Fear the Pyramid

During the summer after graduation from college, I intentionally put off entering the real world. I knew I didn’t want to be working for a big company, but aside from that, I had no real idea of what I wanted to do with my life. While browsing through the help wanted section of the local newspaper one afternoon, I came across a very brief ad. It was something to the effect of “New Sports Marketing Firm looking for qualified candidates”. Other than a phone number, there was no other information. Had I been a little more experienced in reading the help wanted section, I would have known right away that something was amiss. But I wasn’t, so I called.

A young woman answered and quickly engaged me in a conversation about my background and asked if I had played any sports in college. I told her I played soccer and she said that she had played lacrosse in college. I lost control of the conversation almost immediately. I don’t know that I ever directly asked what positions the company was hiring for before my bubbly new friend was telling me that she would love to meet with me to tell me more about the company and determine if I might be able to fill one of their positions. Again, being naïve, I was thinking that I was going for a job interview - even though I had never submitted a resume and didn’t have any clue what type of work I might be doing. But “sports marketing firm” sounded really cool and the woman I talked to couldn’t have sounded happier.

The “interview” was about an hour from my parents’ house. I arrived wearing a nice suit and carrying my nifty new briefcase filled with a dozen copies of my resume, some pens, and a few empty manila file folders. As it turns out, I was over-packed. I arrived at the office and proceeded to the appropriate suite to meet my contact. We’ll call her Trish. She was happy to see me, and after a very brief hello she led me down the hall to a large room with about 50 chairs facing a projection screen. There were already a few people seated and several more standing near the back of the room.

After a few minutes and the arrival of several more people - I remember about half of the seats being filled – a man stood in front of the projection screen and began speaking. He welcomed everyone and said that he wanted to tell us about an exciting opportunity that he and Trish and a few other go-getters standing at the back of the room had already seized. He mentioned the company name (I remember thinking it odd that it didn’t contain any mention of sports or marketing), asked some rhetorical questions about whether or not we wanted to be rich (why else would I have brought my briefcase?) and started the film.

Despite my status as a “real-world” newbie, I was well aware that what I was about to watch was going to be a too-good-to-be-true sales pitch for me to become a peddler of cheesy and largely unnecessary products. The film had all of the required testimonials intended to put new minions on the path to unimaginable financial success. There was the housewife who makes $12K per month working part-time from home; the disgruntled-nine-to-fiver-turned-entrepreneur who raked in $30K in his second month with “the company”; and my personal favorite, the nouveau-riche playboy explaining his $60K per month windfall while leaning on his Ferrari in the driveway of his new mansion. There was no specific mention of the products being sold, just how easy it was and how the company all but guaranteed your success with their proven training and support. When the film ended, we were informed that, after a quick break, we were going to hear from vice president so-and-so, who was going to tell us more about the company. I took this opportunity to escape.

I walked past the bathroom and straight out of the building. On my way out, I saw some brochures with a home water filtration system on the cover. That was certainly one of the products that the “sports marketing company” was going to be offering to eager salespeople and, eventually, to their generous network of family and friends.

That was my first and only personal experience with a pyramid scheme. Through the years, I’ve had many friends and acquaintances that have given them a try. To my knowledge, none were successful. None were left in financial ruin but, again, none were successful.

Whether you know them as pyramid schemes, multi-level marketing companies (MLMs), or some other name, the structure, the sales pitch, and the dismal chances for sustained success are all the same. We’ll call them pyramid schemes. The old horses, like Amway and Mary Kay, have remained relatively unchanged for years. The new players are much more innovative and they target their markets carefully. These include Longaberger baskets and Pampered Chef cooking products, among many others. In general, these companies lure people into their programs by preaching the potential to make “easy money” by working as an “independent sales consultant”. In many instances (but not always), the products are of questionable quality and the “independent sales consultants” are required to purchase inventory at wholesale prices that they are then tasked with selling at retail prices in order to make “huge profits”. These are the most dangerous types of pyramid schemes.

Many others do not require consultants to purchase inventory and brilliantly build their sales model into contrived “social events”. If you are a middle-class woman, you have almost certainly attended, been invited to, or heard about a Longaberger basket party within the last 10 years.

The common link among all pyramid schemes is that the primary duty of each “independent sales consultant” is to recruit as many new “independent sales consultants” as possible. In the pyramid scheme, revenue and profit flows upward. Every recruit passes a portion of their revenue to the person that recruited them and that process continues perpetually as the pyramid expands. It’s a recruiting model that immediately rewards each recruiter and ultimately rewards the top of the pyramid. There is almost always a fee associated with joining a pyramid scheme. Usually, it’s a few hundred dollars that goes right to the top of the pyramid.

The point of this article is not entirely to disparage pyramid schemes and those that run them, participate in them, or find them to be wise business decisions. Some people can and will succeed within this framework. But the vast majority of people will not. Many people are lured by the potential for self-employment and financial freedom that the pyramid companies preach. Many of these same people waste valuable time and money learning that these schemes are simply not viable employment options. These companies and their “independent sales consultants” tend to find people that are either uninformed or looking for an easy way out. These are the people that are easily sold on the pyramid concept. It sounds too good to be true and, unfortunately, it is.

Here are a few common sense tips to avoid getting yourself into trouble with pyramid schemes:

• Do not participate in pyramid schemes

• If you really must give one a try, never commit to purchasing inventory upfront

• Never agree to sell products to your “family and friends” that you would not feel comfortable selling to strangers

• Assume that you will never be able to recruit consultants to work under you

• Only continue in a pyramid scheme if you feel you can make enough money through direct sales (without underling consultants) to make it a viable source of income

• Never assume that working in a pyramid scheme will bring you great financial rewards

Follow those simple tips and it’s unlikely that you will lose anything but a bit of your time when investigating an “opportunity” presented by a MLM company.

Tags: amway, independent sales consultant, longaberger, mary kay, MLM, multi level marketing, pampered chef, ponzi schemes, pyramid schemes

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