Pyramid Schemes & Young People

The average young person entering the workforce on a full-time basis is watching their parents’ move towards retirement. For some of us, this can be a depressing thing to watch. Our parents may have spent their entire careers making someone else wealthy. They may be getting pushed out of their organization by some young-gun exec, despite 25 years of service. They may be months away from their planned retirement age — but their investment portfolio is saying they are years away from a comfortable standard of living.

It is sad. It is infuriating. It isn’t fair.

For this reason, as many young people start their careers, they are looking for something different. Not to sound cliché, but we don’t want to “end up like our parents” as they enter retirement. Our pursuit of this different path is emotionally-charged… And who doesn’t have a story about a time they made a rash or uninformed decision in the face of a strong emotion.

To put it simply: Young people’s fears and worries are getting exploited.

Consumer Packaged Goods wholesalers, currency traders, cosmetics manufacturers, and (most famously) sport/nutrition supplement producers have created ventures to attract young people and take advantage of this passionate yearning for ‘something different.’ I’ve had close friends involved in them; I’ve been pursued by them; and (despite some of the FTC’s best efforts) they aren’t going anywhere.

When I was contacted by one of the larger schemes a couple of years ago, I was lucky enough to be in Business School, surrounded by knowledgeable industry professionals, professors, and peers. So, when my gut told me something was off with their business model, I was able to run it by people who could shed light on their organization and they confirmed my suspicions.

From my conversations with these folks, I have been able to create a brief list of red flags — which I hope fellow young people will find useful and empowering to avoid being taken advantage of, as we pursue our ‘something different’:

1. The venture claims their style of marketing is revolutionary, which is why regulatory bodies doubt its legality.

These ventures state that their marketing tactics are so new and radical that regulatory bodies just haven’t caught up yet. However, their marketing tactics tend to revolve around selling to friends, family, members of your community, and your surrounding network. On Day One of any marketing class, you will learn about one of the Four P’s of Marketing: Promotion. One of the oldest forms of promotion? Word of Mouth.

Selling to and recruiting from your social and professional network is old news and very basic. Regulatory bodies are not concerned or confused by it, at all. Their concern comes from their multi-level commission structure. This also isn’t new (or ‘revolutionary’) to the folks at the FTC; it has a name: a Pyramid Scheme.

It is not that the FTC just ‘doesn’t understand.’ They understand the company’s structure… and that structure is illegal.

2. You are paying for training and product knowledge.

Paying for training is completely legal. Heck, isn’t that what my BCom is? However, paying for training to make the trainer a steady income, while they promise you equivalent riches, is illegal.

Picture this: you get a job at your local mall selling shoes.

The store owner says, “It is so great to have you! To get started, I’m going to need you to purchase all the shoes you plan on selling. Also, we recommend that you give away some free samples to get people interested… No, we don’t provide the samples. Those will come from your supply… For training, you’re going to have to pay us to teach you how to sell the shoes. Additionally, whenever any new shoes come out and we have a conference to introduce them, you will have to pay all your own expenses to attend — including the fee for the conference itself. There is also a monthly fee for working here. Oh, and I’m going to take commission off of whatever you sell. Who’s ready to start a shoe revolution?!”

What are the odds that you are staying at that job for more than five minutes? Exactly.

Not only would you most likely lose money — but the store would get shut down for illegal trade activity and for going against provincial and federal labour laws. It is illegal to pay someone to let you make them money… especially on false promises of economically impossible levels of success.

3. Anyone shows you a picture of someone in a BMW, who “doesn’t even have to sell anymore.”

The reason this person doesn’t have to sell anymore is because they are at the top of the pyramid. They got in early. They recruited people like you. You are now selling for them and recruiting your own people. Your recruits are selling and paying you money, which you are paying to the person in the BMW. BMW Guy drives around in a luxury vehicle and tells everyone, “Work hard and you can do it too!” However, that is economically impossible.

Sit down and do the math. No matter what you bring in, the person above you is getting a piece. So, in order for you to make as much money as the guy in the BMW, you are going to have to make more than he is currently making (which will in turn just make him more money). As the market saturates, the odds of you bringing in even more business than the people who were first-to-market, selling the exact same product, is almost guaranteed impossible.

You were recruited by being told that you can make just as much as BMW Guy and be eligible for bonuses of fancy cars and beautiful vacations. However, that is a lie. No matter how much you make, BMW Guy will still be #1. The reality is: unless you are one of the first few into the pyramid, you will lose more money than you make, under false promises of success. This is why these schemes are illegal.

Conclusion

It is easy to sit here and point fingers at the people who get recruited into these schemes — and since the FTC has been cracking down, a lot people have been pretty rude. “HA! Who would fall for that?! It is SO OBVIOUS.” However, I don’t feel that way… because I get it. I get why people are looking for something better than sitting at a desk and realizing how replaceable you are. I get why the stories of success, freedom, and self-sufficiency are so intoxicating… and at times blinding. I completely get it.

However, it isn’t real. It is an extension of an existing system, which exploits people’s most deeply-rooted desires. That being said, sometimes the conventional ‘legal’ organizations that put our retiring parents’ into their current positions aren’t much better either.

I believe an economic revolution is afoot — but this revolution isn’t going to come from well-masked Pyramid Schemes that target our fears. So, to the young people whose idealism and commitment to ‘something different’ made them a victim of the past economy, I hope you are one of the industry leaders of the future. We could use more people like you.

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