Given all the negative publicity, you would think the Multi-Level Marketing scheme (MLM scam) would have gone by the wayside. And yet it continues to survive and even thrive, recruiting millions of people and raking in billions of dollars.
If you’ve never heard that term before, an MLM scam is basically a pyramid scheme. They should therefore be illegal, but many find loopholes to keep themselves in business and suck in unsuspecting “entrepreneurs.” Odds are you know someone who’s been taken in by an MLM scam -- almost always to their detriment.
It’s easy enough to understand, especially in uncertain financial times. If someone comes along and tells you you can make a small fortune working from home, it’s hard not to jump at the chance. Sadly, MLMs almost always end up costing those who participate far more than they can ever hope to make.
With that in mind, let’s take a look at some of the warning signs that your friend’s “business opportunity” is really an MLM scam.
In general, whatever products MLMs are pushing, you won’t be able to find them in stores. People who sell for MLMs are often called “distributors”, but that word doesn’t mean what it means in other industries.
If I’m a distributor or regional sales rep for Samsung, my job is to provide Samsung products to local retailers with whom the company is affiliated. MLM distributors, however, generally conduct business within their own personal network of friends and family. It’s a person-to-person business.
This doesn’t mean a product has to be widely available at major retailers to be of value; but this can be a red flag that the “business” trying to recruit you is actually a scam.
MLMs often make outrageous claims about the efficacy of their products. “It’s a moisturizing cream, but it will also make you taller, help you grow your hair back, and raise your IQ 15 points.”
Where’s the evidence? “Read these testimonials from other people who work here!” Yeah, sounds totally legit...
Sometimes the promises aren’t stated so explicitly, but rather carefully worded to avoid any threat of legal retribution. But, in general, MLMs favor the fantastical, the big promise. It’s always best to remember that old adage: if it sounds too good to be true, it usually isn’t.
This may sound like a bit of a contradiction. After all, if an MLM scam works so hard to build hype around its products, there must be a reason. Surely they’re trying to sell their miracle elixirs to someone.
They are, but usually not to the public. They’re trying to sell their products to their own “distributors.” That is to say, the hype is mainly for internal consumption. It’s propaganda, not advertising.
This is the key defining trait of MLMs. The company sells its products to distributors, who then recruit other distributors to whom they sell the products... and so on down the line. Ultimately, you’re not buying the product to sell to the general public; you’re buying it to sell to the next salesperson in the chain.
This is kind of implicit in the previous point, but it bears teasing out because it’s such an obvious red flag when you stop and think about it.
MLMs are more interested in “hiring” than they are in building relationships with customers. In fact, many people who get sucked into MLMs begin by buying products from friends or family. It should be a red flag if you see a salesperson trying to recruit their own customer base.
Real companies prize efficiency in staffing. You want to have enough employees to provide the goods and services that bring in revenue -- not more.
MLM scams want to recruit as many people as possible for the reasons explained above. So you really have to ask yourself: if this business is legitimate, why does it want to turn all its customers into employees? How does that make any sense?
Many MLMs have ranking systems -- “diamond level,” “onyx club,” “triple platinum” -- which distributors are pressured to attain. The end result is people investing more and more of their own money to buy products they can’t sell in order to “get promoted” within the organization.
By the end, many distributors have garages full of products they can’t offload to save their lives. They become increasingly desperate and feel like failures, spending money they don’t have to retain their status.
The impossible dream MLMs sell their adherents is that if they just stick it out long enough, if they’re just committed enough, if they just recruit enough distributors to work for them, somehow they will climb to the top of the heap and make the big bucks.
There’s huge pressure to succeed and make it to the top within MLMs. You might say that’s true of many legitimate businesses; the difference in an MLM scam is it’s a complete lie.
If you work for a real company, it’s perfectly possible to fight your way through the ranks and earn a high position through dedication and competence. But it’s practically impossible to get rich participating in a pyramid scheme unless you’re one of the very first people in on it.
Many MLMs create a cult of personality around their founders and leading salespeople. Some legitimate companies do this as well -- one might argue Steve Jobs has a cult of personality, for instance -- but MLMs do it in ways that will feel intrinsically creepy to most people.
For example, most MLMs hold conferences on a regular basis. Distributors come from far and wide to hear speeches from the founder of the company and from the most successful sales reps. But these aren’t your average dry, staid business conferences. These are more like revival meetings. Many even feature pyrotechnics and light shows more reminiscent of a rock concert than anything else.
Members are exhorted to double down on their commitment to the brand, and showered with false promises that they too will strike gold if they just keep working.
Perhaps you’ve had this experience. Someone you were friends with in high school sends you a random message on social media. You think, “Oh, that’s sweet. It’s nice to hear from X.” But then the conversation quickly devolves into a copy-paste pitch to recruit you as a distributor.
One particularly distressing feature of the MLM scam is the pressure members feel to recruit family and friends -- even random acquaintances. This they will attempt in the most brazen and inappropriate ways.
As a result, many MLM members end up destroying their relationships with others. They often choose to interpret their subsequent isolation as a sign of bitterness, jealousy, or closed-mindedness on the part of their loved ones, when in fact it’s usually a combination of annoyance and concern.
The central pitch of the nefarious MLM scam is this: you can set your own hours, be your own boss, and get rich quick -- all while working from home!
To most of us, that sounds far too good to be true. But many vulnerable people are tempted to believe it because it’s too good not to be true.
Think about how real companies recruit. They tell you what your responsibilities will be; what minimum requirements candidates must fulfill; maybe give you a salary range. They’re assessing you.
MLMs do none of these things. Instead, they lure people in with posters depicting piles of cash, luxury cars, and mansions. The good life will be yours with almost no effort! It’s just that easy! More than cults of personality, most MLMs are really cults of quick, easily obtainable wealth.
This goes hand-in-hand with the previous point. Many MLMs denigrate all other professions as one of their recruiting tactics. They exploit people’s dissatisfaction with a 9 to 5 career to sell the fantasy that one can make far more money while working far less.
For many people, that’s an irresistible proposition. Who wouldn’t want to make twice as much money working half the hours?
This attitude trickles down to distributors, who commonly respond to critics by attacking their careers. They consider other people suckers for working mainstream jobs that pay a pittance.
Of course, the opposite is in fact true. Only about 20% of MLM distributors ever make a sale. About 60% reported making less than $500 in five years, with their median wage working out to about $0.67 an hour.
And yet they will still insist you’re the one who’s trapped in an exploitative work environment. Relatively speaking, that’s just a lie.
Most companies encourage employees to hone their skills or acquire new ones. Whether that means attending a workshop or taking a class, some companies will even pay for you to enhance your skill set.
With the MLM scam, the opposite is true. Some MLMs require you to pay large sums of money for orientation up-front. A friend of mine actually paid $2,000 for “management training” before realizing the whole thing was a scam.
Many conventional companies have issues dealing with internal dissent. Groupthink is a real phenomenon, and those who challenge conventional wisdom can expect a fight wherever they go.
But in MLMs this is taken to a whole new level. Any questioning of core assumptions will immediately be interpreted as a threat. Even seemingly benign questions can provoke standoffish rebuttals from MLM members -- as you will easily find out if you challenge them on social media.
Most MLMs perpetuate a cult of positive thinking. If you don’t accept their value proposition completely and unquestioningly, you’re a hater or a shill or a corporate sucker. Those who aren’t able to repeat the buzzwords and talking points unthinkingly don’t last long in MLMs.
The word is “entrepreneur.” If you have any social media contacts who work for MLMs, you’ve likely seen them refer to themselves as such.
It’s a big part of recruitment too. “How would you like to be an entrepreneur working from home?” Sign me up!
The word ‘entrepreneur’ has very positive overtones. It makes us think of hardworking people who struggled to start their own businesses and go their own way. There’s a rugged appeal to entrepreneurship that MLM participants are eager to appropriate. Some of them even try to hawk their products at markets for local business owners!
But, of course, MLM members are not entrepreneurs. They’re commission-based sales reps. They don’t work for themselves; they work for the people at the top of the pyramid.
Finally, we come to perhaps the ugliest aspect of the MLM experience.
As more and more people become aware that these “companies” are basically pyramid schemes, MLMs have had to extend their recruitment to increasingly vulnerable groups. These include recent immigrants, non-English speakers, single moms, broke college students, the poor, the uneducated… anyone particularly susceptible to the illusion of getting rich quick.
In fact, a lot of MLMs are expanding into poor countries, where desperate people are eager for the chance to make a decent living. As you would expect, the overwhelming majority end up bitterly disappointed.
Meanwhile, with unparalleled cynicism, some MLM leaders present this as evidence that they champion diversity and anti-racism.
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