WEBVTT 00:00:00.000 --> 00:00:03.020 You know, there is a very specific modern anxiety 00:00:03.020 --> 00:00:05.820 that I don't think existed 20 years ago. It's 00:00:05.820 --> 00:00:08.919 a very particular feeling. It happens when your 00:00:08.919 --> 00:00:11.599 phone buzzes, you look down and you see a notification 00:00:11.599 --> 00:00:13.939 from someone you haven't spoken to since like 00:00:13.939 --> 00:00:16.739 10th grade biology class. Oh, I know this feeling. 00:00:17.850 --> 00:00:20.109 The dreaded blast from the past notification. 00:00:20.550 --> 00:00:22.949 Right. And for a split second, your brain goes 00:00:22.949 --> 00:00:25.170 to a nice place. You think, oh, look at that. 00:00:25.289 --> 00:00:27.670 Sarah from Homeroom is reaching out. She probably 00:00:27.670 --> 00:00:29.850 wants to reconnect, maybe catch up on the last 00:00:29.850 --> 00:00:32.429 15 years. Yeah. A genuine connection. And you 00:00:32.429 --> 00:00:35.609 open the message. And it starts with, hey, girl, 00:00:35.750 --> 00:00:38.130 I hope you're doing amazing. I was just looking 00:00:38.130 --> 00:00:39.969 at your profile. And I thought you had such a 00:00:39.969 --> 00:00:42.689 great vibe. And your stomach just drops. Because 00:00:42.689 --> 00:00:46.009 you know. You know immediately that Sarah does 00:00:46.009 --> 00:00:48.560 not care about your vibe. Sarah's not asking 00:00:48.560 --> 00:00:50.700 about your kids. Nope. Sarah's about to pitch 00:00:50.700 --> 00:00:52.359 you an opportunity. She wants you to be your 00:00:52.359 --> 00:00:54.679 own boss. Yes. Or she wants to sell you leggings. 00:00:54.960 --> 00:00:59.899 Or essential oils. Or a weight loss shake that 00:00:59.899 --> 00:01:03.659 tastes like chalk and ambition. Exactly. Welcome 00:01:03.659 --> 00:01:06.040 back to the Deep Dive. Today, we are tackling 00:01:06.040 --> 00:01:09.340 that feeling. We are diving into the world behind 00:01:09.340 --> 00:01:11.959 that Hey Hun message. We're talking about multi 00:01:11.959 --> 00:01:15.269 -level marketing. MLM. And I have to say, looking 00:01:15.269 --> 00:01:17.370 at the stack of research you've brought to the 00:01:17.370 --> 00:01:21.469 table today, this goes a lot deeper and gets 00:01:21.469 --> 00:01:24.390 a lot darker than just annoying Facebook messages. 00:01:24.609 --> 00:01:26.430 It really does. It's a topic that sits right 00:01:26.430 --> 00:01:28.629 at this weird, uncomfortable intersection of 00:01:28.629 --> 00:01:34.519 business, psychology, and... the law. And honestly, 00:01:34.719 --> 00:01:37.140 the hey -hen message is just the very tip of 00:01:37.140 --> 00:01:39.680 the iceberg. The tip of the iceberg, how? When 00:01:39.680 --> 00:01:41.700 you dig into the government investigations, the 00:01:41.700 --> 00:01:43.599 lawsuits and the financial disclosures we have 00:01:43.599 --> 00:01:46.640 here, you find a massive gap. A gap between what? 00:01:46.760 --> 00:01:49.120 A gap between the promise, the financial freedom, 00:01:49.260 --> 00:01:52.140 the yacht, the retiring your husband, the mathematical 00:01:52.140 --> 00:01:54.140 reality of what actually happens to the money. 00:01:54.260 --> 00:01:56.219 The promise versus the reality. That is really 00:01:56.219 --> 00:01:58.730 the hook for today, isn't it? It has to be. Because 00:01:58.730 --> 00:02:00.769 let's be honest, nobody signs up for these things 00:02:00.769 --> 00:02:02.810 saying, I can't wait to annoy my friends and 00:02:02.810 --> 00:02:06.890 lose $5 ,000. No, of course not. They sign up 00:02:06.890 --> 00:02:10.030 because they are being sold a dream. The pitch 00:02:10.030 --> 00:02:12.889 is almost never about the soap or the vitamins. 00:02:13.150 --> 00:02:15.009 Really? Not at all? I mean, if you look at the 00:02:15.009 --> 00:02:16.610 marketing materials we have from the Direct Selling 00:02:16.610 --> 00:02:19.090 Association and these individual companies, the 00:02:19.090 --> 00:02:21.710 product is often completely peripheral. So what's 00:02:21.710 --> 00:02:24.250 the real product then? The real product on offer 00:02:24.250 --> 00:02:28.210 is the lifestyle. It's... Fire your boss. It's 00:02:28.210 --> 00:02:30.750 time freedom. It is the lifestyle you deserve. 00:02:31.030 --> 00:02:33.110 Which is a powerful pitch. We all want that. 00:02:33.590 --> 00:02:37.090 But today we are going to be the buzzkills. We're 00:02:37.090 --> 00:02:38.909 going to look past the marketing pitch and look 00:02:38.909 --> 00:02:41.009 at the mechanics. Right. We've got a stack of 00:02:41.009 --> 00:02:44.030 sources here. We're talking FTC rulings, independent 00:02:44.030 --> 00:02:46.530 studies, government inquiries from the UK and 00:02:46.530 --> 00:02:49.590 industry data. And we are going to try to answer 00:02:49.590 --> 00:02:52.229 a few. basic questions like how does this model 00:02:52.229 --> 00:02:55.530 actually work yes and what are the real odds 00:02:55.530 --> 00:02:57.949 not the instagram odds the real odds of making 00:02:57.949 --> 00:03:02.150 money and the big one why if the numbers are 00:03:02.150 --> 00:03:04.610 as bad as they look yeah is this industry still 00:03:04.610 --> 00:03:07.250 legal exactly and i think we need a quick tone 00:03:07.250 --> 00:03:10.229 check before we dive in we aren't here to mock 00:03:10.229 --> 00:03:12.949 the people who join these things no absolutely 00:03:12.949 --> 00:03:15.569 not that's not the point Many people view this 00:03:15.569 --> 00:03:18.270 as legitimate entrepreneurship. They're trying 00:03:18.270 --> 00:03:20.030 to better their lives, support their families, 00:03:20.229 --> 00:03:22.689 maybe pay for dance lessons or a new car. They're 00:03:22.689 --> 00:03:25.909 chasing a dream. They are. But the source material 00:03:25.909 --> 00:03:28.009 we are working with today presents some very 00:03:28.009 --> 00:03:31.810 heavy criticism and some truly stark statistical 00:03:31.810 --> 00:03:35.569 data regarding financial losses. So we're going 00:03:35.569 --> 00:03:37.849 to look at this trickly through the lens of the 00:03:37.849 --> 00:03:40.409 available data. OK, so let's strip it down to 00:03:40.409 --> 00:03:43.430 the studs. What exactly is multi -level marketing? 00:03:43.550 --> 00:03:46.270 If I'm explaining this to my skeptical uncle 00:03:46.270 --> 00:03:47.990 at Thanksgiving who thinks everything on the 00:03:47.990 --> 00:03:50.490 internet is a scam, how do we define it? Okay, 00:03:50.550 --> 00:03:53.949 so at its core, MLM is a marketing strategy. 00:03:54.460 --> 00:03:57.240 But it's a specific kind. It's a system where 00:03:57.240 --> 00:03:59.639 a company decides we aren't going to hire a sales 00:03:59.639 --> 00:04:02.180 team and we aren't going to pay for TZ commercials 00:04:02.180 --> 00:04:04.740 or put our stuff in Walmart. Okay, so how do 00:04:04.740 --> 00:04:07.340 they move the product? No ads, no stores? These 00:04:07.340 --> 00:04:09.680 are non -salaried workforce. These are independent 00:04:09.680 --> 00:04:11.759 participants. Independent, so non -employees. 00:04:12.000 --> 00:04:14.860 Right. They don't get benefits. They don't get 00:04:14.860 --> 00:04:17.740 a guaranteed check. They have titles like associate, 00:04:18.060 --> 00:04:21.079 independent business owner, or affiliate. Which 00:04:21.079 --> 00:04:23.480 sounds very corporate and official. It's designed 00:04:23.480 --> 00:04:26.199 to. But the key differentiator, the thing that 00:04:26.199 --> 00:04:28.819 makes it MLM and not just, you know, selling 00:04:28.819 --> 00:04:31.339 knives door to door, is how they get paid. The 00:04:31.339 --> 00:04:34.079 compensation plan. Right. And this is where we 00:04:34.079 --> 00:04:36.540 have to talk about shapes. Because the earnings 00:04:36.540 --> 00:04:40.019 come from a pyramid -shaped or binary commission 00:04:40.019 --> 00:04:42.560 system. You said the P word. Pyramid -shaped. 00:04:42.800 --> 00:04:44.800 We are going to be using that word a lot today, 00:04:44.959 --> 00:04:48.579 I have a feeling. We are. But, strictly speaking, 00:04:48.759 --> 00:04:50.930 regarding the money. There are two streams. Okay, 00:04:51.009 --> 00:04:53.069 two streams. Stream one is the traditional one, 00:04:53.149 --> 00:04:55.350 direct sales. You have a bottle of vitamins. 00:04:55.670 --> 00:04:57.810 You sell it to your neighbor, Bob. You earn a 00:04:57.810 --> 00:04:59.970 commission. Simple. That sounds like normal retail. 00:05:00.230 --> 00:05:02.629 That's like Avon lady from the 1950s, right? 00:05:02.730 --> 00:05:05.250 Ding dong, here's your lipstick. Exactly. And 00:05:05.250 --> 00:05:07.550 if it stayed there, we wouldn't be doing a deep 00:05:07.550 --> 00:05:09.990 dive on it. That is just commerce. But there's 00:05:09.990 --> 00:05:12.389 a second stream. But it is the second stream 00:05:12.389 --> 00:05:16.089 that defines MLM. Participants also earn commissions 00:05:16.089 --> 00:05:18.670 based on the wholesale purchases made by other 00:05:18.670 --> 00:05:21.250 sellers they have recruited. This is the downline. 00:05:21.370 --> 00:05:24.589 Correct. So you recruit Bob. Bob recruits Sarah. 00:05:24.709 --> 00:05:27.310 Sarah recruits Mike. You are now earning a slice 00:05:27.310 --> 00:05:29.610 of everything Bob, Sarah, and Mike buy from the 00:05:29.610 --> 00:05:31.990 company. So their purchases generate a kickback 00:05:31.990 --> 00:05:34.769 for me. Exactly. You are incentivized to build 00:05:34.769 --> 00:05:37.490 this chain of distributors beneath you. So visually, 00:05:37.649 --> 00:05:40.350 like... Take a picture for everyone. I at the 00:05:40.350 --> 00:05:42.930 top, I'm the blue individual in the diagram they 00:05:42.930 --> 00:05:45.290 always show. And I'm getting paid off the red 00:05:45.290 --> 00:05:47.670 members below me and the people they bring in 00:05:47.670 --> 00:05:50.529 and so on. That is the visual often used in the 00:05:50.529 --> 00:05:53.129 explainer videos. And this is where the incentive 00:05:53.129 --> 00:05:55.410 structure gets really interesting. Because if 00:05:55.410 --> 00:05:57.589 you look at the compensation plans, and we have 00:05:57.589 --> 00:06:00.009 looked at a few for this deep dive, the system 00:06:00.009 --> 00:06:02.269 is designed to incentivize recruiting others 00:06:02.269 --> 00:06:05.949 just as much, if not more, than selling the actual 00:06:05.949 --> 00:06:08.990 product to a real customer. Why is that? Why 00:06:08.990 --> 00:06:11.569 not just sell the soap? It seems simpler. Because 00:06:11.569 --> 00:06:14.470 of leverage. Think about it. If I sell a bar 00:06:14.470 --> 00:06:17.449 of soap, I make, say, a dollar. But if I recruit 00:06:17.449 --> 00:06:20.370 10 people who each sell a bar of soap and I get 00:06:20.370 --> 00:06:23.250 50 cents from each of them, I made $5 without 00:06:23.250 --> 00:06:26.470 doing the selling myself. The system pushes you 00:06:26.470 --> 00:06:28.750 to build the tree, not to move the inventory. 00:06:29.089 --> 00:06:32.910 The focus shifts from sales to recruitment. Entirely. 00:06:33.160 --> 00:06:35.860 And that leads to a really common point of confusion 00:06:35.860 --> 00:06:39.899 that I want to clear up right now. Is MLM the 00:06:39.899 --> 00:06:44.060 same thing as direct selling? Yes. The terminology 00:06:44.060 --> 00:06:46.639 game. Because I hear these terms used interchangeably, 00:06:46.680 --> 00:06:48.779 but I also hear people in the industry get very 00:06:48.779 --> 00:06:51.160 defensive about the distinction. It is a murky 00:06:51.160 --> 00:06:53.300 area. It's a bit of a squares and rectangles 00:06:53.300 --> 00:06:56.920 situation. Some sources, like the author Dominique 00:06:56.920 --> 00:07:00.379 Zardel, describe network marketing and multilevel 00:07:00.379 --> 00:07:02.800 marketing as synonymous. Okay. They classify 00:07:02.800 --> 00:07:05.360 them both as a type of direct selling. So all 00:07:05.360 --> 00:07:07.560 MLM is direct selling, but not all direct selling 00:07:07.560 --> 00:07:10.040 is MLM. But the industry itself tries to separate 00:07:10.040 --> 00:07:13.240 them. Well, yes and no. Historically, it has 00:07:13.240 --> 00:07:15.079 shifted dramatically. I found this data point 00:07:15.079 --> 00:07:16.800 from the Direct Selling Association, the DSA, 00:07:16.980 --> 00:07:18.879 absolutely fascinating. This is the lobbying 00:07:18.879 --> 00:07:21.060 group for the industry, right? Their main trade 00:07:21.060 --> 00:07:26.199 group. The big one. In 1990, only 25 % of DSA 00:07:26.199 --> 00:07:29.480 members used the MLM business model. Only a quarter. 00:07:29.500 --> 00:07:31.920 So the vast majority were just... Selling stuff. 00:07:32.000 --> 00:07:34.180 The old -fashioned way. Right. Single -level 00:07:34.180 --> 00:07:36.660 marketing. You sell a vacuum, you get paid. End 00:07:36.660 --> 00:07:39.139 of transaction. It was companies like Kirby Vacuums 00:07:39.139 --> 00:07:41.540 or the old -school encyclopedia sellers. I remember 00:07:41.540 --> 00:07:44.839 those. But by 2009, get this, that number had 00:07:44.839 --> 00:07:49.600 jumped to 94 .2%. Wow. So in 20 years, the entire 00:07:49.600 --> 00:07:52.100 industry basically mutated. Effectively, yes. 00:07:52.279 --> 00:07:54.660 Nearly the entire direct -selling industry became 00:07:54.660 --> 00:07:57.819 MLM. You have companies like Avon, Tupperware 00:07:57.819 --> 00:07:59.560 names that are synonymous with that traditional 00:07:59.560 --> 00:08:02.240 door -to -door vibe. They eventually introduced 00:08:02.240 --> 00:08:04.660 multi -level compensation plans. Why the shift? 00:08:04.759 --> 00:08:06.959 Was it just more profitable? It's incredibly 00:08:06.959 --> 00:08:08.620 profitable for the company. Think about it from 00:08:08.620 --> 00:08:11.040 their perspective. Okay. If you are a corporation, 00:08:11.319 --> 00:08:13.839 you don't have to pay for a sales force. You 00:08:13.839 --> 00:08:16.120 don't have salaries, no health care, no 401k. 00:08:16.300 --> 00:08:18.699 Right. They're independent. In fact, your sales 00:08:18.699 --> 00:08:20.800 force pays you for the privilege of working. 00:08:21.240 --> 00:08:23.620 They buy the starter kit. They buy the inventory 00:08:23.620 --> 00:08:26.220 to meet their quotas. It shifts all the risk 00:08:26.220 --> 00:08:28.600 from the corporation to the individual. All of 00:08:28.600 --> 00:08:31.819 it. That is a brilliant business model for the 00:08:31.819 --> 00:08:34.080 corporation. And the people at the very, very 00:08:34.080 --> 00:08:36.460 top of the pyramid. Precisely. And the critics 00:08:36.460 --> 00:08:39.740 argue that this shift in terminology using words 00:08:39.740 --> 00:08:42.419 like interactive distribution or relationship 00:08:42.419 --> 00:08:44.840 marketing is really just a way to distance the 00:08:44.840 --> 00:08:47.220 model from the negative stigma of pyramid schemes. 00:08:47.539 --> 00:08:49.570 Well, let's talk about that stigma. Because you 00:08:49.570 --> 00:08:51.690 don't get a stigma like pyramid scheme without 00:08:51.690 --> 00:08:53.909 some fire behind the smoke. We need to talk about 00:08:53.909 --> 00:08:56.610 the economics of the opportunity. Yes. Let's 00:08:56.610 --> 00:08:58.330 look at the numbers. Because this is where the 00:08:58.330 --> 00:09:00.789 promise versus reality hook really comes into 00:09:00.789 --> 00:09:03.950 play. The promise is financial freedom. The promise 00:09:03.950 --> 00:09:07.090 is a Mercedes in the driveway. What do the stats 00:09:07.090 --> 00:09:09.490 actually say? The stats are, honestly, they are 00:09:09.490 --> 00:09:12.110 brutal. How brutal? According to a comprehensive 00:09:12.110 --> 00:09:15.929 study of 350 MLM companies in the United States, 00:09:16.070 --> 00:09:18.450 which was cited by the Consumer Awareness Institute. 00:09:19.019 --> 00:09:22.240 At least 99 % of recruits lose money. I want 00:09:22.240 --> 00:09:23.519 to stop you there. I want to make sure I heard 00:09:23.519 --> 00:09:27.720 that right. Not 9%, not 19, 99. At least 99%. 00:09:27.720 --> 00:09:31.200 One niner. So if I walk into a stadium with 100 00:09:31.200 --> 00:09:35.740 ,000 MLM participants, 99 ,000 of them are losing 00:09:35.740 --> 00:09:38.379 money. They're in the red. Yes. And when we say 00:09:38.379 --> 00:09:40.779 lose money, we don't just mean they didn't get 00:09:40.779 --> 00:09:43.519 rich. We mean they have less money in their bank 00:09:43.519 --> 00:09:46.100 account than when they started. After you factor 00:09:46.100 --> 00:09:49.419 in their costs, they are at a net loss. That 00:09:49.419 --> 00:09:52.720 is worse than gambling. It is. And we will get 00:09:52.720 --> 00:09:54.240 to that comparison in a minute because it's a 00:09:54.240 --> 00:09:56.799 really powerful one. But the key thing to understand 00:09:56.799 --> 00:10:00.100 is that this isn't just bad luck. It's not just, 00:10:00.179 --> 00:10:03.220 oh, most small businesses fail. No. This is a 00:10:03.220 --> 00:10:05.629 structural necessity of the model. What do you 00:10:05.629 --> 00:10:07.929 mean by structural necessity? Why can't everyone 00:10:07.929 --> 00:10:10.710 just win? Think about the geometry. Think about 00:10:10.710 --> 00:10:13.610 the money flow. For the person at the top, the 00:10:13.610 --> 00:10:15.490 diamond, the double platinum, whatever silly 00:10:15.490 --> 00:10:17.769 title they use, to make that million -dollar 00:10:17.769 --> 00:10:19.909 check, that money has to come from somewhere. 00:10:20.149 --> 00:10:22.149 It doesn't appear out of thin air. It flows up 00:10:22.149 --> 00:10:24.850 from the bottom, from the thousands or tens of 00:10:24.850 --> 00:10:27.450 thousands of people below them buying starter 00:10:27.450 --> 00:10:30.169 kits and products. So for one person to win big, 00:10:30.470 --> 00:10:33.210 a thousand people have to lose. Mathematically, 00:10:33.269 --> 00:10:35.970 yes. The largest proportion of participants must 00:10:35.970 --> 00:10:38.610 operate at a net loss to fund the commissions 00:10:38.610 --> 00:10:41.570 of the tiny fraction at the top. It's not a bug. 00:10:41.769 --> 00:10:44.570 It's a feature of the compensation plan. We have 00:10:44.570 --> 00:10:46.110 some specific examples in the source material 00:10:46.110 --> 00:10:48.490 that really illustrate this. I was reading through 00:10:48.490 --> 00:10:51.009 the notes on the Amway case in the UK. This wasn't 00:10:51.009 --> 00:10:52.950 just a blog post. This was a government investigation, 00:10:53.230 --> 00:10:55.690 right? This was a major legal battle. The UK 00:10:55.690 --> 00:10:57.509 government actually tried to shut them down. 00:10:57.870 --> 00:11:01.860 In 2008, a high court judge... Justice Norris 00:11:01.860 --> 00:11:04.620 issued a ruling that laid it all bare. And what 00:11:04.620 --> 00:11:06.700 did he find? He found that out of an independent 00:11:06.700 --> 00:11:09.980 business owner population of 33 ,000 people in 00:11:09.980 --> 00:11:13.759 the UK. 33 ,000 people. A small city. Only about 00:11:13.759 --> 00:11:17.679 90. That's 9 -0. 90 people made sufficient incomes 00:11:17.679 --> 00:11:19.820 to cover the costs of actively building their 00:11:19.820 --> 00:11:23.539 business. Wait. 90 people. Not 90%. Not 900. 00:11:23.779 --> 00:11:27.509 90 humans. 90 humans. Out of 33 ,000. That translates 00:11:27.509 --> 00:11:30.990 to a 99 .7 % loss rate. That is staggering. I 00:11:30.990 --> 00:11:32.570 mean, I don't know what to say to that. It gets 00:11:32.570 --> 00:11:35.169 worse. The investigation revealed that less than 00:11:35.169 --> 00:11:40.450 1 in 10 agents, less than 10%, sold a single 00:11:40.450 --> 00:11:43.710 item of the group's products to an actual retail 00:11:43.710 --> 00:11:46.490 customer. So nobody is selling the soap. Nobody 00:11:46.490 --> 00:11:48.269 is selling the soap. They're just recruiting 00:11:48.269 --> 00:11:50.250 other people to buy the soap from the company. 00:11:50.480 --> 00:11:52.200 And the company is the only one making money 00:11:52.200 --> 00:11:54.580 on the product sales. That's scale, yes. And 00:11:54.580 --> 00:11:57.039 it isn't just Amway. We have data on MonaVie 00:11:57.039 --> 00:11:59.799 as well. That's the acai berry juice, right? 00:11:59.919 --> 00:12:02.620 The miracle juice from the Amazon. Yes, the purple 00:12:02.620 --> 00:12:04.379 juice that was everywhere in the late 2000s. 00:12:05.159 --> 00:12:07.899 MonaVie's own 2007 income discanger statement, 00:12:08.200 --> 00:12:10.559 so this is their own data they published, showed 00:12:10.559 --> 00:12:13.419 that fewer than 1 % of participants... even qualified 00:12:13.419 --> 00:12:16.740 for commissions. So 99 % didn't even get a check. 00:12:16.879 --> 00:12:19.460 They paid to be in and got nothing back. Correct. 00:12:19.620 --> 00:12:22.559 And of that tiny 1 % who did qualify, only 10 00:12:22.559 --> 00:12:24.799 % of them made more than $100 a week. So let's 00:12:24.799 --> 00:12:27.399 do that math. That's 10 % of 1%. So one out of 00:12:27.399 --> 00:12:29.799 every 1 ,000 people made more than $100 a week 00:12:29.799 --> 00:12:33.340 before costs. Before costs. Gas money, maybe? 00:12:33.480 --> 00:12:35.299 And then look at Fortune high -tech marketing. 00:12:35.340 --> 00:12:36.919 This is another one that got into hot water. 00:12:37.100 --> 00:12:39.700 A big one. The FTC went after them. And their 00:12:39.700 --> 00:12:42.299 documents revealed that 30 % of its representatives 00:12:42.299 --> 00:12:44.419 made absolutely no money, and of the remaining 00:12:44.419 --> 00:12:49.120 70%, 54 % made only $93 a month. Again, gross 00:12:49.120 --> 00:12:53.000 income. And here is the kicker. That $93 a month, 00:12:53.059 --> 00:12:55.519 that's gross income, right? That's before you 00:12:55.519 --> 00:12:57.879 pay for anything. Exactly. And the costs are 00:12:57.879 --> 00:13:00.360 a huge part of this that people don't see up 00:13:00.360 --> 00:13:02.740 front. It's not just that you aren't making money. 00:13:03.019 --> 00:13:05.600 You are actively spending money to be there. 00:13:06.029 --> 00:13:08.350 This is the pay to play aspect. Walk me through 00:13:08.350 --> 00:13:11.250 the costs because the pitch is usually low startup 00:13:11.250 --> 00:13:14.669 cost, just $99 to start your business. The $99 00:13:14.669 --> 00:13:16.990 is just the entry fee, the ticket to the game. 00:13:17.070 --> 00:13:18.870 Okay. Then you have to buy the marketing kit. 00:13:18.970 --> 00:13:21.049 Then you have to buy the samples. Then you often 00:13:21.049 --> 00:13:23.049 have to pay for training seminars, conferences, 00:13:23.389 --> 00:13:25.669 websites, back office software. And the big one 00:13:25.669 --> 00:13:28.269 you mentioned, the monthly minimum. The monthly 00:13:28.269 --> 00:13:31.289 minimums. Many of these compensation plans have 00:13:31.289 --> 00:13:34.789 a rule. To stay active and be eligible to collect 00:13:34.789 --> 00:13:37.110 your commission check, you personally have to 00:13:37.110 --> 00:13:39.149 buy or sell a certain amount of product every 00:13:39.149 --> 00:13:42.009 month. Let's say it's $200. Okay, so I need to 00:13:42.009 --> 00:13:44.809 move $200 of vitamins. But what if you don't? 00:13:45.070 --> 00:13:48.169 What if you only sell $50 worth to your neighbors? 00:13:48.490 --> 00:13:50.129 Then I'm out of luck on my commissions for that 00:13:50.129 --> 00:13:53.990 month. Unless you buy the other $150 worth yourself. 00:13:54.370 --> 00:13:57.610 Oh. This is called garage qualifying. You buy 00:13:57.610 --> 00:13:59.950 the product yourself. just to stay qualified 00:13:59.950 --> 00:14:02.110 for a commission that might not even cover the 00:14:02.110 --> 00:14:04.409 cost of the product you just bought. You end 00:14:04.409 --> 00:14:07.230 up with a garage full of expiring vitamins. This 00:14:07.230 --> 00:14:10.190 is the internal consumption issue mentioned in 00:14:10.190 --> 00:14:12.990 the notes. Right. A major criticism of the model 00:14:12.990 --> 00:14:15.190 is that the distributors themselves are the primary 00:14:15.190 --> 00:14:17.529 customers. The money isn't coming from outside 00:14:17.529 --> 00:14:20.610 the system. It's just churning inside, moving 00:14:20.610 --> 00:14:23.210 from the lower levels up to the top. You mentioned 00:14:23.210 --> 00:14:25.720 gambling earlier. There is a comparison in the 00:14:25.720 --> 00:14:27.379 notes here that I think puts this into a really 00:14:27.379 --> 00:14:30.000 sharp perspective. Yes, this comes from the skeptic 00:14:30.000 --> 00:14:32.480 Brian Dunning. He crunched the numbers on Las 00:14:32.480 --> 00:14:34.860 Vegas. I love a good Vegas analogy. So what's 00:14:34.860 --> 00:14:37.240 the deal? So if you go to a casino and play the 00:14:37.240 --> 00:14:39.620 slots or roulette. The house has an edge. We 00:14:39.620 --> 00:14:41.659 all know that. The house always wins. Exactly. 00:14:42.259 --> 00:14:45.480 Roughly 97 % of gamblers will lose money in the 00:14:45.480 --> 00:14:48.419 long run. Okay, so a 97 % loss rate? That's bad. 00:14:48.740 --> 00:14:51.919 It's bad. But in some MLMs, as we just saw with 00:14:51.919 --> 00:14:56.139 Amway UK, the loss rate is 99 .7 % or even 99 00:14:56.139 --> 00:14:59.580 .9%. So statistically speaking, I am safer putting 00:14:59.580 --> 00:15:02.519 my life savings on Red 23 at a roulette table 00:15:02.519 --> 00:15:05.360 than I am joining an MLM. In terms of simply 00:15:05.360 --> 00:15:08.120 retaining your capital? The math suggests, yes, 00:15:08.320 --> 00:15:10.679 the casino appears to be the safer bet. That's 00:15:10.679 --> 00:15:12.860 incredible. And at least in a casino, you get 00:15:12.860 --> 00:15:14.539 free drinks while you lose your money. In an 00:15:14.539 --> 00:15:16.720 MLM, you alienate your friends and family while 00:15:16.720 --> 00:15:20.279 you lose your money. That is a devastating way 00:15:20.279 --> 00:15:22.639 to put it. But it brings us to the big legal 00:15:22.639 --> 00:15:25.559 question. If the numbers are this bad, and if 00:15:25.559 --> 00:15:27.519 the structure looks like a pyramid and acts like 00:15:27.519 --> 00:15:29.639 a pyramid, is it a pyramid scheme? Why aren't 00:15:29.639 --> 00:15:31.500 the police kicking down the doors? That is the 00:15:31.500 --> 00:15:34.159 billion -dollar question. And the answer is... 00:15:34.980 --> 00:15:37.559 Complicated. It's a very, very fine line. A legal 00:15:37.559 --> 00:15:39.720 gray area. A huge one. The U .S. Federal Trade 00:15:39.720 --> 00:15:42.340 Commission, the FTC, has a specific stance on 00:15:42.340 --> 00:15:44.159 this. What is the official stance? How do they 00:15:44.159 --> 00:15:46.240 define it? They say that if the money you make 00:15:46.240 --> 00:15:48.320 is based primarily on the number of recruits 00:15:48.320 --> 00:15:51.080 rather than sales to the public, it is an illegal 00:15:51.080 --> 00:15:54.299 pyramid scheme. OK, so that seems clear. If you 00:15:54.299 --> 00:15:57.620 are getting paid to recruit, it's illegal. But 00:15:57.620 --> 00:15:59.919 we just established that the compensation plans 00:15:59.919 --> 00:16:02.559 incentivize recruiting. So how do they get away 00:16:02.559 --> 00:16:04.740 with it? Because they sell a product. This is 00:16:04.740 --> 00:16:06.799 the legal shield. As long as there is a tube 00:16:06.799 --> 00:16:08.860 of lipstick or a bottle of vitamins changing 00:16:08.860 --> 00:16:11.659 hands, the companies argue that they aren't pyramid 00:16:11.659 --> 00:16:14.460 schemes. They're just multilevel marketing. So 00:16:14.460 --> 00:16:16.720 the product is like a get out of jail free card. 00:16:16.940 --> 00:16:20.039 In many ways, yes. It provides the veneer of 00:16:20.039 --> 00:16:22.779 a legitimate retail business. The key question 00:16:22.779 --> 00:16:25.779 for regulators is, is this product being sold 00:16:25.779 --> 00:16:28.559 to real customers or is it just being consumed 00:16:28.559 --> 00:16:30.600 inside the distributor network? And that must 00:16:30.600 --> 00:16:33.970 be incredibly hard to prove. Very. But the danger 00:16:33.970 --> 00:16:37.049 of pyramiding, as the FTC calls it, is the burn 00:16:37.049 --> 00:16:39.429 rate. The burn rate. Schemes collapse when no 00:16:39.429 --> 00:16:41.769 new distributors can be recruited. It's called 00:16:41.769 --> 00:16:44.570 market saturation. If I recruit five people and 00:16:44.570 --> 00:16:46.850 they each recruit five people and they each recruit 00:16:46.850 --> 00:16:49.570 five. The numbers get huge fast. Exponentially. 00:16:49.809 --> 00:16:51.950 Yeah. By the time you get to the 13th or 14th 00:16:51.950 --> 00:16:54.090 layer, you have exceeded the population of the 00:16:54.090 --> 00:16:56.750 earth. So eventually you run out of humans. Exactly. 00:16:56.809 --> 00:16:59.490 And when you run out of humans to recruit, the 00:16:59.490 --> 00:17:02.230 bottom falls out. The new recruits can't find 00:17:02.230 --> 00:17:04.230 anyone to sign up, so they quit and lose their 00:17:04.230 --> 00:17:06.349 investment. And the people just above them stop 00:17:06.349 --> 00:17:09.089 getting commissions, so they quit. It creates 00:17:09.089 --> 00:17:11.250 a collapse from the bottom up. But these companies 00:17:11.250 --> 00:17:14.009 operate openly. They're in all 50 states. They 00:17:14.009 --> 00:17:16.690 have naming rights on stadiums. How do they survive 00:17:16.690 --> 00:17:19.390 without collapsing? Well, many of them walk a 00:17:19.390 --> 00:17:22.089 legal tightrope. And there's a constant churn 00:17:22.089 --> 00:17:24.710 of new recruits replacing those who quit. But 00:17:24.710 --> 00:17:27.049 to understand how they stay legal, we have to 00:17:27.049 --> 00:17:29.549 look at the landmark cases. The biggest one. 00:17:29.960 --> 00:17:33.440 is arguably Henry Amway Core from 1979. This 00:17:33.440 --> 00:17:35.920 is the grandfather of all MLM cases. What happened 00:17:35.920 --> 00:17:39.400 there? The FTC investigated Amway. And in a decision 00:17:39.400 --> 00:17:41.779 that shaped the entire industry, they found that 00:17:41.779 --> 00:17:45.099 Amway was not illegal per se. Not illegal? But. 00:17:45.180 --> 00:17:47.079 And this is a big but. They were found guilty 00:17:47.079 --> 00:17:49.759 of price fixing and making exaggerated income 00:17:49.759 --> 00:17:52.380 claims. So false advertising about how much money 00:17:52.380 --> 00:17:55.380 people could make. Exactly. But the ruling essentially 00:17:55.380 --> 00:17:57.859 established that multilevel marketing could be 00:17:57.859 --> 00:18:00.680 a legitimate business model if certain retail 00:18:00.680 --> 00:18:03.500 sales rules were followed. Things like requiring 00:18:03.500 --> 00:18:06.299 distributors to sell to actual retail customers. 00:18:06.579 --> 00:18:09.759 So 1979 gave them the green light as long as 00:18:09.759 --> 00:18:11.880 they followed a certain playbook. It gave them 00:18:11.880 --> 00:18:15.400 a playbook. It created a legal path for MLM to 00:18:15.400 --> 00:18:17.980 exist. But not every company follows the playbook. 00:18:18.039 --> 00:18:19.440 Right. Let's talk about the ones that got caught. 00:18:19.849 --> 00:18:21.809 Fortune high -tech marketing, for example. You 00:18:21.809 --> 00:18:23.710 mentioned them earlier. Fortune high -tech is 00:18:23.710 --> 00:18:25.509 a great example of what happens when you cross 00:18:25.509 --> 00:18:28.170 the line. They were eventually declared a pyramid 00:18:28.170 --> 00:18:30.930 scheme by the FTC and several states. What were 00:18:30.930 --> 00:18:32.750 they doing wrong? The courts found that the vast 00:18:32.750 --> 00:18:34.410 majority of the money was coming from signing 00:18:34.410 --> 00:18:37.190 up new recruits, not from selling their products, 00:18:37.369 --> 00:18:39.509 which were things like satellite TV services 00:18:39.509 --> 00:18:43.049 and home security. So they failed the FTC's main 00:18:43.049 --> 00:18:46.240 test. They failed it spectacularly. The FTC stepped 00:18:46.240 --> 00:18:49.740 in, shut them down, and returned checks totaling 00:18:49.740 --> 00:18:52.940 more than $3 .7 million to the victims. That's 00:18:52.940 --> 00:18:55.119 a lot of money, but I bet it was a drop in the 00:18:55.119 --> 00:18:57.940 bucket compared to what people lost. Oh, absolutely. 00:18:58.079 --> 00:19:01.240 A tiny fraction. And then there is Vemma. The 00:19:01.240 --> 00:19:03.240 energy drink company? I remember seeing those 00:19:03.240 --> 00:19:06.259 cans everywhere on college campuses. Vemma Verve? 00:19:06.599 --> 00:19:09.000 That was their target market. College students. 00:19:09.099 --> 00:19:12.460 They pitched it as an alternative to a summer 00:19:12.460 --> 00:19:16.640 job. Don't go to class. Start a business. That's 00:19:16.640 --> 00:19:19.819 a tempting pitch for a 19 -year -old. Very. But 00:19:19.819 --> 00:19:23.420 the FTC went after them hard. They filed a complaint 00:19:23.420 --> 00:19:25.960 and got a temporary restraining order, essentially 00:19:25.960 --> 00:19:27.859 freezing their assets. And what was the outcome? 00:19:28.240 --> 00:19:30.359 They eventually settled, and the court order 00:19:30.359 --> 00:19:32.440 required Vemma to restructure their business 00:19:32.440 --> 00:19:34.839 completely. What did the order say? What did 00:19:34.839 --> 00:19:38.000 they have to change? This is crucial. It required 00:19:38.000 --> 00:19:40.359 that a majority of sales be made to the general 00:19:40.359 --> 00:19:43.589 public, not to the distributors themselves. And 00:19:43.589 --> 00:19:45.509 they were banned from making the kinds of income 00:19:45.509 --> 00:19:48.130 claims that got them in trouble. So it's an enforcement 00:19:48.130 --> 00:19:50.549 of that customer versus recruit distinction we 00:19:50.549 --> 00:19:52.190 talked about. You have to prove people outside 00:19:52.190 --> 00:19:54.650 your system are actually buying your stuff. That 00:19:54.650 --> 00:19:56.650 is the heart of it. It's interesting to look 00:19:56.650 --> 00:19:59.009 at how other countries handle this because the 00:19:59.009 --> 00:20:03.069 U .S. seems to have a legal until proven otherwise 00:20:03.069 --> 00:20:06.069 approach. It feels very libertarian. Let the 00:20:06.069 --> 00:20:08.509 buyer beware. It is. But looking at the international 00:20:08.509 --> 00:20:10.950 landscape, it is very different. Very different. 00:20:11.029 --> 00:20:13.029 If you want to see the polar opposite of the 00:20:13.029 --> 00:20:16.509 U .S. approach, look at China. What is the situation 00:20:16.509 --> 00:20:18.950 in China? Multi -level marketing, as we know 00:20:18.950 --> 00:20:22.130 it, is strictly banned there. A total ban, like 00:20:22.130 --> 00:20:25.289 no Amway, no Herbalife. How does it work? Well, 00:20:25.410 --> 00:20:28.529 it's complicated. The practice itself, the multilevel 00:20:28.529 --> 00:20:31.869 payment structure, was prohibited in 1998. The 00:20:31.869 --> 00:20:34.069 government cited social, economic, and taxation 00:20:34.069 --> 00:20:37.150 issues. They essentially viewed it as disruptive 00:20:37.150 --> 00:20:39.609 to the social order. Disruptive to the social 00:20:39.609 --> 00:20:42.150 order. That sounds intense. They followed up 00:20:42.150 --> 00:20:45.039 with further regulations in 2005. specifically 00:20:45.039 --> 00:20:47.359 prohibiting the downline structure in chain recruitment. 00:20:47.519 --> 00:20:49.319 So you can't have that tree of compensation. 00:20:49.720 --> 00:20:52.140 Correct. Clause 3 of Chapter 2 of the regulation 00:20:52.140 --> 00:20:55.539 explicitly states that having downlines and paying 00:20:55.539 --> 00:20:59.019 based on recruitment is illegal. But I know for 00:20:59.019 --> 00:21:02.220 a fact that big MLM companies operate in China. 00:21:02.400 --> 00:21:04.759 I've seen the sales figures. It's a huge market 00:21:04.759 --> 00:21:07.299 for them. How do they do that if it's illegal? 00:21:07.740 --> 00:21:11.660 They adapt. Or they try to circumvent. Some companies 00:21:11.660 --> 00:21:14.839 obtain direct sales licenses, which are permitted 00:21:14.839 --> 00:21:17.240 but strictly regulated. How are those different? 00:21:17.539 --> 00:21:20.279 These are only allowed for specific product categories 00:21:20.279 --> 00:21:23.920 like cosmetics, health food, and kitchen utensils. 00:21:24.000 --> 00:21:25.880 And crucially, they're supposed to operate on 00:21:25.880 --> 00:21:27.880 a single -level commission structure. So they 00:21:27.880 --> 00:21:30.599 have to strip out the MLM part to operate legally. 00:21:30.700 --> 00:21:32.440 They have to act like normal retail companies. 00:21:32.660 --> 00:21:35.099 Theoretically, yes. They're supposed to operate 00:21:35.099 --> 00:21:38.470 as single -level direct sellers. But sources 00:21:38.470 --> 00:21:41.170 suggest some sellers circumvent this by establishing 00:21:41.170 --> 00:21:43.589 bank accounts in Hong Kong, where the practice 00:21:43.589 --> 00:21:46.670 is legal, while recruiting on the mainland. It's 00:21:46.670 --> 00:21:48.670 a constant cat and mouse game between the regulators 00:21:48.670 --> 00:21:50.430 and the companies. It seems like governments 00:21:50.430 --> 00:21:52.650 everywhere are struggling to pin this jelly to 00:21:52.650 --> 00:21:55.750 the wall. They are. Bangladesh and Saudi Arabia 00:21:55.750 --> 00:21:59.720 have also banned or declared MLM illegal. And 00:21:59.720 --> 00:22:01.779 the Philippines has a system where they issue 00:22:01.779 --> 00:22:04.759 a seal of legitimacy for companies they deem 00:22:04.759 --> 00:22:07.119 are not pyramid schemes, though it's not mandatory. 00:22:07.640 --> 00:22:10.200 Saudi Arabia is interesting because their legal 00:22:10.200 --> 00:22:13.119 system is based on religious law. We should circle 00:22:13.119 --> 00:22:15.480 back to that. Yes. And we will touch on the religious 00:22:15.480 --> 00:22:17.440 reasoning there in a bit. But I want to pivot 00:22:17.440 --> 00:22:19.839 to the psychological aspect of this. OK. Because 00:22:19.839 --> 00:22:21.519 we've talked about the mass and the math says 00:22:21.519 --> 00:22:23.240 don't do it. We're talking about the law and 00:22:23.240 --> 00:22:25.940 the law says it's risky. But despite the bans, 00:22:25.960 --> 00:22:29.700 despite the 99 percent loss rates, people still 00:22:29.700 --> 00:22:33.539 join. Millions of people. Why? That is the million 00:22:33.539 --> 00:22:35.420 dollar question. If I told you, hey, come play 00:22:35.420 --> 00:22:37.480 this game, you have a 99 percent chance of losing 00:22:37.480 --> 00:22:40.119 your money, you'd walk away. But people don't 00:22:40.119 --> 00:22:42.700 walk away from MLMs. They run toward them. That 00:22:42.700 --> 00:22:44.779 is where we get into the psychology of the pitch. 00:22:45.119 --> 00:22:47.500 As we said at the start, the product is peripheral. 00:22:48.099 --> 00:22:51.160 The true product is hope. False hope, as one 00:22:51.160 --> 00:22:54.890 source put it. Yes. Roland Witzel, a former business 00:22:54.890 --> 00:22:57.710 professor who studied the industry, noted that 00:22:57.710 --> 00:23:00.910 the strongest motivational force today is false 00:23:00.910 --> 00:23:05.269 hope. The pitch sells the dream. It hits on pain 00:23:05.269 --> 00:23:09.769 points. Debt, dissatisfaction with work, the 00:23:09.769 --> 00:23:12.289 desire to be present for your kids. It weaponizes 00:23:12.289 --> 00:23:14.609 your insecurities. It finds what you're afraid 00:23:14.609 --> 00:23:17.829 of and offers a solution. It does. But critics 00:23:17.829 --> 00:23:19.650 and researchers have observed techniques that 00:23:19.650 --> 00:23:22.710 go beyond just clever salesmanship. They often 00:23:22.710 --> 00:23:24.970 describe them as cult -like. That is a strong 00:23:24.970 --> 00:23:27.410 word. We usually associate cults with compounds 00:23:27.410 --> 00:23:29.849 and charismatic leaders in robes. What kind of 00:23:29.849 --> 00:23:31.750 techniques are we talking about here? It's about 00:23:31.750 --> 00:23:34.630 control and belief. It starts with love bombing, 00:23:34.809 --> 00:23:37.309 building intense enthusiasm and loyalty. You 00:23:37.309 --> 00:23:38.869 walk into a seminar and everyone is cheering 00:23:38.869 --> 00:23:40.470 for you, hugging you, telling you how amazing 00:23:40.470 --> 00:23:42.410 you are. You feel like you belong. And we all 00:23:42.410 --> 00:23:44.650 crave belonging. That's a fundamental human need. 00:23:44.829 --> 00:23:47.869 Exactly. But then comes the flip side. They discourage 00:23:47.869 --> 00:23:50.069 critical thinking. If you question the system, 00:23:50.400 --> 00:23:52.440 If you ask about the average income, you are 00:23:52.440 --> 00:23:55.039 told you have a poverty mindset. You are told 00:23:55.039 --> 00:23:57.559 you are being negative. So if the business fails, 00:23:57.859 --> 00:24:00.140 it's not because the business model is flawed. 00:24:00.240 --> 00:24:03.440 It's because you are flawed. Precisely. It frames 00:24:03.440 --> 00:24:06.119 success in the business as a moral virtue and 00:24:06.119 --> 00:24:08.839 failure, as a personal lack of faith or effort. 00:24:09.119 --> 00:24:12.640 If you fail, it's not the system's fault. It's 00:24:12.640 --> 00:24:14.880 because you didn't want it enough. That is a 00:24:14.880 --> 00:24:17.400 very powerful psychological trap. It's a way 00:24:17.400 --> 00:24:20.440 of deflecting all criticism. Any negative outcome 00:24:20.440 --> 00:24:23.079 is your fault. It is. There's also what some 00:24:23.079 --> 00:24:25.240 researchers call the use of evangelical discourse. 00:24:25.599 --> 00:24:28.039 Using language that sounds religious, talking 00:24:28.039 --> 00:24:31.420 about blessings and manifesting success, it blurs 00:24:31.420 --> 00:24:33.539 the line between business and faith. And perhaps 00:24:33.539 --> 00:24:36.240 the most insidious part is how it exploits personal 00:24:36.240 --> 00:24:38.720 relationships. Monetizing friendship. That's 00:24:38.720 --> 00:24:41.200 the core of it. Yeah. We joked about the hey 00:24:41.200 --> 00:24:43.259 hun message earlier, but it really is tragic. 00:24:43.359 --> 00:24:45.079 You are encouraged to view every interaction 00:24:45.079 --> 00:24:47.700 as a sales opportunity. Your friends, your family, 00:24:47.759 --> 00:24:49.700 your neighbors, they all become prospects. They 00:24:49.700 --> 00:24:52.019 call it your warm market. And think about what 00:24:52.019 --> 00:24:54.319 that does to your social life. If every time 00:24:54.319 --> 00:24:57.700 I see you, I try to sell you shampoo, eventually 00:24:57.700 --> 00:25:00.880 you start inviting me to dinner. And then when 00:25:00.880 --> 00:25:03.220 your outside friends pull away, who is left? 00:25:03.460 --> 00:25:07.200 The people inside the MLM? You're upline and 00:25:07.200 --> 00:25:09.700 you're downline. They become your new family. 00:25:09.819 --> 00:25:11.839 They're the only ones who get it. So if you think 00:25:11.839 --> 00:25:14.000 about leaving the business. You risk losing your 00:25:14.000 --> 00:25:16.960 entire social network. It creates this intense 00:25:16.960 --> 00:25:19.660 isolation that keeps people trapped, even when 00:25:19.660 --> 00:25:21.549 they know they're losing money. Speaking of the 00:25:21.549 --> 00:25:24.230 intersection of culture and MLM, we have to talk 00:25:24.230 --> 00:25:27.450 about a specific geography. We have to talk about 00:25:27.450 --> 00:25:30.529 Utah. The Utah phenomenon. It is fascinating. 00:25:30.809 --> 00:25:32.589 I didn't realize this until I saw the data, but 00:25:32.589 --> 00:25:35.609 Utah is basically the Silicon Valley of MLMs. 00:25:35.730 --> 00:25:38.430 It is. It has been named the unofficial world 00:25:38.430 --> 00:25:40.950 capital of multi -level marketing. Is that just 00:25:40.950 --> 00:25:43.210 anecdotal or is there data there? It is backed 00:25:43.210 --> 00:25:46.069 by numbers. Utah is home to at least 15 major 00:25:46.069 --> 00:25:49.630 MLMs companies like Nu Skin, doTERRA, Young Living. 00:25:49.769 --> 00:25:52.210 It has more MLMs per capita than any other state. 00:25:52.430 --> 00:25:54.990 Why Utah? Is it the altitude, the mountains? 00:25:55.069 --> 00:25:57.589 What's the connection? Scholars have linked this 00:25:57.589 --> 00:26:00.750 directly to the demographics. specifically the 00:26:00.750 --> 00:26:02.549 high population of members of the Church of Jesus 00:26:02.549 --> 00:26:04.690 Christ of Latter -day Saints. Now, we need to 00:26:04.690 --> 00:26:06.569 be careful here. We aren't saying the religion 00:26:06.569 --> 00:26:10.730 causes the MLM, but there is a cultural overlap, 00:26:10.849 --> 00:26:14.069 right? A sort of feral ground. Exactly. It's 00:26:14.069 --> 00:26:17.089 about cultural fit. There are several factors 00:26:17.089 --> 00:26:19.849 at play. First, think about the missionary experience. 00:26:20.329 --> 00:26:22.549 Right. Many members go on missions when they 00:26:22.549 --> 00:26:25.019 are young. For two years. They learn to knock 00:26:25.019 --> 00:26:28.160 on doors, handle rejection, and present a message 00:26:28.160 --> 00:26:30.039 with conviction. Those are straight -up sales 00:26:30.039 --> 00:26:33.119 skills. That's sales training 101. They are transferable 00:26:33.119 --> 00:26:36.339 skills. If you can sell a theology to a stranger 00:26:36.339 --> 00:26:38.460 in a foreign country, you can definitely sell 00:26:38.460 --> 00:26:40.579 a vitamin supplement to your neighbor. That makes 00:26:40.579 --> 00:26:42.000 a lot of sense. What else? Then you have the 00:26:42.000 --> 00:26:43.759 philosophy of self -reliance, which is a core 00:26:43.759 --> 00:26:46.940 tenet. It aligns perfectly with be your own boss 00:26:46.940 --> 00:26:49.759 pitch of MLM. And there is the factor of tight 00:26:49.759 --> 00:26:52.599 knit trust networks within the community. A huge 00:26:52.599 --> 00:26:54.940 factor. If Brother Jones from the war tells me 00:26:54.940 --> 00:26:57.480 this is a good opportunity, I trust Brother Jones 00:26:57.480 --> 00:27:01.259 more than I trust a TV commercial. Exactly. Affinity 00:27:01.259 --> 00:27:03.660 fraud is the dark side of this. But even with 00:27:03.660 --> 00:27:06.259 legitimate companies, that trust accelerates 00:27:06.259 --> 00:27:08.539 the spread. If someone you know and trust from 00:27:08.539 --> 00:27:10.700 church recommends something, you're more likely 00:27:10.700 --> 00:27:13.509 to listen. And the sources mention traditional 00:27:13.509 --> 00:27:15.549 gender roles as well as a contributing factor. 00:27:15.829 --> 00:27:18.609 Yes. In communities where there is a strong cultural 00:27:18.609 --> 00:27:20.890 preference for mothers to stay home with children, 00:27:21.430 --> 00:27:23.990 MLM is often pitched as the perfect solution. 00:27:24.569 --> 00:27:27.269 Make a full -time income on part -time hours 00:27:27.269 --> 00:27:29.670 while the baby naps. Which brings us back to 00:27:29.670 --> 00:27:32.509 that gap between promise and reality. Because 00:27:32.509 --> 00:27:35.529 as we know, it's rarely part -time hours and 00:27:35.529 --> 00:27:37.930 it's almost never a full -time income. And the 00:27:37.930 --> 00:27:40.369 locals know this. The notes mentioned a pretty 00:27:40.369 --> 00:27:42.750 biting acronym used by some people in Utah. Oh, 00:27:42.869 --> 00:27:44.809 I saw this. It made me laugh, but it also made 00:27:44.809 --> 00:27:47.029 me wince. Yes, the source notes that the initials 00:27:47.029 --> 00:27:49.990 MLM have been sardonically reinterpreted by some 00:27:49.990 --> 00:27:53.210 as Mormons losing money. Ouch, that's rough. 00:27:53.509 --> 00:27:55.789 It is, but it highlights that even within the 00:27:55.789 --> 00:27:57.849 community where these companies thrive, there 00:27:57.849 --> 00:28:00.769 is a very real awareness of the financial pitfalls. 00:28:01.230 --> 00:28:04.309 We touched briefly on Saudi Arabia banning MLM 00:28:04.309 --> 00:28:06.069 earlier, but I want to go back to the religious 00:28:06.069 --> 00:28:09.369 views, specifically in Islam, because while Utah 00:28:09.369 --> 00:28:12.849 culture seems to, in some ways, embrace it, Islamic 00:28:12.849 --> 00:28:15.890 finance has a very different take. A very different 00:28:15.890 --> 00:28:18.009 take. This is a significant part of the global 00:28:18.009 --> 00:28:21.230 picture. Many Islamic jurists and religious bodies 00:28:21.230 --> 00:28:25.630 consider MLM to be haram or prohibited. And what 00:28:25.630 --> 00:28:27.869 is the theological reasoning? Is it just because 00:28:27.869 --> 00:28:30.940 people lose money? It's deeper than that. It 00:28:30.940 --> 00:28:33.400 centers on a few core principles of Islamic finance. 00:28:33.619 --> 00:28:37.140 First, deception. The pitch, the promise of easy 00:28:37.140 --> 00:28:39.859 wealth, is viewed as misleading. Okay, so it's 00:28:39.859 --> 00:28:42.599 dishonest. Yes. Second, it's considered to resemble 00:28:42.599 --> 00:28:45.460 riba, which refers to interest or usury. And 00:28:45.460 --> 00:28:47.000 third, and this is maybe the most important one, 00:28:47.220 --> 00:28:50.039 garrar. Garrar. What does that mean? It means 00:28:50.039 --> 00:28:53.279 excessive uncertainty or risk. In Islamic finance, 00:28:53.480 --> 00:28:55.279 transactions need to be clear and transparent. 00:28:55.440 --> 00:28:58.039 You pay for a product, you get a product. But 00:28:58.039 --> 00:29:00.480 in MLM, the participant is paying money for a 00:29:00.480 --> 00:29:02.440 venture where the outcome is not just uncertain, 00:29:02.579 --> 00:29:05.319 but statistically highly unlikely. So because 00:29:05.319 --> 00:29:08.019 the odds are so stacked against you, that 99 00:29:08.019 --> 00:29:10.779 % loss rate, it's viewed as a form of gambling. 00:29:10.980 --> 00:29:13.559 Exactly. It is viewed as a form of gambling or 00:29:13.559 --> 00:29:16.930 speculation rather than legitimate trade. They 00:29:16.930 --> 00:29:19.109 argue that the transaction is fundamentally flawed 00:29:19.109 --> 00:29:21.829 because the participant is paying for the right 00:29:21.829 --> 00:29:24.630 to sell and recruit rather than just trading 00:29:24.630 --> 00:29:26.910 goods for a fair price. It is fascinating to 00:29:26.910 --> 00:29:29.130 see how different legal and cultural systems 00:29:29.130 --> 00:29:32.069 interpret the exact same business model. It really 00:29:32.069 --> 00:29:34.690 is. In the U .S., it is legal until you cross 00:29:34.690 --> 00:29:38.130 a specific line. In China, it is socially disruptive 00:29:38.130 --> 00:29:41.490 and banned. In Islamic finance, it is religiously 00:29:41.490 --> 00:29:44.359 prohibited deception. It really highlights that 00:29:44.359 --> 00:29:46.220 while the mechanics, the blue person recruiting 00:29:46.220 --> 00:29:48.740 the red person, are the same everywhere, the 00:29:48.740 --> 00:29:50.539 interpretation of what that means for society 00:29:50.539 --> 00:29:53.380 and for the individual varies wildly. So we have 00:29:53.380 --> 00:29:55.940 covered the structure, the economics, the legal 00:29:55.940 --> 00:29:58.940 battles, and the cultural impact. It is a massive 00:29:58.940 --> 00:30:01.880 industry generating billions in revenue. Billions. 00:30:02.240 --> 00:30:04.599 But as we have learned, that revenue is generated 00:30:04.599 --> 00:30:07.539 on the backs of a workforce where 99 % are losing 00:30:07.539 --> 00:30:10.579 money. And that is the central tension of this 00:30:10.579 --> 00:30:13.619 whole deep dive, isn't it? It is a business model 00:30:13.619 --> 00:30:17.059 that sells prosperity, but structurally relies 00:30:17.059 --> 00:30:20.019 on the majority failing. And it has evolved. 00:30:20.279 --> 00:30:22.960 Remember, this started with people selling perfume 00:30:22.960 --> 00:30:25.440 and vacuum cleaners door to door. It was a simple 00:30:25.440 --> 00:30:29.220 exchange of goods, but it has mutated into selling 00:30:29.220 --> 00:30:32.380 the business of selling itself. And that evolution 00:30:32.380 --> 00:30:35.240 is key. When the product becomes the opportunity, 00:30:35.759 --> 00:30:38.539 the dynamics change completely. Which brings 00:30:38.539 --> 00:30:41.809 us to our final thought for this deep dive. We 00:30:41.809 --> 00:30:43.430 always like to leave you with something to chew 00:30:43.430 --> 00:30:46.089 on, a little brain food for the road. So here 00:30:46.089 --> 00:30:49.049 is the thought. If we accept the data and the 00:30:49.049 --> 00:30:51.029 data from government sources and the companies 00:30:51.029 --> 00:30:53.670 themselves, it's pretty clear that distributors 00:30:53.670 --> 00:30:56.069 are often the primary purchasers of the product. 00:30:56.289 --> 00:30:58.769 Buying starter kits, garage qualifying, monthly 00:30:58.769 --> 00:31:01.470 minimums, all of that. If they are the ones buying 00:31:01.470 --> 00:31:03.369 the stuff, we have to ask a fundamental question. 00:31:03.630 --> 00:31:06.480 Who is the customer? Exactly. If the primary 00:31:06.480 --> 00:31:09.559 customer of an MLM is the distributor and the 00:31:09.559 --> 00:31:11.660 primary product being sold is the opportunity 00:31:11.660 --> 00:31:15.359 rather than the shampoo or the juice, does the 00:31:15.359 --> 00:31:17.500 business model actually rely on the physical 00:31:17.500 --> 00:31:20.460 product at all? Or is the product just a legal 00:31:20.460 --> 00:31:23.640 prop, a MacGuffin, if you will? Is it just there 00:31:23.640 --> 00:31:26.660 to satisfy the FTC while the real business is 00:31:26.660 --> 00:31:28.859 simply the transfer of money from the people 00:31:28.859 --> 00:31:30.960 at the bottom to the people at the top? It changes 00:31:30.960 --> 00:31:33.400 how you look at that next Hey Hunt message, doesn't 00:31:33.400 --> 00:31:35.769 it? When you are offered an opportunity, maybe 00:31:35.769 --> 00:31:38.009 the first question to ask yourself is, is the 00:31:38.009 --> 00:31:40.470 revenue coming from a customer or is it coming 00:31:40.470 --> 00:31:42.769 from a recruit? That is the question that defines 00:31:42.769 --> 00:31:45.529 the line between a business and a scheme. That 00:31:45.529 --> 00:31:48.349 is all for this deep dive. Thanks for listening. 00:31:48.410 --> 00:31:50.430 And seriously, check out the show notes if you 00:31:50.430 --> 00:31:52.470 want to see the graphs on that Amway data. It 00:31:52.470 --> 00:31:54.710 will blow your mind. It really will. We will 00:31:54.710 --> 00:31:56.109 catch you on the next one. Goodbye.