why multi level marketing companies are so effectively evil

Multilevel marketing companies (a.k.a. pyramid schemes) are good at recruiting people because they prey on the same human weaknesses as alt med woo-meisters.

con man shadow

By now you’ve probably seen or heard of John Oliver’s half hour rant on the evils of pyramid schemes, or as they’ve taken to calling themselves today, multi level marketing organizations, or MLMs. Which is basically like calling your Ponzi scheme a wealth management fund with front-loaded dividends, and with a straight face insisting that despite having every single feature in common with an illegal scheme, it’s most definitely not that exact scheme to reporters and regulatory agencies because you’re now calling it something else. MLMs are still pyramid schemes and they all work exactly like every pyramid scheme in existence. Instead of relying on selling their products to the masses, they make money by recruiting as many people as possible and convincing them to buy inventory in bulk for resale.

Those who control the inventory make millions, and those who rush in with early sales of relatively decent products can also make a decent living. But a level or two below that, the new recruits are barely making ends meet until they drop out after maxing out their funds to stock up on inventory. When all is said and done, you have a 90% chance of walking away with nothing but a storage room full of product you’ll never move in the over-saturated market, and drained savings. Those running pyramid schemes don’t need to put their products in stores. Their customers come in thinking they made an investment, will always buy in bulk, and may buy again and again. It’s much more lucrative than relying on foot traffic at Macy’s or Bed, Bath & Beyond for curious shoppers to stumble upon your knick knack. For the deeper and more disturbing details, here’s John for your re-viewing pleasure…

Now, all this said, how exactly do MLMs even stay around? How do people see thousands of people losing tens of millions combined and think “nah, I’ll be rich off selling this stuff!” and proceed to get seduced by smooth talking shysters? Well, psychology would suggest the well known optimism bias, the preference to listen to positive news instead of negative news and build your risk model with a bias towards the positive outcomes. Some people got rich hawking this crap? Well hot damn, sign me up and teach me their secrets so I can do what they did and get rich too! If it worked for them, it has to work for me, especially after all those tales of what people did wrong to teach me what not to do. In many studies test subjects asked about the probability of something good happening to them were consistently over-optimistic about their future, even when being asked to update their estimates after being shown real world outcomes. Promise them big money and they’re ready to believe you because they’re sure good things are bound to happen.

But this is just a part of what MLMs prey on when recruiting fresh meat for their grinders. Their motivational speeches either borrow heavily from the trendy pitches of New Age snake oil salespeople, or were the template woo peddler borrowed, an argument could be made for both. And those pitches center around promising you control when you have little to none. If you’re employed by a large corporation, you can always find yourself on the rough end of a round of layoffs. Having lived through five of those in my career, I compare the experience to the white collar cube farm version of watching a mass execution. People come in, are told to pack up by lawyers and security guards, ushered out, and never seen again. Small companies aren’t immune either. Displease the boss, and deservedly or not, you’re fired and in many states there doesn’t have to be a reason for firing you at all, so unless you’re ready for a protracted legal fight and have proof of discrimination that’s a slam dunk, you’ll also have pretty much zero recourse.

With almost half of American families having trouble coming up with $400 in a crunch, a paycheck is often the difference between making a living and being on the street. You can certainly work hard, be on time, and pay your dues, but sadly, that doesn’t help you if your boss mismanages the company into bankruptcy, or you were hired to meet extra demand for a fad that will one day run its course and you’ll no longer be necessary. Jobs are scary that way; a handful of people basically hold your life in their hands. But what if you can tell your boss to take this job and shove it, the MLMs whisper into your weary ear seductively, what if you could work a few hours a day and spend the rest of your time frolicking with the cool kids in your brand new mansion bought in cash after recruiting enough people for them? Just like the quack promising you health and longevity with her protocol, the MLMs sell you the illusion of control where you seldom have enough of it.

Notice their language. You will run your own business. You’ll be your own boss. You’ll set your own hours. Of course, those of us who actually ran our own business know that this is really code for “you’ll do everything and if something goes wrong, you’re responsible,” so this freedom is usually quite expensive. Health insurance becomes a nightmare, you will need to hire an accountant, find prospects, sell your services to them, and then perform all those services and have fun collecting the payment, which in many cases can be a complicated feat. That last one was the reason I often stuck to doing a lot of government contracts, the pay was always on time and the invoices were always paid off in full. But the MLMs never mention any of these big headaches in their pitches because they’re trying to sell you on the fantasy of being an entrepreneur without doing most of the hard work, telling you that they have it all figured out and will tell you all you’ll need to know in training seminars, snippets from which you saw in the above video.

And what are those seminars all about? They’re basically the same woo you can find in The Secret warmed over. If you want it, the universe will make it so. Just believe in yourself and think big, and everything will fall into place to make your dreams come true. In a way that absolves them of guilt when yet another person loses money on their scam. Don’t blame us, the can say, we gave him the secret to success, he obviously just didn’t want it enough to make it happen. Which is total bullshit. If MLMs were legit companies that earned money from actually selling to real consumers, they’d have a really good grasp of the market and know how many salespeople to hire in order not to over-saturate and set those salespeople up for success. But since the salespeople are the customers, they can pretend that they’ve given them the magic key and all they need to do is open that door behind which lie cars, suitcases of cash, and scantily clad models who love giving massages. This is why they put on those big shows, that’s their bread and butter.

All this makes MLMs incredibly attractive for people who feel stuck in their careers or feel like their jobs are on the line, yet highly optimistic about their future prospects, and ideally, need to validate themselves. They will get lots of empty platitudes presented as secrets of the business, a lot of preemptive tongue-lashing about everyone needing to get on board with the MLM and its founder or be dismissed as a poison that threatens the new recruits’ sure to come success, and encouraged to let this scam hijack their lives, turning them into the dreaded human spambot on your social media feed. They’re working hard but no one is buying what they’re selling and they’re urged to “follow the program” and said to be standing in their own way. If anyone is curious why this sounds so familiar, it’s because that’s basically every cult in existence ever, and they too prey on unhappy people looking to expand their horizons for an answer they just know it out there. Know anyone like that? I bet you do and this person is shilling for an MLM right now…

# science // entrepreneurship / mlm / pyramid schemes


  Show Comments