The Cult of MLM
There are two taboo terms in the world of multi-level marketing (MLM). One is “pyramid scheme”. The other, which is even more vehemently denied, is “cult”. Many people understand cults to be dangerous restrictions on freedom and individuality. The most infamous cults have been known for violence, mass suicides or abusive and sometimes insane behavior of cult leaders. Pyramid schemes, similarly, are understood by many people to be dangerous frauds, cons, and flim-flams with notorious figures like Charles Ponzi and Bernie Madoff.
But the defining characteristics and the practical realities of both pyramid schemes and cults, especially when they don’t display flagrant hallmarks, are not known or understood by many people. This lack of a clear definition of cults and pyramids and the public’s lack of understanding of how they operate are contributing factors for why millions of people fall victim to these traps. The result is that millions of people suffer losses of time, money, personal freedom, family relationships and, often, psychological stability. Pyramids and cults can, and often do, lead to divorce, alienation, financial ruin, and even, in rare cases, suicides among people who become involved.
Multi-level marketing has the distinction of being known for both cult practices and perpetration of pyramid schemes. The two factors — cultism and pyramid fraud — are not merely coincidental in MLM. They are inextricably connected. MLMs can gain the power of a cult over the members only because they are also are able to perpetrate pyramid fraud in the form of “endless chain” income promises.
It Seems Like a Cult
Much of the cult discussion around multi-level marketing has been directed at the largest and oldest of all MLMs and the prototype of all others – Amway. A Google search of “Amway” and “cult” yields over 600,000 entries. The very first critical book written about Amway was entitled, Amway, the Cult of Free Enterprise, by Stephen Butterfield. Several more recent books by former Amway distributors graphically describe classic cult techniques they say they were subjected to in Amway. These include authoritarian domination, enforced conformity, heightening fear of the “outside” such as government regulators and Corporate America, exalting leaders to almost god-like figures, alienation of members from their family and other friends, sleep deprivation at mass meetings, constant repetition of “thought-stopping” terms, mind-control, domination of personal time, and even intrusion into the participants’ sex lives. Amway itself has admitted “cultish” practices in the past that it promised to tone down.
Other MLMs have also been accused. A lawsuit bought by a former associate of the MLM real estate company, Keller-Williams, charged that the company used cult practices. And reports of consumers on a wide range MLMs, regardless of the product that the MLM sells, have an eerie similarity. People report strange personality changes that come over their friends or family who joined MLMs. The new recruits continuously repeat the same terms, words and ideas. Many begin to dress differently. Some quit jobs and drop out of school, which they now say is unnecessary. They devote inordinate amount of time with other members of the MLM and avoid anyone else who does not support their MLM participation. They accept no questions or criticism of the schemes and may accuse any questioner, even close family members, of being personally against their success or against the MLM system, which they believe is unique and superior to all other business models. Most importantly, they express an unquestioning belief in soon-to-be-gained wealth and success. They believe the MLM will make them not only wealthy but also happy and fulfilled. In that state of belief, many MLMers lose interest in existing jobs, professions, education or any other talents or activities. They appear obsessed, brain-washed. Some will even divorce spouses who do not agree with their activity or neglect their children or their own health in pursuit of the promised “success.”
Click Here to watch a discussion of cults and multi-level marketing with pyramid expert,
Robert FitzPatrick and nationally recognized attorney Douglas Brooks, led by cult-expert, Steve Hassan.
Newspaper Series Profiles One MLM’s Connection with Cultism and Pyramid Selling
The lethal combination of cult and pyramid in a multi-level marketing company was vividly explored in a recent newspaper series on the multi-level marketing company, NXIVM (pronounced like the acid reflux “purple” pill).
The four-part series in the Albany Times Union by James M. Odato and Jennifer Gish chronicles lawsuits, accusations of sexual abuse of female members, legal harassment cult-expert Rick Ross, possible regulatory violations and denials concerning whether that MLM company is both a pyramid scheme and what is commonly called a “commercial cult.” The founder of NXIVM, Keith Raniere, had previously operated the MLM company, Consumers’ BuyLine, which was later shut down by regulators, and then he opened another MLM company called Innovative Network, which later closed. Raniere, according to the story, had begun his MLM career as an Amway recruit. Consumers’ Buyline was investigated or prosecuted by regulators in 20 states. It reportedly drew in over 250,000 consumers. After it closed, the story reported that Raniere signed a consent agreement with the New York Attorney General limiting his participation in any other MLM programs, but the regulators apparently had not investigated his subsequent ventures in MLM.
MLM Converts Businesses into Commercial Cults
Stories about MLM cultism such as the series on the NXIVM company raise an obvious question. How could a business be a cult? Cults are associated with spiritual beliefs, religious movements or extreme political causes, area of life in which deep convictions, high ideals, spiritual hopes and life-long dreams are at stake. Business, on the other hand, requires rational decisions, research, services and products. Businesses are subject to measurable factors of supply, demand, saturation and competition. Then there are matters of cost, solvency and profit. How could the dark and mystical forces of a cult be instilled into an ordinary sales business? If there is financial loss, would that not break the spell? Wouldn't calling on the public for sales and transactions with suppliers require critical thinking? And what promise could a business make that would generate the passion and commitment associated with cults? Business is mundane. Business is work. Business is not about life’s meaning and purpose. It is about earning a living. Right?
Normally, this would be true. However, if a business promises large numbers of people the same kind of benefits and rewards that cults claim to offer -- total freedom, a loving community of supporters, personal salvation, happiness, peace of mind, enlightenment, dignity, and fulfillment, then it could entrance people and gain control over virtually their entire lives, just as other types of cults do.
How could a business make such promises? Legitimate businesses cannot. Real businesses are restrained by the realities of limited markets, saturation, competitors, market demand and the costs of building a brand name. When real businesses solicit investors or sales people, they are required to disclose risks, costs and historical trends regarding past investors’ or salespeople’s experience. These limiting factors and disclosures dispel and ward off the mystical claim of cults. Normal businesses also draw boundaries around work time, leaving personal, social and family life separate and protected from commercial pressures or involvement. So, the boundaries around personal life limit a legitimate business’ ability to influence and affect any individual at the level that a cult does.
The Magical Power of MLM’s “Endless Chain” Promise
These limiting factors don’t apply to multi-level marketing. MLMs companies employ a tool that no other business uses. It is the “endless chain” pay plan. Under this plan, each and every new participant pays money to gain the right to recruit other participants into the pay plan. As succeeding levels of recruits sign on and make purchases or sales, the entire chain of current recruiters who joined earlier get some of the latest money coming in from the bottom. On paper, this “expansion” appears to show the potential for huge financial rewards flowing from just recruiting a few people who recruit others, who recruit others. Since the recruiting chain is “endless," the last person to join can be told that he/she could potentially build a huge “downline” of recruits and gain the commissions on the entire volume of purchasing and sales that would come in later, no matter how large the chain already is. No one is ever at the bottom, the recruits are told, because the bottom could also become the top of a large downline, if they recruit more to join.
MLM companies insinuate themselves deeply into each recruit’s personal, family and social life. The recruit is told to commercialize all personal relationships by recruiting them into the business. In fact, this is the first rule, to exploit the “warm list” of people whose trust and love can be leveraged for recruitment purposes.
Additionally, when MLM companies solicit consumers to invest in them as salespeople (IBO, coach, associate, etc.) they do not have to disclose what actually happened to others who had invested or joined the plan in the past. MLMs are exempt from federal disclosure rules that apply to other “business opportunity” schemes. MLMs do not disclose dropout rates, average costs, sources of income for the top recruiters, or the actual odds for success of the “last ones in.”
But what about market limits? All businesses realize they can only grow so much in any given area. How can “unlimited” income promises be made in limited markets? The MLM endless chain plan claims market limits do not exist. Everyone has friends or family — their warm list — who will join out of loyalty and trust. The “opportunity” is said to be “unlimited”. What is this opportunity that has no limits? It’s the opportunity to recruit others to sell the opportunity!
What about competitors? All business are limited due to competition from other companies with similar products and working in the same territory? The endless chain plan is built around “relationships” not product brands. In fact, most people have never even heard of the MLM products until they join the scheme and begin buying them. Since marketing is based on relationships, the scheme claims there is no need of product advertising or brand awareness. And, since the plan is based on gaining income from all those who join later, the competitive price of the product is not important. In fact, most MLM products are much more expensive than similar items sold online or in stores, in addition to their being generally unknown. So, normal pricing, market demand, competition and market limits don’t apply to MLM, the recruits are told. Other brands just offer products and prices. MLM offers a future of happiness and financial independence. What could compete with that?
Well, then, what about profit and loss? Surely, losing money would wake people up to practical realities of business and break the spell of an “unlimited” income promise? Since the plan claims that everyone could potentially build a huge downline, based on relationships, and no there are no limits on market size, and competitive factors don’t apply, then those who fail and lose money are said to have only themselves to blame. Thus, while nearly all do, in fact, lose money (since nearly all will always be in lower ranks where no profit is possible until there is expansion), each person is told to maintain faith, hope and confidence that they will expand the chain. They are told that the only way a person could lose in the MLM system is by quitting. Quitters are losers; losers are quitters, they are told repeatedly. So, many of the biggest losers in MLM are the strongest believers. For them to doubt the system, they must take on the identity (told to them by the MLM cult) of being a dreaded loser and quitter and missing out on the promise of fulfillment, happiness and total success in life.