What's Wrong with Pyramid Schemes?

Friends,

Well, it's been almost a year since our last Tangent. I can't offer you a good excuse, but I can give you three bad ones:

• I've been adjusting to a new job
• I moved to a new apartment
• All my free time has been spent watching Food Network shows on Netflix

Look, Chopped and Kitchen Nightmares are fascinating. Anyway, summer is here, so for at least the next 2 months (and hopefully longer), Tangent Space(s) is back! And we start with a topic I honestly can't believe I haven't written about before... pyramid schemes.

Pyramids Everywhere

I don't know who built the pyramids, but charismatic entrepreneurs built the schemes

You probably know what a pyramid scheme is. I don't want to insult your intelligence. But the idea deserves some examination, because it's just that good. I think the simplest definition of a pyramid scheme is an organization or business that...

(i) requires you to pay to become an employee

(ii) gives you a payout when you or your recruits bring in new employees

Now, first of all, if a certain company or business came to mind when you read that, then yes, that company is a pyramid scheme. Amway. Mary Kay. And if your Facebook newsfeed is anything like mine... doTerra Oils.

Before you jump to the defense of one (or another) of these pyramids, let me assure you: I'm not completely anti-pyramid. There's something brilliant about a scheme that, if there were only enough people to keep bringing in, would make everyone rich. And I recognize that these companies don't only do the multi-level marketing, independent consultant/salesperson, recruitment "scheme" part. They also sell products!

You may think that these companies exist because they're passionate about cosmetics or natural health solutions. In some cases, that may be true. But there's also the terrible (like a car crash you can't look away from) possibility that they exist solely to make money off recruitment, and have added the sale of a product to remain legal and reputable. At the end of the day, though, they need to sell actual products not just for legal reasons, but for sustainability reasons: there are only so many people willing to become an independent salesperson, so eventually the recruits (and their entry fees) run out!

Well then, what's the problem? So some companies have shrewdly opened up two revenue streams-- product sales and employee recruitment. Is that really a problem?

Panera, we have a problem

Woe to the man who joins a pyramid scheme just before the pyramid collapses

There are probably actual, systemic issues with pyramid schemes, even the legit ones. For instance, an unsustainable business will ultimately crush its most recent members, as the tiny text above indicates. But I don't blog to expose actual, systemic issues. I do it to make lists of things that annoy me.

With that in mind, I give you the Top Four Problems with Pyramid Schemes

1. Public recruitment meetings

A face-to-face meeting is needed to recruit and bring on a new salesperson. So while the actual sale of product takes place at home parties or online, the recruitment meeting always takes place at the table next to me in Panera. This makes me an unwanted third wheel in your scheming. Get an office.

2. A strange correlation with pseudoscience 

I don't know why, but pyramid schemes and fake science seem to go hand in 100%-natural-oil-soaked hand. To give an example, I will directly lift text from a Facebook post hawking a nutrition supplement, Shaklee. [The person who posted it is wonderful, so... I'm sorry.] Here's what the post says:

"Shaklee is a company that has conducted countless clinical studies, published over 90 peer-reviewed articles published in well-known journals..."

And yet a thorough scouring of Shaklee's website reveals no effort to link to any of these journal articles, nor does it explain the results of these studies. There is just no credible science here, but there are plenty of outrageous scientific claims--the site refers to its latest supplement as "the latest advancement in brain science" and that it will "immediately enhance mental sharpness." If you doubt its efficacy, don't worry: it's "clinically proven" (no link or explanation provided).

[Note: I found a claim that all the articles are mentioned by name in the company's official sales catalog. But also note: the Wikipedia page for Shaklee, section "Pyramid scheme convictions and accusations", reveals some of the grim ramifications of the pyramid model.]

3. Taking over my Facebook newsfeed

I'm so sorry to pick on that same Shaklee salesperson, but because numbers don't lie... It is June 16. Since June 1, this salesperson has posted 10 times about Shaklee's products and why I should consider using them and/or selling them (hitting up both halves of the revenue stream).

So, fearlessly extrapolating from the super small sample size of one person, we can guess that a pyramid seller posts advertisements(!) to Facebook about 20 times per month. And here's the point I'm trying to make: they have to do so in that line of business. When your livelihood depends on your known associates buying from you and/or joining your company, and you are forced to buy inventory that you then have to move-- a lot of people will be "unfollowing" you on Facebook.

4. A culture of guilt

This might be the worst aspect of the pyramid scheme. Because your client base is your group of friends, family, coworkers (from your other job at Starbucks), and neighbors, you have to hit them up for sales. And here's the thing--they know your livelihood depends on making these sales. So even though there are plenty of good elements to the product you're selling or the fun make-up/jewelry/candle/clothing party your aunt threw for you, the fact remains that those people feel obligated to buy your product. 

You know they feel obligated, but you have to ask them anyway. And that obligation to buy is sort of like climate change; you may insist to them it doesn't exist, but it still does. (And I've spent time essentially being a professional fundraiser, so I understand this dynamic quite well.)

Schemers, Unite

Or completely disband, either way

I'm reading over this post, and it comes across way more anti-pyramid than I meant it to. If anyone is offended, I'm sorry. For the record, I think most of these companies, pet peeves aside, are legitimate businesses that sell good products. That being said, don't ask me to buy your essential oils, Nerium skin care products, Jamberry nail wraps, dietary supplements, weight-loss wraps, knife sets, or candles. 

• What do you think about pyramid schemes? Have you bought or sold from a "multi-level marketing" company?

Jon

Credit: ateacherscoda.com
This is from an article called "The Peer Coaching Pyramid Scheme," describing a model for improving education through teachers' peer mentoring. So hey, pyramid schemes are making the world a better place.

[Editor's note: in this post, I used the nomenclature that seemed (and seems) intuitively correct to me--that any organization with a pay-to-work system and kick-backs to your "up-line" workers is a pyramid scheme. Those companies that sell a product are legitimate and legal, while those that don't sell a product are illegitimate and illegal. I've since learned that in business parlance, the former is called "pyramid selling" (or multi-level marketing by its proponents) while the latter illegal version is a "pyramid scheme". It should be noted, then, that in the above post, I am not calling the named companies "schemes" in the illegal, con-artist sense of the phrase.]