It used to be the punch line for so many jokes. Sitcoms would feature that shady uncle who tried to sell the protagonist on some new business plan, everyone would roll their eyes, and a laugh track would roll. It was uniformly recognized as ridiculous, because clearly the shady uncle had been swayed into some sort of pyramid scheme.
A Pyramid scheme, for those unaware, is a business model that relies on participants recruiting others to work beneath them for a cut of their profits. Almost anyone involved in a pyramid scheme ends up losing money. In the United States, they're illegal.
Today, pyramid schemes are alive and well, repackaged as multilevel marketing (MLM). MLM's allow workers to gain profit from direct sales, but also usually allows workers to take a cut from the sales of anyone they recruit. This setup becomes problematic as the market becomes saturated by more and more retailers, to the point that there are no more people interested in or willing to be recruited.
According to the Federal Trade Commission (FTC) in reference to whether an MLM is a legitimate company: "If the money you make is based on the number of people you recruit and your sales to them, it's not [a legitimate MLM]. It's a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."
If your business incentivizes in any way getting other people to work under you for a cut of their profits, in my book, it's a pyramid scheme. I don't care what the company sells or what good it can do in the world. In fact, most of the products sold by these companies do exactly what they claim to do. They're generally not sham products, but I don't support a business plan that forces individuals to use friends and family to succeed.
I guess that's the thing that really irks me about pyramid schemes more than anything else. The whole business plan involves direct sales and recruitment, which results in people selling to or attempting to recruit friends to keep the business going.
I can't tell you how many times I've been invited to a sales party -- or better yet, possibly host one! Accepting an invitation to a lotion, candle, jewelry, nail polish, oils, skincare or wrap party (to name a few) is always seen as a tacit agreement to purchase something. If I show the slightest interest in any product, I'm invited to start my very own business selling the same thing!
But I don't want to sell anything. Frankly, I don't want to buy any of these products either. If I do want to purchase something, I'll go online and buy it directly because I feel most legitimate companies don't rely on an MLM structure. Word of mouth can be a powerful seller, but so are targeted marketing campaigns. If someone wants to be around me for my friendship, that's fantastic, but as soon as the line is crossed to wanting my friendship and wanting to sell me something, I feel like the friendship suffers.
More than once I've received messages from old friends that start out as an unexpected pleasant recounting of how they've missed my company, and want to know how I'm doing. Then the message transitions to say that they've started some exciting new business, and they think I'd just be the perfect fit.
It's heartbreaking to get a message from someone you haven't heard from in years who used to be a meaningful part of your life that is only reaching out to try to profit from your friendship. It's even worse when you later find that this same friend has sent nearly identical messages to several members of your social circle. Some companies even craft personal-seeming messages for their sales people to use, and recommend reaching out to as many people as possible -- even if it's been a few years. For me, I don't understand the mentality of contacting a friend only to make a sale. It changes the relationship from a friendship to a business dynamic.
There is a caveat here I'd like to mention that I generally don't find offensive. Those are the true believers. Some people that I've met, especially those who sell healthcare products, are only involved because they believe in the products, and are not interested in making a profit. They truly want to spread the word because they honestly want others to also have a meaningful product experience. If that's your thing, I've got no beef, and I'm happy that you found something you're passionate about.
Unfortunately, I've found the true believers to be few and far between. Almost everyone I've encountered who is involved in an MLM is in it as a business venture, specifically to make money. They may like or use the products they sell, but their fervent brand loyalty is directly linked to each paycheck.
In the course of writing this article, a friend of mine played devil's advocate, because she is a rep in an MLM, and knows others who are successful at it. She pointed out that some companies are legitimate, and can actually help people make a profit. This is true. I would be errant to say that all MLM's are terrible pyramid schemes that deprive people of money while promising riches. Every company is different, and sometimes the structure doesn't place as strong of an emphasis on recruiting. And for some people, that message after years without speaking can provide a vital financial lifeline.
If you are considering getting involved with an MLM, approach with caution. If the company asks for a substantial investment upfront, I'd question it. Before agreeing to anything, do your research. Don't be swayed by an immediate sales pitch because if it seems too good to be true, chances are, it is.