Posts filed under ‘Despite Popular Belief’

The Difference Between Pyramid Schemes and MLM

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!

Pyramid Dollar

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:

office-pyramid

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:

8 Ball Pyramid Scheme Structure

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.

8 Ball Pyramid Split

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:

Matrix Scheme

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:

  1. Have a real product to sell
  2. Sell the product without requiring the customer to join the MLM
  3. 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.

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Sources: FTC, College of New Jersey

May 2, 2016 at 3:00 am 1 comment

Is Japan’s Coastline Longer Than Australia’s?

By Chad Upton | Editor-in-chief

I often come across the statement that Japan’s coastline is longer than Australia’s.

Although Australia has more than 20 times more land area than Japan, Japan actually has a longer coastline according to the World Factbook. The World Factbook, published by the CIA, lists Australia’s coastline at 25,760 km (16,007 miles) and Japan’s at 29,751 km (18,486 miles).

japan_australia

As you can see in the graphic above, Japan fits comfortably inside of Australia. So, how is it possible that it has a longer coastline? (more…)

May 30, 2014 at 8:00 am 2 comments

The Sun is Green

By Chad Upton

I know, the sun doesn’t look green. But, keep in mind the sky looks blue and we know it’s not really blue. The sky appears blue for the same reason some people’s eyes look blue — an optical illusion known as the Tyndall effect.

sun is green

When scientists measure the wavelength (color) of the sun, the peak output is in the transition area between blue and green (about 500 nanometers). So, technically, the sun is green-blue. But, why doesn’t it look green? (more…)

May 17, 2013 at 2:00 am 8 comments

You Cannot See the Great Wall of China from Space

By Chad Upton | Editor

Before we could even go to space, the myth was the great wall is visible from the moon. Ever since we got to space, astronauts have been looking for it.

GreatWallOfChina

Mathematically, the wall would have to be at least 70 miles (110 km) wide to be seen from the moon with unaided eyes. Since the wall has a maximum width of 30 ft (9.1 m), this is easily dismissed as myth. The moon legend came from a 1754 letter by William Stukeley; his remarks on the massive size of the wall could have been literary hyperbole. But, some people took it literally.

In his defense, there have been a few claims that the great wall can be seen from low earth orbit — as little as 100 miles (160 km). A number of astronauts have claimed they have seen it. Even the European Space Agency claimed it was visible and published a picture. A week later they issued a press release indicating it was actually a river and not the Great Wall of China.

NASA claims it, “generally isn’t [visible], at least to the unaided eye.” Mathematically, it’s the same answer, unless you have 20/3 or better vision. But, according to the Journal of Optometry, “Not even the best of human eyes at a simple glance could see the Great Wall of China from Space.” That’s because the anatomy of the eye limits vision to an acuity no greater than 20/9. So, 20/3 is impossible.

The gaza pyramids on the other hand are about 22 times wider than the Great Wall of China; they are visible from low earth orbit.

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Photo: Keith Roper (cc)

Sources: wikipedia (Great Wall of China), Journal of Optometry, NASA

April 4, 2013 at 2:00 am 1 comment

Military Contractors Built Flying Saucers

By Chad Upton | Editor

I’ve been writing Broken Secrets for a little over 3 years and UFOs are something I wanted to cover at some point. It’s a difficult subject; there’s so much information, mostly poor or difficult to confirm information and little that seems reliable and interesting. But there are also some little gems that are compelling and enlightening.

cutaway

A UFO is simply an Unidentified Flying Object. It doesn’t necessarily mean it’s alien — just that you’re not going to find someone who knows what it is or be willing identify it if they are one of the few who may know.

In May of 2011, the public got an unplanned unveiling of the US Military’s “Stealth Hawk” Helicopter when it was damaged during the raid on Osama Bin Laden’s compound in Pakistan. Technically, it’s still a UFO since we don’t know exactly what it is — educated guesses are that it is a heavily modified Sikorsky MH-60M Black Hawk. (more…)

January 16, 2013 at 2:00 am 5 comments

We Don’t Lose Most of Our Heat Through Our Heads

By Chad Upton | Editor

Winter hat, stocking cap, beanie or toque; whatever you call it, it keeps your head warm. But, it doesn’t necessarily keep you warm.

An old US Army survival manual suggested wearing a hat since “40 to 45 percent of body heat” is lost through your head. This recommendation is thought to have come from a military experiment over 60 years ago when participants were dressed from neck to toe in Arctic clothing, but no headwear. Over time, this has snowballed into “most” heat is lost through our heads. (more…)

November 27, 2012 at 2:00 am 1 comment

Point Blank Range Can Be Over 100 Yards

By Chad Upton | Editor

The phrase, “point blank range” is frequently used in tv shows and news reports to indicate a shot was fired within an short range (usually a few yards or meters).

While that usage is accurate, the phrase is rarely used to describe shots from further away that are still point blank range.

You see, Point Blank Range simply means: a distance at which the shooter does not need to compensate for gravity by adjusting the elevation of their weapon.

Due to the velocity of the projectiles, some weapons and ammunition have a point blank range of over 100 yards (91m). Due to recoil, some cannons can shoot over 1000 yards without elevation compensation; therefore they have a point blank range of over 1000 yards (914m).

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Photo: calflier001 (cc)

Source: point blank range

September 25, 2012 at 2:00 am 4 comments

Sugar Does Not Make Children Hyper

By Chad Upton | Editor

I’ve only been a dad for a few weeks, so I can’t provide any anecdotal evidence on this one. Thankfully, a much more scientific source is available. The British Medical Journal has published a study that concludes: sugar does not make children hyperactive.

Of course, we’ve all heard this myth. There are even some parents who give their kids pixie stix, hoping it will give them more energy: (more…)

May 7, 2012 at 7:00 pm 10 comments

The SR-71 Blackbird is Actually Dark Blue

By Chad Upton | Editor

I saw the Lockheed SR-71 Blackbird at an air-show on the west coast in 1986. When the announcer introduced the jet, he indicated the plane had left New York about an hour earlier. A similar flight would take more than 5 hours on a commercial jet, but the SR-71 Blackbird is capable of traveling at over 2,200 mph (3530 km/h). As a kid and now as an adult, this blows my mind.

Although it was retired in 1998, it still holds the record for fastest jet powered aircraft, which it achieved in 1976. It was so fast that the standard procedure for missile defense was to simply accelerate and outrun the missile. (more…)

March 22, 2012 at 2:00 am 2 comments

Carrots Do Not Improve Eyesight

By Chad Upton | Editor

Like many kids, I didn’t like vegetables — especially carrots and broccoli. Adults frequently told me that carrots would improve my eyesight, so that seemed like a good reason to try liking them.

There was one person who didn’t tell me this, he actually told me the opposite. My grand father overheard somebody tell me that carrots would improve my eyesight and he let me in on a little secret — it was all a big lie. Carrots do not improve your eyesight.

Sure, carrots and many other foods do contain beta-carotene, which metabolizes into Vitamin A and everyone agrees that is essential for maintaining eye health, but it does not improve it. If you are not consuming enough vitamin A, any number of sources could help restore your vitamin A supply. Carrots themselves are not unique or magical in this way. In fact, carrots have less beta-carotene per 200 calorie serving than red peppers, kale and lettuce.

If lettuce, kale and red pepper have more beta-carotene than carrots, why do carrots get all the eyesight credit?

(more…)

October 17, 2011 at 2:00 am 15 comments

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