Thursday, July 31, 2008

Multi-Level Marketing & Pyramid Schemes

Last night I was approached at my part-time job by a young man who is barely out of his teens. "What would you say if I told you to come hear about a job, and you'd get paid $100 just to come listen?" he asked. I said I would have to know more about it. "No, no, you get PAID $100 just to show up. Would you come?" I said I'd need to know more about it - where it was... He cut me off, "Anywhere you want - your house," he interjected. I continued and said I would need to know how long the meeting would last. "Not long, 30 minutes, an hour," he eagerly informed me. I said for $100 I would show up for an hour if it was a convenient location, but if I wasn't interested, at the end of the hour, I would walk.

He was clearly frustrated with me, but he went on. "Well, what if you wanted to take a cruise, anyplace you wanted, for a week, and it only cost $100? Would you stay then?" I replied I would have a lot of things to work out before I could go on a cruise: pets, jobs etc. (I didn't add I had been on a week trip to the Bahamas a few years ago for about $200 with no strings attached.) "Forget the jobs and pets," he said, his frustration clearly showing. "You like cruises, don't you? Would you go on cruise for just $100?" I said I liked the idea of a cruise, but I would not go without knowing a lot more. He countered with, "Suppose I told you that if you brought 6 friends to the company you would get $100 each. I said, "Ah, then we're talking about a pyramid scheme."


At that he became openly hostile, "No, it's not a pyramid scheme, You aren't putting any money into it." I said, "Yes, it it. If you are signing up people and getting paid to sign them up and then paid on what they produce, and the people who signed you are getting paid to recruit you as well as what you produce, that's how pyramid marketing works." I began to walk back to my department as this had gone on long enough. I was clearly NOT interested, but he followed me to my area saying, "It's not a pyramid scheme. There's no form to it. I am just signing friends up."

I inquired, "Who's at the top?" "I don't know," he replied. "Well, who started the company?" I asked. "I don't know" was my answer. "Whoever started the company is at the top," I pointed out. "Four!" he blurted out. "So, there are four people at the top?" I asked. "Yes," he said, "Four. So, there's no form." "Yes there is. If there are four at the top, and they recruit 4 or 5 or 6 people each and get paid for them, and then their friends are supposed to sign friends up, too, aren't they?" I asked. "If they want to - they don't have to," he replied, adding, "But there's no form to it. It's not a pyramid."

"Yes, there is a form to it," I explained. "Someone signs you up, you sign six people up, they sign more people up." I drew the pyramid. He said, "Well, I'm an art major, and I can show you it makes a star." He redrew it with himself in the middle and his friends going out in all directions, making what to him resembled a star, but to me was clearly him at the top of his pyramid, his friends the next level down.


After he told me he was an art major, I explained my expertise was in sales and marketing. He cut me off again and said he didn't care how much money I had made. I said I had not mentioned money, but my experience was more than enough to send warning signals. He got more upset and said he would call someone to explain it to me. Then he said, "You're just a doubter. You doubt yourself." What he didn't realize was I had heard him telling someone else that same thing right as I had walked up earlier in the evening. "No, I don't doubt myself. I am actually one of the best sales people I know. I also don't doubt this is a pyramid scheme." You're a doubter," he affirmed as he stalked off. "No, but I know a pyramid scheme when I hear one."

He came back a few minutes later with his phone and a text message from the woman who recruited him saying it was absolutely NOT a pyramid scheme but some form of binary something-or-other marketing, and he proceeded to rattle off the names of people I had never heard of with impressive-sounding resumes, who were supposedly involved.

Keep in mind that during this entire heavy-handed "presentation," he had NOT ONCE TOLD ME WHAT THE PRODUCT WAS. All he had were some razzle-dazzle questions designed to hook people into hearing a presentation without answering any questions. These questions were also designed to make you look stupid if you said no. After all, only an idiot would turn down $100 or a cruise, right? And if you still don't jump at the chance to hear more, you are a "doubter."


Wikipedia has an interesting article on Multi-Level Marketing. This passage is of particular interest:

"In the most legitimate MLM companies, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"), though money earned from the sales of members recruited is one attraction of MLM arrangements. If participants are paid primarily from money received from new recruits, or if they are required to buy more product than they are likely to sell, then the company may be a pyramid or Ponzi scheme, which is illegal in most countries."

However, one doesn't have to turn to Wikipedia to sense a problem with these multi-level pyramid schemes. You can try to hide the pattern and call it a binary whatever. Shoot, you can call it a spotted pony for all I care. However, there are some obvious warning signals that apply to multi-level marketing, pyramid, and other schemes.


1. If they won't or can't tell you immediately right up front what the job and/or product is
2. If they try to lure you to a meeting with promises of money if you attend or hypothetical cruises
3. If there is the implication that you are none too bright if you ask questions or don't jump at the chance to learn more
4. If they say they will pay you for each friend you sign up
5. If they use big words or vague, hard-to-understand phrases to explain what they are or why they are not a pyramid

Not all multi-level marketing is a scam by any means, but a reputable multi-level marketing (MLM) company will tell you right up front they are a MLM company, and they can also tell you exactly what it is they sell. And even a MLM company risks collapse after the initial players earn their big dollars, and the next level earns their medium-sized dollars, and the lower levels earn their small dollars.


"If it sounds too good to be true, it probably IS too good to be true." These old words of wisdom have been around for as long as there have been schemes. There is a reason your grandparents said these words to your parents, and a reason your parents passed them on to you. So next time someone approaches you with a job they can't tell you much about, and then promises to pay you to hear about it and razzle-dazzles you with cruises or other prizes... RUN!

View Kathryn Darden's profile on LinkedIn

No comments: