Pyramid Dream

When Emily Berman began selling LuLaRoe in January of 2017, what she pictured was a significant discount on her favorite printed leggings, not necessarily hundreds of pieces of clothing stacked up against the walls of her Towson townhome. “I liked doing it, and thought it was fun,” says Berman. “But it was really easy to see how it could take over people’s lives.”

LuLaRoe is just one example of multi-level marketing (MLM), a strategy used by direct sales companies to get existing distributors to recruit new ones. Whether they’re selling patterned leggings, skincare products, nail stickers, or essential oils, these companies are more widespread than ever, aided in large part by social media and the internet. A record 20.5 million people were involved in direct selling in the United States in 2016, and the industry as a whole racked up an estimated $35.5 billion that same year.

But to say MLM companies have a glowing reputation might be a bit of a stretch; many people still consider them pyramid schemes. While pyramid schemes place their focus on rewarding people for recruitment and expansion, a legitimate MLM company pays its distributors for simply selling its products to consumers.

“You still need to be careful,” says Stacie Bosley, associate professor of economics at Hamline University and an expert in multi-level marketing. “Even in cases where you have a viable product that people want to engage with, you can still have trouble turning a profit, and I think that is the reality of a lot of modern MLM experiences.”

While there is no documented history of the origin of MLM companies, there is proof that these types of businesses existed as early as the late 19th century with the California Perfume Company, which eventually became Avon Products in 1932. The original MLM business model relied on in-home parties and door knocking to get the word out in sellers’ neighborhoods—think Tupperware and Mary Kay.

Pasadena resident Gina Cook knows these methods well, as she’s been selling Avon for the past 23 years. After moving to a new area, she was looking for something that she could do at home while raising her four children that would also allow her some time outside of the house. But things were much different in 1995. When Gina began selling Avon she was assigned to a certain territory and all selling was done by word of mouth.

“We used to do paper purchase orders that had to be delivered to a local Avon representative’s house at noon on Saturdays,” says Cook. “When I started, the catalogs were about 80 pages, and now they are well over 200 because we offer so many products and, because of that, I have customers that place orders with me every time a new catalog comes out.”

Today, Cook does it all. She is a member of the Pasadena Business Association, where she makes connections with local merchants, participates in networking events, and has become a known figure in the business community. “I’m the only person that drives around Pasadena with pink eyelashes on my van and lipstick on my windows,” laughs Cook. “Everybody knows me.”

While technology has changed, Cook got into the business for the same reasons as people do today—to support her family, establish independence, and gain meaningful social connections.

That was also the case for Kristin Albrecht, who began selling the cosmetic brand SeneGence this past September. Albrecht received SeneGence’s star product, Lipsense, a long-lasting lip color, as a Christmas gift. “I had never heard of it before, but I liked the color, so I gave it a try,” says Albrecht. “That is when my obsession began.”

Albrecht wanted to buy new colors and ended up connecting with a former high school classmate who sold SeneGence on Facebook. “I was spending so much money on the products that she reached out to me to see if I would be interested in selling,” says Albrecht. “She told me I wasn’t going to be forced to sell to other people and I would get a discount, so I signed up.”

Albrecht, who is also a store manager at Aldo Shoes in Annapolis and runs her own fashion blog, felt SeneGence was a great fit for her, with products she loves and an opportunity to widen her social circle. “My mentor and I weren’t best friends in high school, but through this experience our friendship has grown to her being one of my best friends,” she says. “Even if I were to stop selling SeneGence one day, these girls I’ve met will probably always be some of my closest friends. It’s just a great group of empowering women, and I’m all about that.”

For stay-at-home mom Melissa Renno, venturing into MLM was also about finding common bonds. She began selling Young Living essential oils after hearing about them from an acquaintance at an adoption conference she attended. The younger of her two sons, both adopted from China, was having trouble sleeping and, after trying everything, she was persuaded to give Young Living essential oils a try. When Renno started using the oils at bedtime, her son began to sleep well and has ever since.

That was three-and-a-half years ago, and she hasn’t looked back. The acquaintance—who eventually brought Renno on board as a distributer at Young Living—is now one of her best friends, and she has met many other amazing women and families through the company.

The idea of being your own boss and creating something from the ground up is what draws many people to multi-level marketing companies.

“I was 35 when I started this, and I was at home with two small children, dealing with the unique blessings and struggles that come with adoption, and I was feeling kind of lost,” she says. “I love being a mom, and I love my kids, but to be honest, I don’t love being a stay-at-home mom, and to meet people who felt the same was amazing. It was just this awakening of a creative part of me that kind of got stuffed down in the years after we brought our children home.”

Renno now has nearly 8,000 people in her downline—or the successive roster of sellers she has signed up, those they have signed up, and so forth—and it continues to grow. “The business part comes naturally when you are sharing products to help people live healthier lives,” she says. “It’s not about signing people up, or achieving a certain rank, it’s first and foremost about wellness.”

Many MLM companies seem to offer people a way to have it all: a career with flexibility, new friends, a way to stay at home and spend more time with their children, and extra money. (A 2016 study by the Direct Selling Association found that 74 percent of MLM representatives are women.) But there are still many uncertainties with some of these companies to take into consideration.

“It’s a treacherous landscape in a developed economy,” says Bosley. “One of the things that I find frustrating is that a lot of MLM rhetoric seems to want to defy the rules of economics: You’re in your own safe space and the sky’s the limit! But that’s not true. You may have a product that people to seem to like to come together to try to consume, but they still have to butt up against the reality of the marketplace, which is Amazon, Target, and every other possible substitute.”

The idea of being your own boss and creating something from the ground up is what draws many people to MLM companies. But the rules and restrictions some companies put on their distributors can have the opposite effect. For example, some companies don’t allow refunds if a distributor decides to throw in the towel, leaving that person with a significant financial loss.

“I never felt like a small business owner in this,” says Berman. “To me, a small business owner would have a lot more choice than you do in these companies.”

The way the system is set up, there is no way of guaranteeing financial stability unless you have reached a certain level of success within the “pyramid.” In some instances, the company has already flooded the market and, by onboarding someone else beneath you, you are essentially creating your newest competitor.

Additionally, the hyperbolic language sometimes used by these companies can inflict guilt and shame upon people who aren’t able to execute the business successfully. This leads to what Bosley calls “gain framing,” which is when sales associates wave around big checks and discuss their promotions without being completely honest about how much of their own money they are putting into the business.

For Berman, it was an old high school friend who convinced her to start selling LuLaRoe products. But she became skeptical pretty early on.

“After signing up, there was a six-week waiting period, which really should have been a red flag to me that there were way too many people selling it,” she says. “You didn’t know when they were going to call you, and when they did you had to be ready to give them your credit card number right away.”

Just one quick search on YouTube and you will see a plethora of videos of women crying because of their newly acquired debt from their experience with a MLM company.

“There is a part of the MLM world that’s absolutely an intersection with fraud, and we need to figure that out,” says Bosley. She notes that, because it takes so long for the Federal Trade Commission to prosecute these cases, it can be difficult to spot bad actors from a distance. At the same time, she warns, even legitimate companies can pose high risks. “There are companies that have enough sales to be legitimate, but they can still have sellers who struggle to profit,” she says. “I’m concerned for those who fall for a fraudulent opportunity, and I’m also concerned for the variants involved even when it is done legally.” (Indeed, there are currently several lawsuits facing LuLaRoe, as well as a proposed class action lawsuit calling the company an all-out pyramid scheme, according to Bloomberg Businessweek.)

“You may have a product that people to seem to like to come together to try to consume, but they still have to butt up against the reality of the marketplace.”

Those concerns are only amplified by the prevalence of social media. If it seems like your Facebook and Instagram feeds are overflowing with friends and acquaintances peddling the latest in cosmetics or cooking essentials, you are not alone. Social media has kicked MLM companies into high gear.

In the past eight years, there has been a 30 percent increase in multi-level marketing sales, according to Atlantic Media’s business news site, Quartz. MLM companies are able to reach their consumers now with the click of a button by forming a Facebook group, firing up a live video stream, and posting photos and video content to their thoughtfully branded Instagram pages. The connection is instant, and they are able to reach people all over the world.

Companies like Avon, which reached peak success in the ’60s and ’70s, did so because they were the simplest way for people living in the suburbs to have access to the kind of luxury products only found at the nearest department store, which could be hours away. Now, social media is able to provide the same easy purchase from the comfort of your own home.

“Avon now gives everyone that signs up a website,” says Cook, who also has a Facebook page, Gina the Pasadena Avon Lady, where she can be in direct contact with her customers if they have any concerns.

Renno also has a website with information about her products and how she is using them, and she posts weekly Facebook Live videos on her personal page to show off new merchandise. Hosting “parties” on Facebook, where you invite people to purchase goods for a limited time through live videos and contests, is another common MLM practice. It allows both buyer and seller to establish a genuine connection and friendship through the purchasing process.

As controversial as these companies may be, the reality is that, while there are plenty of people who fail, there are also people who succeed. For instance, Renno, whose husband could retire in the coming years, is able to help support her family and has been sent on several free vacations due to her sales performance with Young Living. And whether that is due to good timing, having an acute business sense, or just good old-fashioned hard work, you can’t deny that this model works for her.

“The financial freedom that comes along with it is incredible,” she says. “I am able now to stay home with my kids, be present when I need to be, and work when I can.”

Unfortunately, the same could not be said for Berman and her seven-month adventure with LuLaRoe leggings. After a while, she realized she wasn’t making enough money to justify the effort required to keep up with the business.

“In the end, I still love the clothes. I just don’t think my personality is one to persuade people, so I don’t think this business model would ever be successful for me,” Berman says. “And I wouldn’t want to be responsible for talking someone into something that wouldn’t work out for them in the end.”