Did you learn about pyramid schemes the hard way?
May 15, 2018 11:58 AM   Subscribe

I'm meeting with a 19-year old later today to try to explain to him why joining pyramid schemes, aka multi-level marketing and the latest name, network marketing, is a bad idea. I have a couple of good youtube videos explaining it, but would love to hear from you if you have had experience with one. I'd like to share this with him. This particular one is a combo of Amway and World Wide Dram Builders, but any you have tried will be just fine. Thank you.
posted by KleenexMakesaVeryGoodHat to Work & Money (22 answers total) 12 users marked this as a favorite
that should read World Wide Dream Builders
posted by KleenexMakesaVeryGoodHat at 12:02 PM on May 15, 2018 [1 favorite]

If he's a fan of John Oliver, he did a pretty extensive coverage of them.
posted by Candleman at 12:14 PM on May 15, 2018 [5 favorites]

I saw that video, Candelman. I think it too sarcastic to fit the bill. He is quiet and serious.
posted by KleenexMakesaVeryGoodHat at 12:23 PM on May 15, 2018

Coincidentally, my 14-year-old was just asking about the same thing. I was just going to chime in with the John Oliver link, so I'll second it. The NPR Planet Money podcast has a couple good episodes too:

Is Herbalife A Pyramid Scheme?

Anatomy Of A Scam
posted by majorsteel at 12:24 PM on May 15, 2018 [2 favorites]

Check out Elle Beau's blog, she tells her own story and some other people's.
posted by solotoro at 12:26 PM on May 15, 2018 [6 favorites]

Betting on Zero about Herbalife is very good (read horrifying). It's on Netflix. +1 to the John Oliver segment.

I do not have first hand experience in one - because they're all scams. But I have MANY friends that jumped from one to another because NONE of them made money. They can easily push away friends and family by constantly trying to sell super basic products.

You're welcome to tell them my first hand experience as a friend and family member - which is that anyone who joins them and starts pushing those products and CONTINUES to do so loses all of my respect for them as a human. I'm not sure anything will be better than sitting down with them, reading their required literature about actual earnings, required inventory costs, etc and running the numbers on how it would at all be feasible to even break even.

If they want to start some sort of business, something like Etsy or another handmade crafting option gives you all the control of your purchasing, advertising, and prices. However, nothing is going to be quick money.
posted by Crystalinne at 12:28 PM on May 15, 2018 [2 favorites]

This is an excellent account of a man's journey through Amway
posted by KateViolet at 12:38 PM on May 15, 2018 [3 favorites]

This is a good article full of LuLaRoe horror stories.
posted by J.K. Seazer at 12:41 PM on May 15, 2018 [2 favorites]

There's an antiMLM subreddit. Most of the posts are very snarky, but there are soooo many of them, it might get through to him.
posted by chaoticgood at 1:19 PM on May 15, 2018 [3 favorites]

When I was a similar age, I ended up at a high-pressure group interview which, within moments, I realized was for some kind of door-to-door scheme. They had me paired up with another young lady to tell me how awesome her experience was, it was in a nondescript but nice office building on the edge of town. I'm trying to remember what it was we were going to be selling but I've blocked it out. Basically, I was kind of trapped there, watching some video and trying to figure out how to make a "graceful" exit. I ended up waiting, face fixed in pleasant neutral, until they gave me an opening to say something and I said, "I'm sorry, I think I'm in the wrong place. I'm not interested and please do not contact me ever." Then I ran out.

The thing is, I really, really needed a job that summer. I was trying to stay in my college town, with my boyfriend, make some money and not have to go home to my parents. I had gotten a late start on the hunt and so all the "good" jobs waiting tables or picking weeds or fast food or whatever crap you can get at 19 were taken. It sucked and was demoralizing. I ended up going "home" to the town my parents had just moved to where they and I knew no one. I worked at a crappy restaurant in Texas making $2.13 an hour plus tips. Fun fact, that was over twenty years ago and the minimum wage for wait staff in Texas is still $2.13/hr so let's talk about some scams, amiright?

It was so frustrating to get an interview and realize it was just a bullshit pyramid sales scheme. And I knew what it was because I had watched a roommate of mine try to make money one year on a similar scam. He worked really hard and I don't think he made $1. They are simply a waste of your time, money, resources and energy. Even $2.13 an hour (plus tips!) makes more money than that and won't ruin your social network.
posted by amanda at 1:30 PM on May 15, 2018 [11 favorites]

thank you one and all.
posted by KleenexMakesaVeryGoodHat at 1:45 PM on May 15, 2018

I worked for this outfit (link goes to an FTC complaint against them) a long time ago - not as a "consultant" trying to sell stuff, just as a corporate web lackey. It was my first "real job", or so I thought; the department head who interviewed and hired me did an admirable job of handwaving around what the company actually did, and I didn't realize it was an MLM company until my first day on the job. They sold all kinds of typical Amway-type garbage, but their flagship product was WebTV.

But even with a legit product, they were just another shady MLM; Somebody signs you up and you fork over a couple hundred bucks to become a consultant (or associate, or whatever they called it) and part of your signup fee gets kicked up the chain, which is how the people at the top of the pyramid make a ton of money without having to lift a finger.

The whole "be your own boss and make money by selling our products" pitch is window dressing that exists for the sole purpose of convincing people to sign up and pay that consultant fee. People do technically make money by selling stuff, but the real money comes from just signing up more people underneath you... so you inevitably wind up with basically either people who try to badger their friends and family into buying overpriced crap so they can maybe recoup their signup fee and save face, or people who try to badger their friends and family into becoming consultants. And the people who are good at it are the pushiest, smarmiest type of sales people you'll ever meet. The executives at that company were super shady, sleazy characters who all came from other MLM companies, and wanted to start their own so they could be at the top of the pyramid.

What did them in was their idea to apply the MLM model to selling electricity, which had just been deregulated in California. They made a fortune signing up people to be electrical "distributors." They made so much money in such a short amount of time that they caught the eye of the Feds, which is how the corporate office came to be raided and shut down by the FTC one morning. Good times! It was the shadiest, sketchiest company I've ever worked for by far.

Then there was the guy my wife and I bumped into in a bookstore one time when we had our dog with us... he struck up a pleasant conversation; turns out he was a veterinarian, and when he found out that I was a web designer he said "Oh, I've been thinking of putting up a web site, can I get your contact info?" Young, early-20s me was flattered and excited at the prospect of a freelance client, so I happily gave him my phone number.

He called me up a few months later and I don't remember the exact language that he used, but it was carefully worded to imply that he wanted to talk about that web site, and he asked if he could come over to our apartment to talk about it. He showed up with his wife, which I thought was strange, and then they launched into a f*cking Amway pitch. I was so mortified for both of us; me for having fallen for his BS, and him for being a grown-ass 40-something year old veterinarian (he was actually a legit vet) hustling Amway by night.

Then there are a couple of different acquaintences I've known who have signed up with companies like Arbonne thinking they could make a few bucks on the side... and inevitably wind up stuck with a bunch of product that they wind up paying for themselves. Your money goes up the pyramid one way or another.

It's all so gross and shady... even if someone gets into it with the best intentions, the people at the top of the pyramid are all such scumbags that it taints the entire enterprise.

If the "be your own boss" aspect of it is the appeal, maybe steer them towards a more traditional direct sales job... salespeople working on commission are also pretty offputting, but it would be a less expensive way for them to find out if they're cut out for the sales hustle. No sales? No paycheck. But I didn't pay a dime to become the world's most inept vacuum cleaner salesman for a month one summer in college.
posted by Funeral march of an old jawbone at 1:48 PM on May 15, 2018 [11 favorites]

This American Life has a great story about a company that the members swear isn't a pyramid scheme.
posted by dawkins_7 at 2:18 PM on May 15, 2018

It’s also worth drawing out — like literally drawing, unless a video diagrams it — how fast a given social group gets saturated. Like, if you hear about the Anazing Dealbfrom a friend, so have all your mutual friends. So they’re not available to be marketed to — they’re either in or they’re out. Which leaves the rest of your friends — but how many of them also have a friend trying to sell the Amazing Deal? Etcetera.
posted by chesty_a_arthur at 2:35 PM on May 15, 2018 [4 favorites]

chesty_a_arthur has made an incredibly important point. Many moons ago, there was Holiday Magic. It went through my workplace like a bushfire, one of my workmates and his wife signed up. They resigned to do it full time, six months later they were still trying to recoup their initial investment, the 'market' was so saturated. At about that time I had left that job and was in another city, hanging around the mall to meet my wife when she finished work. There was a bloke doing the same, and I recognised his behaviour - approaching strangers, short conversation, shake of head, they move on. He approached me, and after a short time reluctantly acknowledged he was 'in' HM, and scouting for prospects.

That is MLM. Great if you are one of the first, you milk the mugs that follow. Great if you do not mind milking friends and family.

I had the same experience as Funeral march of an old jawbone , and the same reaction - a lost friendship, and a very bad taste in the mouth.

MLM is bad news, tell him not to be that mug.
posted by GeeEmm at 3:01 PM on May 15, 2018 [2 favorites]

The worst MLMs (Amway, I’m looking at you) sell motivational books and seminars as well as product and downstream consultants. In some cases, attending seminars and buying books was close to mandatory and ate any profit the member might have made. A lovely woman I knew when I was young got sucked into Amway. She had MS, and as her illness cut her off from others, she got dragged deeper into Amway. At that time, I read that less than 1% of MLM sellers make money. I lost track of her once I made clear I was not and would never be interested. Cult-like and very sad.
posted by frumiousb at 3:33 PM on May 15, 2018 [1 favorite]

@kateviolet the link go the pdf you posted is really good and absolutely fascinating. He does a great job of recreating the thoughts and feelings that led him to be interested, so I think it could really be effective for someone who wants to believe — more effective than something that's a skeptical debunking right from the beginning.
posted by mrmurbles at 5:18 PM on May 15, 2018 [1 favorite]

Many of these MLM direct marketing schemes promise that if you are enterprising and charming, you will be able to deliver a high-quality product at below retail by cutting out the middle-man. No warehouses, no retail, etc. etc.

If you attack this line of thinking, you have to be careful not to attack components of the story that have to do with self-worth. Many MLM people believe that their product is a decent bargain. Many MLM people will conflate the advice that you want to offer with pessimism about their level of charm, their work ethic, the quality of their product and so forth.

I suppose my indoctrination to pyramid schemes came when I was in third or fourth grade in the late '80s. I got a chain letter in the mail that promised that all I had to do was send one nice postcard of where I was from to one person, forward the letter to five friends (adding my address and moving all people down one slot) and I would receive in the mail over 100 postcards from international friends all across the world!

Of course, it seemed somewhat fishy to me because every received postcard has to be written by someone, no? How could you promise everyone who receives the chain letter a 100-fold return on their initial investment? When does it break down?

I forwarded the postcard to five friends (because I did not want to break the chain, and ruin it for all the others!!), I did not write the original person (because I was too shy/embarrassed and didn't know what to say, and surely whoever was at the bottom of the list wouldn't miss one postcard out of over 100). I wound up getting about two or three postcards out of the over 100 I was promised, and it was clear that there were many people breaking the chain. It was also clear that I received more than I put in, and even at the age of 10 I noticed that all the postcards I got came from girls (not boys.)

Out of the friends I sent the letter to, only one mentioned it to me, pretty angry that now HE had to do this too, or else he would break the chain!

So yeah. It didn't deliver on outsized promises. It was an exponential growth scheme. It was fundamentally impossible to deliver 100x the return that each person puts into it.

Another interesting avenue to pursue for a cerebrally-inclined young adult is a good explanation of Hilbert's paradox of the Grand Hotel. This was written to explain how non-intuitive the concept of "infinity" is. Did you know there are just as many rational numbers as integers? That there are exactly as many integers evenly divisible by 10 as there are integers? All of these paradoxes use "infinity" as an out. The story starts with a fictional hotel with infinitely many rooms (numbered 1, 2, 3, ...). All the rooms are full, and another guest shows up. The manager says that he can be accommodated: simply ask each current guests to move from room n to room n+1, and we will put the new guest in room 1. Then, an infinite number of guests show up. No problem, simply move each current guest from room n to room 2*n, and all of the new guests can lodge in the infinite number of odd-numbered rooms. Of course, all of these solutions would never work in a hotel with a finite number of rooms (or in a world with a finite number of customers.)
posted by Maxwell_Smart at 7:22 PM on May 15, 2018 [3 favorites]

I like Chesty's advice on diagrams. Most MLMs have a kit that you can buy (and if you like the product enough, you can totally be a kitnapper, as they say!) but the business supplies such as forms, flyers and catalogues are still something you have to pay for. My friend who used to sell Avon was surprised by how much it actually cost to start as a rep. This might be a hidden cost your mentee is unaware of.

A visit to a new or small business non-profit (most states and provinces have one) might be an eye opener and a better source of inspiration for your mentee. There are plenty of small business ideas out there that don't require a huge investment. Good luck!
posted by Calzephyr at 9:22 PM on May 15, 2018

When I was contemplating selling knives after contacting the number in the newspaper classifieds I went to one of the information sessions. Once I learned that I would be required to pay money to buy the sample case to even start the job there was no way.

You should never need to buy something to get a job.
posted by bendy at 10:08 PM on May 15, 2018 [6 favorites]

One thing I would mention to them is how easy it is to fall for these things and not to be embarrassed if they find themselves in a situation that feels like an MLM - they should feel they can always asked questions and do critical research about any job or business opportunity.

I say this because when my SIL was job hunting she described one of her interviews to her brother and me and it was ringing all sorts of alarm bells for us. We googled the company and sure enough it came up with several red flags. She was really embarrassed that she even went to the interview and I had to assure her, she did nothing wrong, it's the company that's a scumbag. And the only reason I was able to identify the red flags? Because I found myself in the same situation over 10 years ago!

My first hand experience is somewhat similar to amanda's. Sorry it's a bit long but I want to be detailed in case they ever spot any similar signs.

I was in my very early twenties, just laid off so really vulnerable about looking for another job. I found a Craigslist post for a 'marketing/sales' position promising that I didn't need any experience and I could be earning $25/hour (obviously too good to be true!)

On the day of the interview, I had to wait for someone to meet me and while I was waiting I could see through an open door a large meeting room where about 20 people had gathered. I couldn't really hear what was going on but there was a lot of clapping and wooping and someone Really Pumped Up about the day. (Flag 1)

I was then paired with another girl and we basically drove to an industrial office neighborhood, went door to door, trying to sell office supplies out of a catalog. I think she was able to sell one chair out of like 20 places we went to? I was wearing a snazzy interview outfit with heeled boots and my feet were absolutely killing me and I was wondering how the hell I ended up doing door to door sales when the job description never mentioned it and if it did I would never have applied (Flag 2).

In between walking to the next office she would constantly talk about how the district manager was so amazing, how rich he was, how he had come from nothing, did I know he had a private box at the Padres stadium, etc. It got a bit creepy how much she was fawning about him. (Flag 3)

I asked her if selling office equipment door to door was the job and she told me "Oh no, it's totally different from month to month! Like one time we were selling balloons and toys on a street corner, it was so fun!" What. The. Fuck? (Flag 4)

She also talked about how it's been such an amazing journey to join this company, she's been talking to everyone about it and her mom was ready to sign up too! (Flag 5)

When we finally headed back she was pumping me up about how well I did that day (I literally just stood next to her feeling really really really awkward while she was talking to any receptionist about buying reams of printing paper) and she was going to talk me up to the manager because she thinks I had great energy and could really get far. It was flattering I guess, but it just didn't make any sense based on my perspective of what we did that day. And I found it really weird that she was being so gushing about talking me up to her boss when we literally just met. (Flag 6)

When we got back to the main office, I then met with the district manager guy, the one she was in super awe with. I have to admit I was probably a little intimidated to meet him at this point, but in retrospect and 10+ years later, the guy was a typical blowhard douchebag. He kept talking about potential and opportunities and success but not once could tell me what the actual job was. (Flag 7)

He couldn't give me a straight answer about benefits (none), or salary (not regular, really up to me and how that's a good thing!), or even hours. (flags piling up, so many flags)

He couldn't tell me what the actual job was, but do you know what he could tell me in great detail? The management structure. Who was under who, how quickly I could go up to the management team by building my own team under me, if I worked really hard and how this was really like any other company. I mean, when someone has to actually assure you their team structure is like any other company that's sort of a weird sign something isn't quite right. He even drew me a diagram, which was kind of stupid because it was literally a pyramid. (Klaxons ringing, nuclear bells going off)

He ended with saying he'd have to think about whether I have what it takes to join them and said he'd give me a call back in a few days. He called me the next day, to tell me congratulations, he was really impressed with me and would love to offer me a job. I was genuinely flattered! . I told him I would think about it (thank goodness) and he used that to pressure me that the offer was only good for 24 hours (so. many. flags.) I assured him I would get back to him in time.

This is the thing, they prey on vulnerable people. I was just out of college and laid off from my first job. I was running out of my severance, living with my successful boyfriend and feeling like a failure. But luckily I talked about the whole experience with my boyfriend and he taught me about MLM and Ponzi schemes. I was horrified and embarrassed I was so close to falling for it. I never called the guy back.
posted by like_neon at 3:16 AM on May 16, 2018 [8 favorites]

I’d also start very basic with the difference between gross revenue and net revenue. Help him set up a spreadsheet.
posted by warriorqueen at 8:33 AM on May 16, 2018 [1 favorite]

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