Starting (and Staying) On the Ground Floor

Pyramids and Multilevel Marketing Schemes Siphon Your Money to Those Above

By Tom Glaister
ConsumerAffairs.com

June 19, 2006

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I first came across Herbalife in a cafe a few years ago when I saw a guy wearing a badge saying: "Feel Great Now - Ask Me How!"

I made the mistake of asking him and received a 5-minute monologue about how his life had been a mess; he'd been addicted to alcohol, his wife had left him, his life was going nowhere and so on.

But then he'd discovered Herbalife and, not only had their health products changed his life, as a Herbalife distributor he'd finally found courage to be a success. As he spoke there was a vacuous quality to his speech that made me think he'd rehearsed it at home in front of the mirror.

As we talked I realized that he attributed every positive thing that had happened since in his life to Herbalife and their health supplements -- he had become a living advertisement for the company he represented. He could only make money, however, if he could make you believe that Herbalife could change your life and, even better, if you could persuade other people, too.

Herbalife distributors are quick to point out that they are not a pyramid scheme but rather a shining example of multi-level marketing. What's the difference? Well, the former isn't entirely legal but both are usually guaranteed to make a lot of people lose a lot of money. All except for a small number of grinning scammers at the top, wondering just how many suckers are born each minute.

How does it work?

The way you'll typically encounter a pyramid scheme is when a struggling family member or friend comes to meet you with an eager "born-again" expression on their face. They'll announce that they've discovered "the new way to make business" and that you can also get on board. They'll most likely be selling weight-loss products, Tupperware or blue-green algae extract. You know, the kind of thing most people wouldn't think about buying unless they were emotionally blackmailed into doing so.

After listening to a rather flimsy sales pitch for the product itself, the real gist of the scheme will come when your friend or relation persuades you to sign up and become an agent too. Yes, he will then get a slice of your sign-up fee and all the business you bring in -- but that's okay because you can also convince people to sign up!

Pyramid schemes work on the basis that you make money from the people below you in the scheme, the poor souls that you've talked into signing up. Then they can make money by continuing to recruit and everyone's a winner� at least, that's how it would be in an infinite universe.

A couple of years ago an old friend had been brainwashed by Herbalife and she was excitedly repeating company slogans in my face like "success can be frightening" and "control your destiny." I offered to buy her coffee in a nearby cafe, promising I'd listen to her sales pitch if we could just first sit down with a pencil and a piece of paper.

I suggested that we suppose two Herbalife distributor were to each recruit 2 distributors a month, and that all those they recruited were equally successful. By month 2 there would be 4 distributors, by month 18 there would be 262,000 and by the end of 3 years there would be 68 billion distributors, more than ten times the current world population.

So as a business model, it's mathematically impossible for everyone to make money by signing up other people below you. That's why you can go to jail for running pyramid schemes. Of course, big companies like Herbalife can afford clever lawyers to navigate such legal intricacies and, as they point out, they're selling actual products.

So let's look at the products.

Herbalife puts most of its focus on weight loss pills, a formula which contains ephedrine, a powerful stimulant which curbs the appetite and is, incidentally, banned in 7 states.

Other than weight-loss programs, Herbalife sells a variety of herbal products for skin care and general health, including Niteworks, a product recommended by Nobel Prize winner Louis Ignarro for heart health. It only came out afterwards that Ignarro was being paid royalties for sales of Niteworks, which are estimated to have topped $50 million.

The thing about health products is that it's a saturated market. Check out the shelves of your local health food store. And if you're asking yourself why you don't see any Herbalife products there it's because no one wants to buy them. You can buy Herbalife products from the sites of distributors on the net but you'll find most of them available half-price on e-bay.

So before you consider becoming an agent for Herbalife or any other similar organization, ask yourself who exactly is going to buy your products? The likely answer in Herbalife's case, is you. The company not only makes you pay $200+ to join in the first place, but they also require that you order their products each month for yourself so that you know how to recommend them to your customers. You'll be spending a lot of time in front of the mirror.

"But surely some people are making money at Herbalife?" my friend asked me after we put the pencil and paper down. Look at all those photos of distributors in suits and ties with dynamic, successful expressions and cell phones pressed to each ear, she insisted. It broke my heart to burst her bubble but I had to tell her that the only people making money were those who could talk other people into losing theirs.

Herbalife encourages distributors to sell to their friends and families and uses all the propaganda and spin at its fingertips to present itself as a genuine business opportunity. Ever seen signs saying make $1,000-$3,000 a month working from home? These have been posted by distributors at their own cost in an attempt to make back some of the money they've invested in the first place. Especially if they were foolish enough to buy a 'supervisor' position by ordering thousands of dollars worth of products in return for a higher commission of prospective sales.

This is what happened to Armagan of Melbourne, Australia.

"I've advertised, wasted my money, got a web site paying $25 a month, got the supervisor package for $5400 aust for the tablets weight loss and all made nothing from that," she said in a complaint to ConsumerAffairs.com. "I'm very upset, I want my money back. I want to quit, I feel awful, I got two kids. Instead of making money I've wasted lots of money."

Herbalife packs its promotional packs full of success stories and testimonials of people who handed out tens of thousands of fliers, set up websites and posters with toll-free call numbers. Access any of these and you won't find the name Herbalife anywhere though, they actually prohibit their distributors from doing so and claim no responsibility whatsoever for the behavior of their independent agents.

The mother company will continue to "support" its distributors though by running expensive training courses and local groups may get together for motivation meetings. The pep talks vary but the gist is usually reminiscent of American Beauty where we learned that "in order to be successful in life one must project the image of success."

Herbalife and all its kin do just this. The actual product is almost irrelevant. They make their money out of selling the idea of success. They pretend that anyone can make a living through touting unproven health products, regardless of their qualifications, business experience or sales talent.

The majority of Herbalife distributors are naive hopefuls who have bought into the propaganda, hoping beyond hope that they can make something of their lives. And in truth, there are a small number of Herbalife distributors who do make good money, chiefly through conning others to join up.

But what profit a distributor who gains the whole world but loses his soul?

Tom Glaister is the founder and editor of www.roadjunky.com - The Online Travel Guide for the Free and Funky Traveller.

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