I have the coolest friends. Some really fun people who care deeply about the world and those in it. And I've noticed something happening in my circle as it relates to their reaction to my chosen field of work. I'll expand.
In August 2012, I decided (in addition to this blog to keep my sanity as a stay at home mom) to start working for a company called Damsel in Defense. If you're reading this, you're probably my close friend, and you're probably well aware of Damsel, but for the sake of any who might stumble upon this less familiar I'll provide back drop.
Damsel in Defense is a direct sales company that operates in the party plan industry. We sell non-lethal self defense items like stun guns and pepper sprays, and a diverse line of other products all aimed at helping the average person stand a better chance to stay safe in our world. I bought a starter kit. I asked my friends to come to my launch party (no one did). I gradually scheduled home parties and vendor events to share our products with those around me, and I invited others to join our company if they, too, had a heart for those who are victimized and a need to get out of the house or build a small business.
I don't catch a lot of flack for what I do, I think primarily because of Damsel's powerful mission to help others, but I have still noticed a sort of secret my friends seem to be trying to keep from me. When we talk about my business they ask circular questions...trying desperately not to reveal their real feelings about my work...but eventually the dreaded "pyramid" word gets uttered under their breath. I think they're (mostly) trying not to hurt my feelings.
You're familiar with the business model. I'm sure of it. It's been around since forever....exploding in the US in the 1970's with Tupperware and make up, predominantly.
What is it about what I have just written that makes people feel like this is an illegitimate business? Cause if you're like me, you've got this weird taste in your mouth while I talk about it. Maybe 'sounds fishy' to you. Annoying, at best. An utter scam, at worst. When I started I felt the weight of that preconceived notion. I actually told some of you, as I introduced what I'm doing, "I'm kinda embarrassed I'm doing this, but...". Because we've all been schooled that direct sales and MLM (or Multi Level Marketing) businesses are (duh, duh, duh) PYRAMID SCHEMES!!!
They have to be, right?! You enroll. And your success, largely, depends on the number of people you bring into the company, and the number of people they bring into the company, etc etc etc. See. Pyramid. I follow your logic.
I'll see your direct sales pyramid, and raise you a McDonalds pyramid.
You get hired on. You do the grunt work. Work long hours, get paid very little. There's like 30 grunts working around the clock. Maybe 4 shift managers, 2 assistant managers and one manger, each getting paid more than you for training and supervising you and carrying more responsibility, but possibly less "work". Above them are corporate employees. Marketing employees, a shipping department, executives, VP's, CEO's, all of whom are making BIG BUCKS. PYRAMID. Is the only difference that you buy a kit? Is that what is bothersome?
OK. Don't buy the franchise model? How about your school?
Your local school has service staff like custodians and cafeteria works (
Lunch Ladies, represent!), teaching staff (the majority of employees) who are doing the actual work, day in and day out with students, and most are making salaries, working full-time, that still place their families under the government regulated poverty line. They didn't buy a starter kit....but they did invest
THOUSANDS of dollars getting their college degrees and teachers license, passing all the necessary tests to obtain the RIGHT to teach in our schools. (PS...I have my teaching license. I would rather be staying home with my kids and building a direct sales business than working in that profession right now). So why does paying for college and licensing exams so that teachers can get poor paying jobs, some with low job security, not bother you and cause the same disdain you likely feel towards direct sellers? I got distracted. The teachers have administrative staff. Deans. Vice-Principals. Data Specialists. Principals. Super Intendants. All of whom have likely been around longer....are better trained....have more schooling (which they paid for) and are making bigger salaries. PYRAMID???
If you look at just about ANY business or organization structure, you will see this same "pyramid". It doesn't mean the business is fraudulent or the organization is bunk.
It just means that there is an ORDER to things. Those who overcome obstacles. Work hard. Stick around. End up putting the time and work necessary into reaching the highest levels of success in their field.
But WAIT.
Am I saying that there's no such thing as a Pyramid or Ponzi Scheme??? No WAY. There's real fraudulent activity (especially going on online) everyday that you DO need to be vigilant for. But take a moment and get educated on what those actually look like before you assign the rightful disdain for fraudulent businesses that are ripping off people all around the world, to your friends and loved ones who are working in direct sales.
So HISTORY lesson time. Hopefully you know that pyramid schemes are illegal. Like federally regulated, illegal. There's this agency called the Federal Trade Commission that was established by congress in 1914 with the core function of ensuring that free markets work. They have a Consumer Protection Bureau, an Economics bureau and a Competition Bureau. With the exception of a few areas like air travel and insurance, they have broad law enforcement authority over virtually every sector in our economy (
I'll site my sources at the end). But the FTC isn't the only agency on the look out for pyramid schemes....add to that list The Securities and Exchange Commission, The U.S Department of Justice, the FBI and the U.S Postal Inspection Service.
They all prosecute pyramid schemes criminally.
They also have very specific standards that classify a business as a pyramid scheme. I'll share them with you. They do come in MANY different forms, and sometimes can be very good at hiding their real structure, so make sure you look for these key points when deciding if something is or isn't a pyramid scheme, especially if you're considering partnering with them.
- Your income is based mainly on the number of people you recruit, and the money those new recruits pay to join the company — not on the sales of products to consumers
- You’re required to buy lots of inventory
- You’re forced to buy other things you don’t want or need just to stay in good standing with the company
Here's my way of rewording that: A pyramid scheme is recruiting driven, not product driven, and definitely not consumer driven. They may sell a product, but if MOST of that product is being purchased or "consumed" by it's own distributors, then they may be a pyramid scheme. It is ILLEGAL for a company to pay you for recruiting. If you make an actual dollar amount for every distributor you bring into the company, regardless of whether they do ANYTHING within the company, your company is not in line with legal practices. (It is NOT illegal, or unethical, to make a small commission percentage on the sales of those you train and mentor in a business....please stop acting like it is.) If, as a distributor, you have quotas of product that you are required to purchase on autoship (and may or may not actually consume or sell), your company may not be in line with legal practices. Additionally, if your company is charging highly exorbitant prices for it's products, you might be dealing with a pyramid scheme. Exorbitant pricing sets the back drop for distributors to have garages full of inventory with no end consumer, that they have purchased to maintain a good standing with the company, but do not have enough consumers who actually want to purchase said products at those prices.
The Federal Trade Commission breaks pyramid schemes down to this ONE primary characteristic that is involved in EVERY pyramid scheme, "They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public."
You might be totally bored by now, but stay with me for one more minute. (PS...Ponzi schemes are a whole different beast that doesn't involve a product at all. Do some research. I literally had a friend at my kitchen table say to me that all direct sales are Ponzi schemes. It was insulting and inaccurate).
Now I want to say this. I GET IT!! I get why people bunch direct sales into the umbrella of pyramid schemes. Here's why I think they do:
1. They don't like that you have to invest ANYTHING before making a profit, even though most direct sales companies are selling a kit full of reduced price products to help a new consultant launch their business. (see my comments above about investing in college and other business licensure for my thoughts there)
2. They think it's wrong that you make more money based on the number of people that you train and mentor in the company, because you make a commission on their sales. (I also addressed this briefly earlier, but I'd love to talk to anyone interested about how this is the structure of all businesses. And those who aren't good at mentoring are not reaping big rewards.)
3. They assume all direct sales companies are selling a "Get Rich Quick" mentality. I assure you. I am not. Damsel in Defense is not. Though I am amazed at the potential for income that is there, it is most certainly not a get rich quick scheme. Those advertising that, typically, have questionable practices.
4. They see that THE MAJORITY of people who start direct sales businesses quit within the first year, and those who made bad choices or worked for companies with questionable policies, may have lost money. This is absolutely true. But consider this. Out of the MILLIONS of Americans who invest in a gym membership every year....how many actually keep working out and lose weight?! I don't have a stat there, but I'm guessing the MAJORITY of people paying for a gym membership aren't actually going to the gym often and putting in the needed work to lose weight. Or they hit it hard for about 2 months and get mad because they didn't lose 50 pounds immediately and decide to try something else. Sound familiar? Is the gym fraudulent because some people (most people) sign up and don't actually work out? This is your logic here. (There are indeed schemes out there that force people to buy large quantities of products and business supplies, etc with enrollment. I would be weary of those. Damsel in Defense is not one of those). But this is true of the nature of direct sales....so I get that some people see that 'trend' as lesser...but it is not fraudulent. In fact, I've come to respect the equal opportunity for success that direct sales offers more than almost any other field. The fact that most won't work or persevere to get to that point does not make it any less obtainable. I would have a real problem if I thought I was enrolling people who were destined by the nature of the industry to lose money when they joined me in my work. I wouldn't work for a company structured like that. I train all my new recruits and downline to never OVER invest. They should be making money when they get paid. Not recouping losses.
5. They're ANNOYED by friends spamming them and constantly trying to sell and recruit them to things. I agree. It's annoying. I bet it happens to me more than you. Don't give your attention to people who are using business practices that are annoying. But don't call them pyramid schemes solely because you are annoyed they exist. Our company teaches us how to be appropriate and respectful of our consumers. Offering a solution where there is a need, not forcing it on those not asking. Even in a company where this is the teaching, some will follow the example of those sending mass messages and adding everyone they know to private groups to be solicited. It's annoying. It's not illegal. If you don't like it, don't buy from those people. Their business will struggle and they'll eventually stop bugging you.
OK!! Here's my final thought. If you're a friend of mine, and you think I'm involved in something that could be detrimental for my life, finances or health....don't beat around the bush. SHARE YOUR CONCERN WITH ME. I would much rather have friends who tell me they think I'm working for a pyramid scheme and open up that dialog with me, than friends who say it veiled in whispers as if trying to shield me from public knowledge.
I hope this blog helped you gain an understanding that you didn't previously have. And I hope you use this principal in other areas of your life. If you have a bias against something and you don't know why, do some research. Don't just keep thinking poorly of others for no reason.
And if you're my friend, and you've learned something today, I hope it helps you be kinder to your direct selling friends....unless of course, this blog helped you see that their company is questionable....in that case, report the company to the Federal Trade Commission, and let them do their job.
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If you're reading this....you are a trooper. Here are some of the resources that helped me gain my understanding of this issue.
www.ftc.gov
https://www.consumer.ftc.gov/blog/spotting-illegal-pyramid-scheme-101
https://www.consumer.ftc.gov/blog/telltale-signs-pyramid-scheme
https://www.ftc.gov/public-statements/1998/05/pyramid-schemes