Posts filed under ‘Demystified’
Multilevel Marketing (MLM) Organizations are not Pyramid Schemes. I’m not trying to defend MLM companies, because I think those are terrible businesses for most people, but I wish more people knew what a real pyramid scheme was because they’re so fascinating!
So try to forget everything you know about MLM and pyramid schemes, unless of course you already know that a pyramid scheme is very different from Multilevel Marketing.
For those of you who are unfamiliar with multilevel marketing companies, these are the companies where your success depends heavily on how many other people you can recruit into the company (because you get a bonus for selling them in and/or a cut of their sales). They also involve direct selling of products. Some of the largest and most recognizable MLMs are:
- Avon Cosmetics
- Amway (Household Goods)
- Mary Kay (Cosmetics)
- Herbalife (Vitamins/Supplements)
- Primerica (Financial/Investment Products)
- Tupperware (Home Storage)
- Pampered Chef (Kitchen Tools)
You probably recognize most of the companies listed above and they’re not small companies. Pampered Chef is the smallest one in that list and it’s a $500 million publicly traded company on the New York Stock Exchange! Avon is the largest at over $10 billion in revenue with more than 6 million sales people.
$10 billion in revenue and 6 million sales reps is impressive, but it also cuts at the heart of why I don’t like MLMs and why many people try to steer clear of them. If we do some quick math to understand those numbers, $10.3 billion in revenue leaves each of the 6.2 million sales reps and 42,000 employees with about $1650 each.
Of course, we can assume the 42,000 employees are being paid a reasonable salary or they’d probably go work somewhere else. So that leaves a sales rep with even less than $1650 as an average. We see the best sales reps driving around in pink Cadillacs, so we can also assume the best sales reps are making much more than $1650. In other words, some sales reps are doing very well and others don’t make enough to survive.
That’s not a problem per se, any sales rep is responsible for their own success of course. But a lot of people are sucked into these ventures with the promise of (potential) wealth. I’m not speaking about Avon specifically, but I have been invited to meetings for other MLMs and that was always the pitch. When the results don’t match the pitch, people start to feel like they’ve been scammed, especially when they’ve paid money to join or buy product inventory to get started selling. While they’re not exactly trying to scam people, they are giving a hard sell and I have been to pitch meetings where people were misled about typical results.
Multilevel marketing companies are legal, assuming they’re actually selling a real product (and the product is legal). Again, they might not be good business opportunities but they are technically legal. Like I said, they’re on the New York Stock Exchange! In fact, there are plenty of legal and lousy business opportunities out there, go to any franchise trade show and see some for yourself — MLMs do not have a monopoly on lousy (high failure rate) business opportunities.
On the other hand Pyramid Schemes are illegal. They are fly by night operations (sometimes literally since they may only operate at night). They are not traded on stock exchanges. In fact, these are some pretty big indicators that a business is not a pyramid scheme: it is legal and the company is on a stock exchange.
Because a lot of people dislike MLM organizations and think they’re a scam, they often refer to them as “Pyramid Schemes” either out of confusion or as an insult or exaggeration. There’s also that funny scene in The Office where Michael Scott draws the Organization Chart of an MLM and then Jim draws a pyramid shape around it to demonstrate that it’s a Pyramid Scheme:
It’s a really funny scene, but as we know: MLMs are not Pyramid Schemes.
So, let’s get to the really interesting part:
What is a Pyramid Scheme?
The key indication that you’re dealing with a Pyramid Scheme is that the people involved actually describe it as a pyramid scheme. They may have clever code names for the organization, but nobody is denying the fact that it’s a pyramid scheme because it’s important for everyone to understand how that works and it’s important for everyone to know it’s illegal so they can tread carefully. On the other hand, people in MLMs never refer to their organizations as Pyramid Schemes, because they probably don’t know what a real pyramid scheme is, and they do know they’re not in one because their business is actually legal — lousy perhaps, but still legal.
So let me get back to the beginning, if there’s no product involved then how does anyone make money? That’s the evil genius of some pyramid schemes: they just pass around money!
The Eightball Model
This type of Pyramid Scheme is called the eight ball model because there are exactly 8 people at the bottom of the pyramid. There are exactly 4 people above these 8 (one person for every two below). There are exactly 2 people above the 4 (again, one person for every two below). Then there is 1 person above the 2 (again, one person for every two below). If you haven’t figured it out, this structure makes something that resembles an actual pyramid shape:
This is another key difference between Pyramids and MLMs — Pyramids actually look like Pyramids. MLMs can have any number of people on each level and therefore the never actually look like pyramids.
So how does a Pyramid Scheme keep its pyramid shape when new people join? The person at the top of the pyramid gets kicked out (blue) and the pyramid divides in two new pyramids with the 2 people on the second level (red) now as the top person in each of their own pyramids.
Now there are two pyramids and the people in each pyramid will try to recruit people to join the bottom of their pyramid which will then force these 2 pyramids to become 4 pyramids (and so on). This is illegal because there are only so many people who can join the pyramid so eventually there will be many pyramids that are waiting for people to join and not enough people in existence to join them, thus everyone already “invested” in the pyramid will lose their money.
So again, MLMs are not Pyramid Schemes. But, to make things more complicated, some scams pretend to be MLMs. This further confuses people into thinking MLMs are scams and scams are Pyramid Schemes. One method of making a Pyramid Scheme sound like Multilevel Marketing is called a:
In a matrix scheme, victims typically pay a fee (or buy a fake or worthless product) to join a queue to receive a luxury item (iPad, Cellphone, etc). These businesses are sometimes made to seem like MLMs because the people are told they will receive their item quicker if they get their friends to sign up.
The person running the scheme waits until income equals double (or more) of the cost of the item and then they send out the first item to the first person on the list. When income doubles the cost of the item a second time, they send the item to the second person on the list. This is a ponzi scheme to some degree, but it also suffers from the same problem as the 8 Ball Pyramid Scheme: exponential growth is required to pay each new person who joins, which eventually becomes impossible to sustain.
At the end of the day, the Federal Trade Commision does have some specific criteria to tell the difference between MLMs and Pyramid Schemes. MLMs:
- Have a real product to sell
- Sell the product without requiring the customer to join the MLM
- Pay commission for real sales, not recruiting
Regardless of the differences, you should be wary of both Pyramid Schemes and MLMs since it’s quite possible that you’ll lose your money in both.
About 4000 years ago, Whiskey (or Whisky) was invented to purify perfumes and aromatics. Now, some Whiskey is aged longer than many people were back then.
Soft drinks are a much more recent invention, although perhaps still older than you may think. Soda water was first introduced to the world by Joseph Priestley in 1767 when he published his paper, Impregnating Water with Fixed Air. Yes, that’s the real name of the paper.
Through a series of followup inventions, flavored soda became popular in the late 1800s, starting with lemon and orange varieties. Large soda bottlers and distributors weren’t common back in the 1930s, so the Hartman brothers invented their own whiskey mixer: Mountain Dew. The Hartman brothers sought advice from Coca-Cola about Mountain Dew, but Coke didn’t help. Pepsi was interested, albeit 35 years later, when they bought Mountain Dew. (more…)
Ladies probably don’t know this, but the urinals in men’s bathrooms, usually at bars or clubs, sometimes have ice in them.
Even though many men have seen this, they don’t usually know why it’s there.
Well, auto flush exists because some people don’t flush. Urinal cakes exist because some people don’t flush. So of course, ice exists in urinals because some people don’t flush. (more…)
By Chad Upton | Editor
Telephones have been around in some capacity since the mid to late 19th century, depending on who you credit with the invention.
Early dialing was accomplished by inserting your finger in the rotary disk adjacent to the number you wanted and rotating the dial to the stopping point, then you would remove your finger and the dial would rotate back to its default position. Each number it passed on its way back would induce a pulse — a short variance in current — on the phone line. This pulse communicated the number to the phone system. (more…)
Once a fundamental tool, the wrist watch is now an accessory more than necessity.
The ubiquity of cellphones eliminated the need for watches on most people’s wrists. However, smart watches that accompany smartphones may catalyze a revival in wrist watches. Although these new fangled smart watches can emulate the analog hands of a traditional timepiece, they lack verisimilitude.
If you’re looking for the real thing, you may notice almost all analog wrist watches are photographed with a time of 10:10. The time doesn’t have any special meaning, it’s just aesthetics. The manufacturer’s logo is typically below 12 o’clock and the hands at 10 and 2 frame the logo proportionally and draw the readers eyes toward the logo itself.
One exception is chronograph watches. Since they often have multiple dials, the logo may not be top and center and/or the hands may be moved to a position that doesn’t block other dials.
By Chad Upton | Editor
The first TIME magazine was published on March 3rd, 1923 and sold for fifteen cents.
It’s the first and longest running weekly news magazine in the United States. There are also European, Asian and South Pacific editions.
TIME is well known for its annual “Person of the Year” edition. This special edition has been running since 1927 and can be controversial. This is most apparent in “Person of the Year” choices such as Adolf Hitler (1938) and Josef Stalin. Many people have earned the title multiple times, including Stalin in 1939 and 1942. Franklin D Roosevelt earned the title three times between 1932 and 1941. Nearly a dozen other presidents have been given the title too. Person of the year is not necessarily an honor or prize, it’s simply a recognition of influence.
Although it’s been called TIME for the better part of a century, the founders originally considered naming it Facts. Through an ad campaign, TIME was assigned the backronym, “Today Information Means Everything.” But, on the landing page for the official Kindle edition of TIME, it is referred to as “The International Magazine of Events.” I guess that explains why the name is always capitalized, TIME.
By Chad Upton | Editor
First of all, I don’t want anyone to get the wrong idea; although the credit card numbers you generate are valid, they’re not active and aren’t for making (fraudulent) purchases.
So, what’s the point?
Just like you may use a junk email address to sign up for special offers, you may want a junk credit card number too. That’s because free things are rarely ever free and that’s especially true of free trials.
Companies frequently offer “free” trials in exchange for your billing info. They’re betting against you — hoping you’ll forget to cancel your subscription so they can get some money out of you for at least one month, maybe a couple months if it’s only a few bucks and you’re too busy to cancel at the moment you notice the charge. Then you’ll probably forget about it until you see it again next month. (more…)