Multi-Level Marketing Schemes Are Not A Small Business, Karen

Karen and her “small business” took a hit this month when TikTok announced a ban on multi-level marketing schemes. Under the “frauds and scams” policy, TikTok includes multi-level marketing schemes along with Ponzi schemes, get-rich-quick scams, and phishing attempts. To your Facebook friend, Karen, this was a huge blow to recruiting attempts. 

Karen has probably told you that her small business has made her so much money. She makes her own hours, answers to no one, and is #BossBabe-ing all the way to the bank. “How is she able to do all this?” she hopes you ask in response to her invasive Facebook message. “Easy!” she answers. 

By then, Karen’s got you. 

What Are Multi-Level Marketing Schemes?

Multi-Level Marketing (MLM) is a strategy used by direct sales companies to sell products and services. They aggressively encourage existing members to promote and sell their offerings to other individuals and bring on new recruits into the business. 

A generation ago, MLMs were harmless Tupperware parties and teenagers selling CutCo knives door-to-door. Now, MLMs are harmful, predatory schemes that are cleverly disguised pyramid schemes that most often leave their victims in debt. 

Some notable MLM companies are: 

• Amway
• Avon
• Herbalife
• Mary Kay
• Tupperware
• NuSkin
• CutCo
• LuLaRoe
• Youngevity

Karen will almost certainly tell you, repeatedly, that her “small business” is NOT a pyramid scheme. She is emphatic about that, even a little offended you even brought that up. 

Difference Between MLM and Pyramid Schemes

Pyramid schemes are illegal, MLMs are not. The most notable difference is that pyramid schemes do not have a product while MLMs do. Avon sells makeup, Herbalife sells shakes, LuLaRoe sells leggings, and so on. 

Both pyramid schemes and MLMs rely far more on selling to salespeople underneath you rather than sales from the product itself. The reason why these schemes are so dangerous is that there is a limit to recruiting efforts.

Let’s say you are recruited into an MLM. You then recruit five people, who then recruit five people. Once you’ve done that thirteen times, you’ve reached the global human population. And that’s assuming that everyone in the world has nothing better to do than hawk leggings and protein shakes from their garage. 

“The thing that most people don’t realize is that no multi-level marketing company has ever-ever actually stopped. It’s one pulsating, giant, many-tentacled pyramid scheme out there. If one happens to fail, it only diffuses out. The top-level leaders move onto schemes. The down liners are moved into other schemes. 

The scheme will only migrate, transform. It’s a hydra.” – Robert Fitzpatrick, MLM Expert, LuLaRich

Doesn’t sound totally sustainable, does it? 

The MLM Boom of 2020

During the pandemic, people felt pretty desperate and hungry for a new type of employment. MLM companies all over the world became aggressive in their recruiting tactics. As a result, 7.7 million Americans worked for an MLM in 2020 – 13% more than in 2019. 

Wellness products were particularly popular. This makes sense considering that a pandemic was raging and everyone was scrambling for anything and everything that even smelled like good health. 

One company that stood out among the others was Black Oxygen Organics, or BOO. They promoted themselves as a cure-all wellness product. It was dirt. Literally. BOO sold people dirt and said it was a health product. 

Karen drank and bathed in dirt and told people it was curing her COVID. Thanks, Karen. 

BOO is now defunct, but not before it hurt plenty of people physically and financially. 

Legality Issues With Multi-Level Marketing Schemes

MLM companies are designed to make a profit for the owners/shareholders of the company and a few select individual participants at the top levels. According to the U.S. Federal Trade Commission (FTC), some MLM companies already constitute illegal pyramid schemes even by the narrower existing legislation, exploiting members of the organization. 

“Steer clear of multi-level marketing plans that pay commissions for recruiting new distributors. They’re actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people– except perhaps those at the very top of the pyramid – end up empty-handed.” 

You can read these guides on how to avoid or recover from these predatory multi-level marketing schemes. Don’t let Karen get you!