Breaking up with multi level marketing is harder than it sounds. By Claire Studdeth read by Pamela Lawrence. Let's say you have a product you want to sell. It could be anything, makeup, clothes, jewelry, cleaning products, meal kits, weight loss plans, maybe vitamins. Maybe you have a background in science and nutrition and have carefully crafted something to help people meet a known nutritional deficiency, or maybe you just want to make a buck. There are two ways to persuade people to buy your vitamins. You can sell them in a store and hope customers come to you, or you can take your vitamins to potential customers, either by going door to door or, as is more likely these days, selling them online. This is known as direct selling. Both of these methods are labor intensive and require significant upfront investment. If you opt for the store, you'll have to pay rent, stock shelves, and hire a clerk or two, with no guarantee that you'll attract enough customers to break even. If you opt for direct selling, you'll spend your day's ringing doorbells or posting tiktoks, usually with nothing to show for it. But there is a third way you could convince other people to do the work for you. In nineteen forty three, two middle aged men named William Castleberry and Lee Mitinger were working at a California aircraft factory when they hit upon this method. Castleberry had what today we'd call a side hustle, working as a door to door salesman for Neutralite, a line of alfalfa based vitamins created by a man named Carl Renborg. Castleberry had a hard time selling them. The problem was that nobody really wanted alfalfa vitamins. What if they pawned the vitamins off on other salesmen, presented them as a business opportunity, and let the other GUIDs do the work instead. They called this idea the Plan. Castleberry and Mitinger took their plan to Rendborg and in nineteen forty five entered into a business agreement to become Neutrolite's sole distributor. Then, instead of selling vitamins, they recruited salesmen. Back then, most people selling neutrolite were men. Their pitch was simple. A salesman would buy vitamins from Castleberry and Mightinger then sell them for a profit. He could also recruit other people to become salesmen and make a commission on their vitamin orders. Those recruits could bring in more people, and those people more people. Collectively, everyone coming in after the original salesman would be known as his down line, and he'd make a commission on all their orders. When a down line grew big enough, selling vitamins became almost beside the point, all a salesman needed to do was convinced those under him to keep placing orders with Neutrolite, the first multi level marketing company was born, Little Bosses Everywhere. How the Pyramid Scheme Shaped America by New York Magazine writer Bridget Reed Crown, May sixth is an admirably thorough and timely exploration of multi level marketing companies and a look at why, after decades of lawsuits and Federal Trade Commission regulations, MLMs remains so popular and legal even though only a small fraction of people who join them make anything resembling a living wage. Neutralite's core premise that each recruit should try to bring two friends, and they bring two friends is still how mL lambs operate today. This is also, as read repeatedly points out, the basic concept of a Ponzi scheme. Neutralites still exists today too. Two of the company's early independent distributors, as Neutralites salesmen were called Jay van Andel and Richard de Vos, left in nineteen fifty nine to stop at their own MLM Amway. In nineteen seventy two, Amway bought a controlling interest in Neutralite and later the whole company. Castlebury and Meidinger's plan worked, and soon Neutrolite's popularity exploded, going from fifty thousand dollars in so called retail sales in nineteen forty five to nearly twenty five million dollars in nineteen fifty four, the equivalent of two hundred ninety three million dollars today. But those retail sales were just wholesale orders placed by the sixty thousand people who signed up to sell Neutralite. The company didn't track how many of its Alfalva pills made their way into the medicine cabinets of actual customers. This disinterest in whether a product is successfully sold is common among MLMs. In nineteen seventy five, when the Federal Trade Commission filed a complaint against Amway for allegedly operating an endless chain scheme. It asked the company to produce data on what percentage of its sales were actual customers, only to find that the company didn't track it. The ftc ultimately lost nearly forty years later, Women's clothing MLM Lula Rowe neglected to track sales data when it first started. I know what I've sold, but I don't know if those have moved through into the customer, Lula Rowe CEO Mark Stidham said in a twenty seventeen deposition during a contract dispute with a software developer. Lula Rowe was later sued by Washington State alleging it was an illegal pyramid scheme. The company paid four point seven million dollars to settle the case. In a statement, the company noted that the settlement did not include an admission of wrongdoing. In twenty eighteen, I wrote a Bloomberg BusinessWeek cover story on Lula Rowe, the reporting for which was later used in the twenty twenty one Hulu documentary Lula Rich, writing about multi level marketing companies can be tricky. Their business models are often needlessly complicated, with compensation structures that involve discounts, refunds, and overrides all, forming a deliberately overwrought design. As Reid puts it, this is intentional. During the FTC's lawsuit against Amway in the nineteen seventies, even company executives and their attorneys struggled to explain their own business model, providing a protective layer of mystification. As one MLM historian tells Reid, Unfortunately, at times, little bosses can be similarly hard to parse. The book also glosses over the big question hanging over any investigation into MLMs. If it's so hard to make money selling these products, why do people still join and why do some of them persist for years even after they go into debt. One anonymous couple in the book, a husband and wife who live in Houston, estimated that they lost one hundred twenty thousand dollars during the six years they sold Amway products. At one point, they were so brogue that even with a young child to feed, they could afford only twenty dollars a week in groceries. Read acknowledges this blind spot what participants get out of it, Even the ones who feel they've been duped, scammed, and hurt at the end remained at a remove, she writes toward the end of the book. To address it, she sneaks into Mary Kay's annual convention, held in an upscale Dallas hotel, to see what all the fuss is about. But watching women give each other awards and line up to have their photographs taken next to Mary Kay's iconic pink cadillacs, the use of which Read notes only point one five percent of Mary Kay's sellers managed to earn, still doesn't provide a satisfactory answer. Mary Kay's convention only lasts three days. What happens when the magic wears off? Remaining in an MLM when you're losing money is irrational, and Read never fully explains why people choose to stay. In my experience reporting on MLMs, I've found that conversations with participants closely resembled those I've had with friends in bad relationships who aren't ready to break up. Sure, they're eager to talk about how terrible everything is, but the logical conclusion it's time to leave isn't what they want to hear. Maybe if they tried a little harder or changed their approach, MLM participants often told me they could turn things around. I'm not profitable yet, but I think you can set yourself apart from other sellers by just being a really good person. A Lula Row consultant in North Carolina once told me. When she said this, the company was bleeding consultants and facing several lawsuits. The sunk cost fallacy also runs rampant among MLM participants. It can be hard to cut your losses when you have twenty thousand dollars worth of cosmetics or leggings stacked in your garage. MLMs aren't in niche subculture. The industry trade group their Direct Selling Association, estimates that six point one million people are involved in direct selling, which includes MLMs, and that seventy four percent of those people are women. MLMs are particularly popular with mothers of young children, women in their thirties and forties whose salaries barely cover the cost of childcare, so they quit their jobs to stay home instead. Then they joined Mary Kay or Amway in the hopes of making at least some money. This was true in the nineteen sixties, when women primarily worked in low paying fields such as retail or clerical work, and it's still true today. Read quotes a tupperware executive who in nineteen eighty admitted that the company recruited women in underpaid, unappreciated professions such as nursing and teaching, who'd left their jobs and were looking for a new place to land. Forty five years later, the FTC still lists appealing to recruits desire to spend more time with their children or secure their family's financial future as a common MLM tactic. This over reliance on disenfranchised mothers is mentioned in the book, but the broader implications of a US economy and labor market in which millions of people opt out of the workforce to instead pester old high school acquaintances into buying scented candles online are mostly left on. Said. MLMs are often presented as a great business opportunity, but they are also a precarious one. There is no employer provided health insurance through an MLM, no paid leave, no sick days. Even the people savvy enough to build significant downlines and bring in big paychecks are often encouraged to reinvest that money into their business. When I wrote about Lula Roe, I interviewed a stay at home mom in Myrtle Beach, South Carolina, who at one point was making twelve thousand dollars a month from selling leggings, but she never saw much of that money. She just used it to buy more clothes. Then the lulaou craze ended and she was left with piles of inventory. Over the years, the FTC has periodically attempted to regulate MLMs, with moderate success. A nineteen seventy two ruling against the now defunct beauty products company Coscott found that while an MLM can compensate people for recruiting new sellers, it can't give them a cut of what those new recruits buy, essentially putting an end to Castlebury and Metinger's original plan. Many MLMs get around this by offering a bonus on their downline orders, making the difference between that and a commission an issue of semantics. A nineteen seventy nine ruling in favor of Amway, the FTC had accused the company of being an illegal pyramid scheme, but the judge ruled otherwise, rested largely on the fact that Amway required its distributors to sell it at least seventy percent of their products to actual customers before ordering more, a litmus test that other MLMs have since adopted, but Reid points out that at the time the lawsuit was filed, Amway didn't track how many sales were made to customers, so it was hard to know if this rule was followed. In nineteen eighty, Amway started tracking actual sales, but according to Little Bosses, the company is lax on enforcement. Reid interviewed multiple former Amway sellers who explained that they simply invented fake customers whenever they needed to place another order. An anonymous former employee in mary Kay's corporate office who worked on compliance told Reid that mary Kay didn't track a single consultant's product sales to customers. Amway and Mary Kay declined to comment for Reid's book. President Donald Trump has long approved of MLMs, even briefly licensing his name in two thousand and nine to a nutrition MLM called Ideal Health, which quickly renamed itself the Trump Network. During his first term, he chose Betsy DeVos, the daughter in law of Amway founder Richard DeVos, to run the Department of Education. The DeVos and Van Handel families are major donors to the Republican Party as well as to the Heritage Foundation. With the new administration, you can forget any aggressive action versus MLMs read quotes and Herbal Life shareholder writing an email to clients during Trump's first term. We are in a post regulatory world that appears to be even truer today. Like many federal agencies, the FTC has also experienced a severe reduction in staff, including two commissioners, making oversight more difficult. And last year's Supreme Court decision throwing out the so called Chevron Doctrine, which had granted judicial deference to regulatory agencies, means that existing FTC regulations could, in theory be thrown out in the future. In other words, now might be very good time to convince several thousand people to start selling vitamins.

Breaking up with multi level marketing is harder than it sounds. By Claire Studdeth read by Pamela Lawrence. Let's say you have a product you want to sell. It could be anything, makeup, clothes, jewelry, cleaning products, meal kits, weight loss plans, maybe vitamins. Maybe you have a background in science and nutrition and have carefully crafted something to help people meet a known nutritional deficiency, or maybe you just want to make a buck. There are two ways to persuade people to buy your vitamins. You can sell them in a store and hope customers come to you, or you can take your vitamins to potential customers, either by going door to door or, as is more likely these days, selling them online. This is known as direct selling. Both of these methods are labor intensive and require significant upfront investment. If you opt for the store, you'll have to pay rent, stock shelves, and hire a clerk or two, with no guarantee that you'll attract enough customers to break even. If you opt for direct selling, you'll spend your day's ringing doorbells or posting tiktoks, usually with nothing to show for it. But there is a third way you could convince other people to do the work for you. In nineteen forty three, two middle aged men named William Castleberry and Lee Mitinger were working at a California aircraft factory when they hit upon this method. Castleberry had what today we'd call a side hustle, working as a door to door salesman for Neutralite, a line of alfalfa based vitamins created by a man named Carl Renborg. Castleberry had a hard time selling them. The problem was that nobody really wanted alfalfa vitamins. What if they pawned the vitamins off on other salesmen, presented them as a business opportunity, and let the other GUIDs do the work instead. They called this idea the Plan. Castleberry and Mitinger took their plan to Rendborg and in nineteen forty five entered into a business agreement to become Neutrolite's sole distributor. Then, instead of selling vitamins, they recruited salesmen. Back then, most people selling neutrolite were men. Their pitch was simple. A salesman would buy vitamins from Castleberry and Mightinger then sell them for a profit. He could also recruit other people to become salesmen and make a commission on their vitamin orders. Those recruits could bring in more people, and those people more people. Collectively, everyone coming in after the original salesman would be known as his down line, and he'd make a commission on all their orders. When a down line grew big enough, selling vitamins became almost beside the point, all a salesman needed to do was convinced those under him to keep placing orders with Neutrolite, the first multi level marketing company was born, Little Bosses Everywhere. How the Pyramid Scheme Shaped America by New York Magazine writer Bridget Reed Crown, May sixth is an admirably thorough and timely exploration of multi level marketing companies and a look at why, after decades of lawsuits and Federal Trade Commission regulations, MLMs remains so popular and legal even though only a small fraction of people who join them make anything resembling a living wage. Neutralite's core premise that each recruit should try to bring two friends, and they bring two friends is still how mL lambs operate today. This is also, as read repeatedly points out, the basic concept of a Ponzi scheme. Neutralites still exists today too. Two of the company's early independent distributors, as Neutralites salesmen were called Jay van Andel and Richard de Vos, left in nineteen fifty nine to stop at their own MLM Amway. In nineteen seventy two, Amway bought a controlling interest in Neutralite and later the whole company. Castlebury and Meidinger's plan worked, and soon Neutrolite's popularity exploded, going from fifty thousand dollars in so called retail sales in nineteen forty five to nearly twenty five million dollars in nineteen fifty four, the equivalent of two hundred ninety three million dollars today. But those retail sales were just wholesale orders placed by the sixty thousand people who signed up to sell Neutralite. The company didn't track how many of its Alfalva pills made their way into the medicine cabinets of actual customers. This disinterest in whether a product is successfully sold is common among MLMs. In nineteen seventy five, when the Federal Trade Commission filed a complaint against Amway for allegedly operating an endless chain scheme. It asked the company to produce data on what percentage of its sales were actual customers, only to find that the company didn't track it. The ftc ultimately lost nearly forty years later, Women's clothing MLM Lula Rowe neglected to track sales data when it first started. I know what I've sold, but I don't know if those have moved through into the customer, Lula Rowe CEO Mark Stidham said in a twenty seventeen deposition during a contract dispute with a software developer. Lula Rowe was later sued by Washington State alleging it was an illegal pyramid scheme. The company paid four point seven million dollars to settle the case. In a statement, the company noted that the settlement did not include an admission of wrongdoing. In twenty eighteen, I wrote a Bloomberg BusinessWeek cover story on Lula Rowe, the reporting for which was later used in the twenty twenty one Hulu documentary Lula Rich, writing about multi level marketing companies can be tricky. Their business models are often needlessly complicated, with compensation structures that involve discounts, refunds, and overrides all, forming a deliberately overwrought design. As Reid puts it, this is intentional. During the FTC's lawsuit against Amway in the nineteen seventies, even company executives and their attorneys struggled to explain their own business model, providing a protective layer of mystification. As one MLM historian tells Reid, Unfortunately, at times, little bosses can be similarly hard to parse. The book also glosses over the big question hanging over any investigation into MLMs. If it's so hard to make money selling these products, why do people still join and why do some of them persist for years even after they go into debt. One anonymous couple in the book, a husband and wife who live in Houston, estimated that they lost one hundred twenty thousand dollars during the six years they sold Amway products. At one point, they were so brogue that even with a young child to feed, they could afford only twenty dollars a week in groceries. Read acknowledges this blind spot what participants get out of it, Even the ones who feel they've been duped, scammed, and hurt at the end remained at a remove, she writes toward the end of the book. To address it, she sneaks into Mary Kay's annual convention, held in an upscale Dallas hotel, to see what all the fuss is about. But watching women give each other awards and line up to have their photographs taken next to Mary Kay's iconic pink cadillacs, the use of which Read notes only point one five percent of Mary Kay's sellers managed to earn, still doesn't provide a satisfactory answer. Mary Kay's convention only lasts three days. What happens when the magic wears off? Remaining in an MLM when you're losing money is irrational, and Read never fully explains why people choose to stay. In my experience reporting on MLMs, I've found that conversations with participants closely resembled those I've had with friends in bad relationships who aren't ready to break up. Sure, they're eager to talk about how terrible everything is, but the logical conclusion it's time to leave isn't what they want to hear. Maybe if they tried a little harder or changed their approach, MLM participants often told me they could turn things around. I'm not profitable yet, but I think you can set yourself apart from other sellers by just being a really good person. A Lula Row consultant in North Carolina once told me. When she said this, the company was bleeding consultants and facing several lawsuits. The sunk cost fallacy also runs rampant among MLM participants. It can be hard to cut your losses when you have twenty thousand dollars worth of cosmetics or leggings stacked in your garage. MLMs aren't in niche subculture. The industry trade group their Direct Selling Association, estimates that six point one million people are involved in direct selling, which includes MLMs, and that seventy four percent of those people are women. MLMs are particularly popular with mothers of young children, women in their thirties and forties whose salaries barely cover the cost of childcare, so they quit their jobs to stay home instead. Then they joined Mary Kay or Amway in the hopes of making at least some money. This was true in the nineteen sixties, when women primarily worked in low paying fields such as retail or clerical work, and it's still true today. Read quotes a tupperware executive who in nineteen eighty admitted that the company recruited women in underpaid, unappreciated professions such as nursing and teaching, who'd left their jobs and were looking for a new place to land. Forty five years later, the FTC still lists appealing to recruits desire to spend more time with their children or secure their family's financial future as a common MLM tactic. This over reliance on disenfranchised mothers is mentioned in the book, but the broader implications of a US economy and labor market in which millions of people opt out of the workforce to instead pester old high school acquaintances into buying scented candles online are mostly left on. Said. MLMs are often presented as a great business opportunity, but they are also a precarious one. There is no employer provided health insurance through an MLM, no paid leave, no sick days. Even the people savvy enough to build significant downlines and bring in big paychecks are often encouraged to reinvest that money into their business. When I wrote about Lula Roe, I interviewed a stay at home mom in Myrtle Beach, South Carolina, who at one point was making twelve thousand dollars a month from selling leggings, but she never saw much of that money. She just used it to buy more clothes. Then the lulaou craze ended and she was left with piles of inventory. Over the years, the FTC has periodically attempted to regulate MLMs, with moderate success. A nineteen seventy two ruling against the now defunct beauty products company Coscott found that while an MLM can compensate people for recruiting new sellers, it can't give them a cut of what those new recruits buy, essentially putting an end to Castlebury and Metinger's original plan. Many MLMs get around this by offering a bonus on their downline orders, making the difference between that and a commission an issue of semantics. A nineteen seventy nine ruling in favor of Amway, the FTC had accused the company of being an illegal pyramid scheme, but the judge ruled otherwise, rested largely on the fact that Amway required its distributors to sell it at least seventy percent of their products to actual customers before ordering more, a litmus test that other MLMs have since adopted, but Reid points out that at the time the lawsuit was filed, Amway didn't track how many sales were made to customers, so it was hard to know if this rule was followed. In nineteen eighty, Amway started tracking actual sales, but according to Little Bosses, the company is lax on enforcement. Reid interviewed multiple former Amway sellers who explained that they simply invented fake customers whenever they needed to place another order. An anonymous former employee in mary Kay's corporate office who worked on compliance told Reid that mary Kay didn't track a single consultant's product sales to customers. Amway and Mary Kay declined to comment for Reid's book. President Donald Trump has long approved of MLMs, even briefly licensing his name in two thousand and nine to a nutrition MLM called Ideal Health, which quickly renamed itself the Trump Network. During his first term, he chose Betsy DeVos, the daughter in law of Amway founder Richard DeVos, to run the Department of Education. The DeVos and Van Handel families are major donors to the Republican Party as well as to the Heritage Foundation. With the new administration, you can forget any aggressive action versus MLMs read quotes and Herbal Life shareholder writing an email to clients during Trump's first term. We are in a post regulatory world that appears to be even truer today. Like many federal agencies, the FTC has also experienced a severe reduction in staff, including two commissioners, making oversight more difficult. And last year's Supreme Court decision throwing out the so called Chevron Doctrine, which had granted judicial deference to regulatory agencies, means that existing FTC regulations could, in theory be thrown out in the future. In other words, now might be very good time to convince several thousand people to start selling vitamins.