid!"
posted by AzzaMcKazza at 11:01 PM on March 22, 2009 [2 favorites]

Metafilter's own Rob Cockerham has some interesting stuff about pyramid schemes here and here that you could direct your relative to.
Good Luck.
posted by dunkadunc at 11:20 PM on March 22, 2009 [1 favorite]

I had a neighborhood friend when I was about 10 years old. She lived with her parents and four siblings in a dark and cramped rental basement, every corner of which was packed with enormous boxes of Amway products -- mostly shampoo and dog food. Every time our parents met, her parents would try to sell some amazing Amway shampoo to my parents.

Fast forward 15 years. I ran into my friend in the grocery store. She said she'd graduated from college and started her own online business selling cosmetics! And I should buy some! She gave me a professional-looking business card with her Web site address on it.

I went to the Web site. She was selling vastly overpriced perfume, makeup, and odd household items like humidifiers. At the bottom of every page was Quixtar's logo.

By the way, she still lives in that warehouse-basement with her entire family.
posted by miyabo at 12:18 AM on March 23, 2009 [1 favorite]

If you actually do end up making money, they have ways of taking it away again. There's the "management training" and "regional meetings" and "motivational speakers" that cost a lot of money! And there's books and CDs that you're encouraged to buy (not borrow from another seller). Remember, if you don't do this, you're "not selling to your full potential!"
posted by cathoo at 1:42 AM on March 23, 2009

Multi level marketing itself isn't bad. There is a way to do it where nobody gets screwed. It's just a franchise with a different topography. What's bad is how the vast majority of them are put into effect (see above comments). My cousin was quite successful selling some kind of homewares stuff. Until the parent company folded due to mismanagement.

Pyramid schemes, on the other hand, are mathematically impossible. They are designed to fool people out of their money- people who are fooled by slick pitches and sneaky math. Like, "how about you give me a penny today, two pennies tomorrow, four pennies day after and keep doubling forever- it can't go wrong! It's just pennies!" There is NO way a pyramid scheme can work. There are a couple of modifications that make them "flatter" and last longer (the people at the top are rolled off at some point), but they still depend upon a geometrically increasing number of people at the bottom. Anything that increases geometrically can't sustain itself.

(And yeah, nothing is more disappointing than meeting an old friend, enjoying a nice conversation, until suddenly that old friend whips out a business card and starts complimenting you on how smart you are....)

(I remember when I was a kid, one of my grandma's neighbors was an Amway rep. We ended up with a yellow 5 gallon pail of laundry powder. I think it was 80% concrete.)
posted by gjc at 5:43 AM on March 23, 2009

Here's an easy way to think about it: a pure pyramid scheme just redistributes money. Nobody actually produces anything, money just moves from one participant to the next. This accounts for the fact that there are usually winners in such a scheme, but that there must necessarily also be losers. There is no way every participant gains.

Anybody interested in these schemes should read how an entire European country was recently swept up in them.
posted by thijsk at 6:10 AM on March 23, 2009

People are dancing a bit around the deeper reason these MLM schemes are bad: they are *cults.*

That glassy, thousand-yard stare and imperviousness to rational argument are signs of indoctrination in an alternate worldview, one that fulfills a deep psychological need for security and self-esteem for weak and depressed and unstable people. These schemes target people who feel like losers -- financial and otherwise -- among us, and exploit their pain. There is a vast literature on this subject, some of it scholarly. Some people are just very suggestible because they are very needy, and you can see and hear how the pitches from companies that are "MLM" (fancy word for "pyramid") structured are aimed at a quite subconscious level to build unquestioning self-confirming and very predictable feedback responses from people who have little critical facility to understand that they are being manipulated in a base way.

Unfortunately, because they *are* cults, it is very difficult to "deprogram" someone who has been sucked into the MLM maw. They tend to lose their friends from before their conversion (and MLMs work to make this happen both by default, since being sold to all the time drives your real friends away, and explicitly by proffering new circles of safely converted "friends" -- like any good con job, earning trust and quieting critical voices is crucial). Eventually, usually, people lose their money, cease being interesting to the cult management once they have no more blood to give, and drift away (often into other schemes, on a slow descent to the bottom of this world, which is really, really ugly and criminal).

If you really care about someone enough to undertake the deprogramming work, be prepared for struggle, heartache, drama, and the likelihood of losing the fight anyway. Once inside one of these borg beasts, people simply change inside, no different than if they had joined a more explicitly religious cult (this stuff basically is the conversion of late capitalism into a religion, or back into a religion, based on signs, miracles, and prophecy).

I know. I've had personal experience with a very similar situation that cost me a friend I once cared about.

Your key resource to start with is MLMWatch. (An offshoot of the important Quackwatch project.)

Your best hope is to address the more deeply rooted problems in your relative's life (very likely starting with an underlying depressive or personality disorder), aggressively and with broad support from the rest of the family.
posted by fourcheesemac at 6:15 AM on March 23, 2009 [8 favorites]

And PS: In my experience (and I am not a mental health professional), you should *never* give an inch toward recognizing the rationalizations you will hear in spades for why "this" MLM is "different" or "does work" as being legitimate. Do not indulge it for a second. Be tough.
posted by fourcheesemac at 6:18 AM on March 23, 2009 [1 favorite]

When accosted by MLMers, I always point out that real businesses try to sell stuff - they don't try to turn their customers into competitors. In other words, the greeters at Wal-mart never ask me if I'm interested in opening another Wal-mart.
posted by TurnedIntoANewt at 7:14 AM on March 23, 2009 [1 favorite]

What should I tell her?

"Bernie Madoff."
posted by oaf at 9:48 AM on March 23, 2009

I had a friend in college who got sucked into a MLM selling a certain widget that was popular at the time. He was so convinced that he would make a lot of money that he double-invested in it. That meant that, in order to recoup his "investment," let alone make any money, he had to sign up twice as many people as usual.

And so the selling began. He hit up everyone he knew. At first he was very tactful about it - starting off with small talk, etc. and then working up to the sell. He then started to get more desperate, because he was going to lose the money that he had spent on the "promotional materials" or "license" or whatever it was that they made him pay for to be part of this great "opportunity."

So a bunch of us, who were his friends, had an informal meeting outside his presence. We agreed on a speech to deliver to him any time he tried the sales pitch on us. It went something like this:

"Ok. You know I'm your friend. And I value your friendship, as well. I understand you are involved with this business, and that you very much want to sell its products and recruit people to be involved. I respect that. But here's the thing: I want my friend back. It seems like every time I run into you you're trying to sell me this thing, rather than just being a friend. The bottom line is that I am never, ever going to be interested in this "opportunity." Never. If you ever mention this to me ever again, I will have no choice but to stop talking to you, inviting you to things, etc. If you cannot keep yourself from trying to sell to me, because you're "always closing" or something like that, then I ask that you not talk to me at all until you are done with this thing and can be a friend again. Ok?"

He never mentioned it to me or any of my group of friends again. I have no idea whether he recouped his investment. He is not, as far as I know, involved in the scam anymore (it has been more than 10 years, and the product he was selling is obsolete). But he is still a friend, and that's what matters.
posted by The World Famous at 11:01 AM on March 23, 2009 [1 favorite]

I had a friend in middle school whose parents were actually quite high up the Amway chain of command and they were quite well off. Even so they were just miserable people to be around. Everything in their house was Amway and I mean EVERYTHING. About 2/3 of the stuff in the catalog is odd and generic. I remember my friend would get into fights with her parents because sometimes she would want something that Amway simply didn't sell (which is very little to be honest) and it was just insane in their mind to go to a store and buy it. Every person they came into contact with was a potential new salesperson. My mother (who was a single mother and teacher who could hardly afford the start up fee or anything else) hated seeing them because they were always trying to get her to join. Honestly, I think the only people who buy Amway products are the people who supposedly sell them. The real goal is just to get more people onboard and then get those people to buy everything they use on a daily basis from Amway. It isn't even like Avon where are least you do try to sell the products to people not also employed by Avon.

My advice would be just to stop them in their tracks and tell them you have no interest. Don't give them an inch, don't even allow it to be a subject of conversation. I don't think there is much you can do for her. I've seen friends get sucked in by various scams and they really just want to believe in something and they don't care about the reality of it. It just hurts them to hear you call them on it and they won't listen to you anyway because they don't want to know the truth.
posted by whoaali at 1:00 PM on March 23, 2009

What's Wrong With Multi-Level Marketing? is comprehensive and concise. Its worth noting that Network 21 is supposedly about business development. She's trying to sell you on the idea of MLM and of course all the motivational CD's, etc that go long side this.

It's worth pointing out that many higher ups in MLM have faced the accusation that they are deriving their income from motivational and training materials rather than from selling the product itself. See for instance. Of course this appears to be the entire purpose of Network 21, except with the pretense that its really about how to success in business so it's all legit (escept that that business is rally how to succeed in MLM).
posted by tallus at 1:44 PM on March 23, 2009

Everything in their house was Amway and I mean EVERYTHING.

This is known as being a "100% User" and they imply that you're never going to succeed if you aren't one. I remember this repulsive "motivational" video that my mum played me when I was an Amway-resistant teenager, trying to convince me that it was a good thing to be. "Mr and Mrs Hundred Percent User wave goodbye to their children as they head off to their private school, then Mrs Hundred Percent User picks up the plane tickets for their luxury holiday while Mr Hundred Percent User secretly books a surprise dinner at his wife's favourite luxury restaurant!" It made me gag.

I wish MLMwatch and other such sites on the internets had been around for me 25 years ago, when I was 14 and sitting with tears pouring down my face while one of my mum's uplines castigated me for preventing my mother from achieving all her dreams by mocking "the great God Amway".

Yeah, I'm still bitter and angry. Feel free to MeMail me if you want me to give you some great emotional blackmail about what these schemes can do to families.
posted by andraste at 3:22 PM on March 23, 2009

At first he was very tactful about it - starting off with small talk, etc. and then working up to the sell.

Slightly off topic- I hate this tactic. If someone is here to sell me something and just using small talk to warm me up, I hate them forever.
posted by gjc at 5:03 PM on March 23, 2009 [2 favorites]

Lots of good advice here, hope you can get your friend out.

Basically if the way to "success" in the business is recruiting more people under you (and buying sales-support materials, motivational CDs, exclusive marketing conference calls, etc) than it's a scam. Google Kevin Trudeau and Nutrition for Life for yet another example of this stuff in action.
posted by Fin Azvandi at 5:39 PM on March 23, 2009

« Older No More Maple Candy for You   |   Help me get my crazies under control without... Newer »
This thread is closed to new comments.