Thursday, March 24, 2011

Why I eschew the use of the phrase "pyramid scheme"

"It's not a pyramid scheme, it's multi-level marketing!"

Leaving aside for a moment the fact that I've never really heard the difference articulated in a way that I understand, if proponents of MLM feel that the label "pyramid scheme" unfairly tars them, I am perfectly happy to criticize MLM on its own merits (or lack thereof). Telling someone that their MLM endeavor is nothing more than a pyramid scheme distracts from the central issue by allowing them to protest ad hominem. I prefer to avoid the terminology dispute altogether: Make "MLM" the dirty word, and leave the antiquated phrase "pyramid scheme" in the dustbin of history.

MLM induces people to take business risks they are often not fully cognizant of, it tends to turn people into annoying evangelists for their product and encourages them to exploit their friendships for the purposes of making money (even if the exploitation is not often conscious), and it almost always results in crappy products.

The reason for the last point, in my opinion, is that with MLM the business model is the primary product. Individual profit incentives focus on selling the business model, whereas the nominal product is secondary, a placeholder. I had to say "almost always" in the previous paragraph, because I am told Avon products are pretty good - but the vast majority of everything I've ever seen sold via MLM has been utter shite.

A friend recently spammed all of his Facebook friends to try and recruit them for Herbalife. Blech. I don't want to say anything (see my Three Rules for Facebook for why I believe in basically never calling someone out on Facebook) but man, that's annoying. Why do people do that crap?


  1. Amway recently(?) started a thing called 21 Network, in which the "product" is motivational seminars. Basically, they took their internal sales pep talks and repackaged them for general consumption, as an MLM in its own right -- which is pretty much a reduction to the absurd of the vacuity that is MLM.

  2. Dude, that's kind of awesome in its own twisted way. I almost think I admire that. I mentioned that the product itself was merely a placeholder in MLM, and they have brilliantly managed to remove the product altogether! There's a certain elegance to that, kind of like when you are looking at a proof of same famous mathematical theorem and its all complicated until at the last step a whole bunch of terms cancel out and you are left with a neat distillation of a complex idea. They have captured the mathematical essence of MLM. Pretty cool, in a sick sort of way :)

  3. I had to say "almost always" in the previous paragraph, because I am told Avon products are pretty good - but the vast majority of everything I've ever seen sold via MLM has been utter shite.

    So if the product truly is good, are you comfortable with MLM?

  4. Not entirely, no. I still find the "sell to and recruit your friends" model to be distasteful, and I'm still concerned that it induces people to take financial risks that they don't fully understand. That latter point applies to a lot of things, though, I do admit...

    Certainly, the rare MLM business that has a quality product is a lot less troubling that most... When the product is worthless, I feel like the system is tantamount to fraud, almost a sort of faux-Ponzi scheme. When the product is legitimate, I guess I just find the business model distasteful and question whether it really has any advantages that justify all the people who wind up losing money on it.

  5. ISTM the difference between "bad" and "good" MLM (or maybe: MLM and a real business) is how much emphasis there is on recruiting your own sales reps as opposed to selling the product, and whether you can make any reasonable amount of money at the bottom tier of the distribution hierarchy. I've known people who were Tupperware ladies for years and AFAIK all they ever did was hold Tupperware parties, and I assume they were satisfied. Avon may be the same, I don't know. Mary Kay, however, I have the impression is more of an MLM in the bad sense.

    Having said all that, I now realize that maybe all I've really done is to repeat your point that what matters whether the primary product is a tangible good or service, or just the business model :-).