MLM Schemes: A Very Bad Idea

Are you one of those people who actually debates the Jehovah’s Witnesses when

they come to your door? Someone who occasionally plays along, out of some sense

of perversity, in situations you know you’ll never buy into? Do you understand

the motivations behind the people who reply to Nigerian 419 scammers and string

them along? Then maybe you’ll understand why I ended up hitting the

"reply" key when I got an email from a PR woman last week, offering

up "a licensed compliance officer who came from the brokerage industry

but now works at a direct marketing firm that falls into the multi-level channel".

Apparently this compliance officer had written a "thoughtful

piece" on how multi-level marketing (MLM) is good, and isn’t the same

as pyramid schemes, which are bad.

Reader, I bit. But now, 14 emails later, enough is enough. Let me tell you,

quite clearly and explicitly, that MLM schemes are not good. They are

bad. And that even the "licensed compliance officer" who works for

one of those schemes admitted to me that "the difference between an MLM

scheme and a pyramid scheme is really a subjective one." Let me also say

that insofar as there is a difference between MLM schemes and pyramid schemes,

Liberty League International, the scheme for which she works, is a pyramid scheme.

(For the sake of your delicate sensibility, dear reader, I shall refrain from

linking to it. Google with extreme prejudice.)

I do understand the allure of get-rich-quick shemes, and of smooth sales pitches

explaining that you can transcend your cubicle-bound life and have all the freedom

and money you’ll ever need, just by spending thousands of dollars on a few DVDs

and the occasional live event. I do not understand why or how a PR

person could possibly imagine that a financial journalist would ever fall for

such a scam. (Although reasonably respectable publications such as the Spectator,

in the UK, have been known to laud

pyramid schemes in a cover story, so anything’s possible, I guess.)

Liberty League International is, at heart, a classic pyramid scheme. There

are, however, limits to the promises it can make, thanks to the consent

agreement which presumably resulted in their hiring a compliance officer

in the first place. You pay a member of the scheme $1500, or more, for a set

of DVDs called "Beyond Freedom" and the right to make money selling

those DVDs to others. And why would other people buy those DVDs? So that they

too can make money selling the same DVDs to even more people, of course. It’s

what’s known as an "endless chain" – a real giveaway that you’ve

stumbled upon a con. (Here

are others.)

The actual intrinsic value of the Beyond Freedom DVDs is probably no more than

the value of the average self-help book at your neighborhood Barnes and Noble.

The rest of the price ends up filtering up towards the top of the pyramid, where

the founders of the company are prominently featured on its website looking

tanned and healthy and wealthy in front of their private jet.

Meanwhile, at the bottom of the pyramid are thousands of crushed souls whose

lives have been damaged by buying, at great personal expense, into dreams of

untold riches. So never mind Nadine Boisnier’s "thoughtful piece".

Let me give you my own rules for deciding whether or not to join any kind of

MLM scheme.

1. Don’t.
2. If you really must, then make sure there’s a valuable and real consumer

   product at the end of the chain – a product you like, and which you

   would happily buy even if it didn’t come with the promise of making you wealthy.

3. But really, even, then, don’t.
4. If you’re still thinking about it, ensure you avoid spending any more money

   up front than you can happily afford to lose.

5. And then think long and hard, and ultimately come to the right decision:

   No.

Many MLM schemes can be extremely profitable, for their owners: Herbalife,

in the US, and Natura, in Brazil, both even got as far as a stock-market listing.

But unless you own the thing, it’s worth staying well away. Especially

from any company which feels the need to tell you that it’s not a pyramid scheme.