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October 21, 2006

Tying Up Loose Ends -- Pyramid Scheme, Part IV

I hope this will be my last entry about TEAM. I have enjoyed dissecting this fraudulent business, but I want to write about other things too! In the first three parts of this series, I described my encounter with Darren (notice that I no longer refer to him as a friend) and his pyramid scheme, TEAM, which is a subsidiary of Quixtar, Amway's internet-based sister company. Today I just want to wrap up by discussing a few things I didn't manage to get to before.

I have explained why TEAM is evil and why it creeps me out, but I haven't quite explained why it is a pyramid scheme. To get there, let me start with Amway. Amway was founded in 1959 right here in Michigan by Jay van Andel and Rich DeVos (father of our current Republican gubernatorial candidate, Dick DeVos). For evidence of the company's success, look no further than the city of Grand Rapids, which appears to have been built entirely with Amway money. Amway works in much the same way as TEAM, but without the internet. People sign on as "Independent Business Owners" (IBOs), paying yearly fees that allow them to sell Amway products. They also have to attend training seminars and purchase training materials. IBOs move up in the Amway hierarchy by recruiting other IBOs below them and by selling higher volumes of Amway product.

In 1979 the FTC ruled that Amway is not a pyramid scheme, but rather an example of Multilevel Marketing, and hence legal. Multilevel marketing (MLM) is the business model used by such companies as Tupperware (I use Tupperware as an example because I am a sucker for their products). Salespeople register as independent contractors and earn a commission, not just on the stuff they sell, but also on the stuff sold by salespeople they have recruited. In a legitimate MLM business, members only earn commission on stuff, and are not paid to recruit. Another marker of a legitimate MLM is that it sells a unique and useful product at fair market value, and it sells to people who are not themselves salespeople.

Amway is technically an MLM business because one can buy Amway products without being an IBO. The question is, would one want to? I don't know enough about Amway's products to answer this question, but David, an avid reader of Consumer Reports, tells me that Amway products are of neither high quality nor low price. They always score poorly in CR ratings. Moving from Amway to TEAM, I can tell you that I, as an ordinary consumer, would never buy their products. As I related yesterday, they don't offer anything I can't get from amazon.com, and their prices are much higher. TEAM is thus a dubious model of MLM because only its salespeople buy its products.

When we get to why TEAM members buy from TEAM it becomes apparent that TEAM is, in fact, a pyramid scheme. A traditional pyramid scheme might look like a chain letter. I get a letter asking me to send $1 to the person at the top of the list, and to send the letter on to a certain number of my friends. As they send the letter on and on, my name moves higher up in the list, and, as they pyramid widens, more and more people will send me their $1. Thus, for an initial "investment" of $1 I receive exponentially more money. Sounds pretty good, doesn't it. TEAM works in the same way. If I were an IBO, I would buy a product from the TEAM website, knowing full well that I could have bought the exact same product somewhere else at a much lower price. In effect, buying the product from TEAM rather than from TEAM's competitor is like writing a check to someone higher up the chain of IBOs. Why on earth would I do such a thing? Because I know that, as I recruit people below me, and they recruit people below them, when enough layers get added to the pyramid, I will receive some piece of that differential between the fair market value of the product and the TEAM price.

I'm not saying that people don't get rich from this. TEAM is able to recruit suckers like Darren by inviting them to workshops and seminars where people who have gotten rich tell the suckers that, if they simply follow the example of those who have gone before, they will become rich too. Unfortunately, it doesn't quite work that way. A pyramid scheme is an unsustainable business model, as a result of market saturation. For example, say that TEAM managed to recruit everyone in the US (or even everyone in the world). The people at the bottom of the pyramid have nobody left to recruit. They will, by definition, lose their "investment."

Poor suckers like Darren don't understand why they lose their money. When I asked him why he hadn't yet seen a return on his $12,500 "investment," he replied that it was because he has poor people skills. Gosh, Darren, if you have such poor people skills, why did you get involved in a company where your income depends on swindling people? The point is, he thinks it is his fault that his "business" isn't succeeding, while the truth is that failure is built into this business model. TEAM gurus tell the IBOs they recruit that they want them to succeed, which is the truth. After all, the more people Darren recruits, the more commissions his recruiter earns. But the recruiter's livelihood doesn't depend on Darren's success, it just depends on Darren's gullibility and his willingness to continue to "invest" without seeing a return on his investment.

Darren's sales pitch met all of the identifying criteria for pyramid schemes listed by Wikipedia. I'll add one more: Darren himself didn't quite seem to know what his business was or what he was selling. When he told me that he would continue to "invest" in his "business" for as long as it took to turn a profit, I warned him that it might take longer than his natural life. He didn't care. He told me that, even if he never turned a profit, simply being a part of this business had made him a better person. It had taught him people skills (I beg to differ) and had increased his perseverence (I'll concede that one). I said that I was very happy for him that he had gained so much from being a part of TEAM, and then asked, "so is this a program of personal development?" He brightened up and told me that that is exactly what it is. So I asked why he was promising me money, rather than personal growth. He said that he had simply not pitched TEAM to me correctly, that "Orrin says" different recruits need different kinds of pitches. Then I asked what exactly he was selling. He picked up his half-drunk energy drink and said "we specialize in sports and nutrition products, but we also offer a website where you can buy anything through our partners." Again, I ask, "Darren, what are you selling? Is it an energy drink, a business opportunity, or a personal development program?" I guess he is selling all of these things, but the reality is that he is selling none of them. Legitimate businesses offer a product or a service. Granted, in a profit-making venture, that product or service is always secondary to the goal of making money, but TEAM dispenses with the product or service altogether. For example, David and I buy a lot of Kleenex products. The Kleenex company exists primarily to make a buck for its shareholders, but in the process, it offers the public top-quality toilet paper and paper towels (plus the obvious, tissues). TEAM doesn't offer me anything I couldn't get if TEAM didn't exist. The product is there, but only as wallpaper to fool the FTC. What TEAM actually sells a promise that it can't fulfill, which is why it is a scam.

The part that hurts me to the core is that TEAM taps right into the capitalist American dream. Our country was founded on the premise that money makes the man. We worship the independent entrepreneur, but most of all we worship the independent entrepreneur who makes money. TEAM sells the right to call oneself an "Independent Business Owner" and the belief that one is no longer an employee, but rather an entrepreneur. It also sells the potential for creating a system that will make money without the need to work. It offers a semblance of ownership (as in George W.'s "ownership society") and the vague promise of unlimited unearned income. The founders of Amway knew what they were selling: they were selling the "American Way."

I'll wrap up by listing three more features of TEAM (of the many) that rub me the wrong way. First, TEAM utilizes the language of revolutions and grassroots movements. Their recruiting book is titled Leading the Consumer Rebellion. Its authors refer to their company as a "grassroots movement" of consumers who are banding together to take the profit from the retailer and keep it for themselves. Gosh, why not form a consumers' cooperative or operate on a business model like amazon.com? Because co-ops don't turn a profit (by definition) and Jeff Bezos already thought up Amazon. Second, TEAM takes advantage of Christian trust. The book's acknowledgements list Jesus himself, stating "we also want to give all glory to our Lord and Savior Jesus Christ. Everything we have and will ever accomplish is by His grace." If I were a Christian, I might be duped into thinking that this must be a good organization because its founders are good Christians. I don't know much about Christianity, but I am willing to bet that swindling is not a Christian value. Finally, this organization is uber-sexist. IBOs work in husband-wife teams. When Darren was trying to sell me on the "business," he kept referring to all the money "Dave" and I would make. I didn't bring David into it; the TEAM simply assumes that women can't run businesses on their own, so I would need "Dave's" help. The goal of each husband/wife team is to earn enough so that the wife can stay home and raise the kids. The overall company is headed by a group of four men, known as the "Policy Council." Their wives form the "Ladies' Council," which "has provided common sense and perspective where we otherwise would have been remiss." In other words, women's status in the company is based, not on their own achievements, but on whom they have married. Furthermore, women provide "common sense" because everybody knows that women have no business sense. Please.

Apparently, my vitriol is unlimited, but I'll wrap up this four-day-long rant by pointing to some other resources. The Quixtar Blog offers much more information about TEAM, Quixtar, Amway, Alticor, and MLM in general, presented by the husband of a former IBO. Blogs by other former IBOs include Quixtar Demons Blog and Quixtar Inside Out. The Cleveland Free Times recently published an article about TEAM that doesn't give a whole lot of information, but is a good quick summary of the organization. I printed it out for Darren, but he refused to read it.

Okay, I think I'm done!

Posted by eklanche at October 21, 2006 08:23 AM

Comments

I just wanted to say thank you for the very insightful blog. I was approached about TEAM and I knew I didn't like the "sales" pitch if you will. The way you described Darren's approach was nearly identical to what I experienced and I left feeling like I wasted my time. This approach may work for some people, however, I'll pass.

Posted by: neilc at April 27, 2007 11:37 AM

I finished reading your blog. But it occurred to me that you had spent only 4 days doing "research", and I would assume on the internet regarding all 4 part of your writing. I first would like to say that you do have great writing, I wish I can write like you. However, I just found so many incorrect reference towards TEAM and the way how the structure works. I feel bad for Darren for knowing you, and I feel bad for you to not being able to speak to someone who's more knowledgable about the business. I do envy your initiative however, and I would like to see you write this kind of rant about Dell Corporation and Wal-Mart, rather, make your imagination run wild and rant about U of Michigan of how students are never guaranteed success after graduating. I have to confess though, I do not know how much is it to go to U of M for 4 years including books and materials.

I have a feeling that you are an avid media supporter, that means you watch the news every night, read the newspaper every day. You immersed yourself with "Consumer Report" with about every product that you'll buy. I can imagine you owning either a Toyota or a Subaru in your driveway. Stop supporting CR, Toyota, or U of M and stop working for someone and inflated the Board of Director's pocket. I AGREED with you, let's stop Pyramid Scam.

Hopefully you are not a professor in U of M, otherwise, I would pray for your students to drop out from your lecture cause they are inflating your pockets by buying the study materials you requested. Please email me, we might become great friends!

Posted by: gavi8@yahoo.com at June 8, 2007 03:23 AM

I just had the same experience this week and last. I met this guy through work and liked him, he seemed nice enough and we got along well when we met on jobsites for legitimate work. Then he asked me how he can get a hold of me after work..so I gave him my number. Well this started the TEAM deal. Our first meeting he couldn't answer any of my questions, that really pissed me off, how do you do something and make money at it (supposedly), but don't understand it well enough to explain it to someone? Then he was conveniently running out of time during our first meeting and said he had a meeting to go to and asked what my fiancee and I were doing the rest of the night. We weren't doing anything, did we want to go to the meeting, no thanks. So, the next meeting he brought the cds and book. I didn't like the cd from the start because the guy was a bad comedian and rubbed me wrong. I asked my mentor I met with the third, and last time, how do I make money buying "stuff" through my business at a lower cost? He couldn't explain it. I told him it would be saving me money if I bought something cheaper through my business, but didn't understand how that would make me money. No comment. I also told him it may not be a pyramid scheme, but it sure appeared that way since he makes money when I buy stuff, and on down the ladder. Then I asked him why he spent 3-4 hours with me the past week, and what if I didn't want to spend that time talking with people? His response was "Because the system is set up to make money and I want you to succeed, I bleieve in you, blah blah blah." If I didn't want to meet with people I could just buy stuff though, and somehow get good deals. He really thought I should go to the meeting, he told me that three times. There was supposedly to be this great speaker there he thought I would connect with. I declined and said if you just started a year ago, and you are forty and you plan to retire in 5 years, then how can I miss the boat if I wait (I'm 24)? Plus if you meet every Tuesday, what's the rush, because if I decide I want to go I can call you? Basically I just wanted to do some research and find out about the business. Then I added, in five years if I haven't joined, he should call me and tell me how his retirement is going, we all had a good chuckle. I also asked him about a saturated market, which can easily happen, his response was "people are turning 18 everyday and that would be hard to do, couldn't happen." I personally think it's a bunch of bs. Hopefully he proves me wrong in five years and makes me feel like an idiot. More power to him. What also bothered me was his wife came with every time and just nodded and didn't really say anything of importance. She just nodded and agreed. It was stupid and wasted my time. Now I know if they can't give me info up front, then I won't waste my time. From the searches I've done, i'm surprised at how others experiences are to the letter almost identical to mine. What was even better was when he asked me about my dreams. I am 24, I own a house, and have no student loans. My house is not big, but it's mine and the banks,lol. I told him after my fiancee and I got married and moved in together we could have the house paid off within 5 years, or at least upgrade to a larger home, and be debt free. I thought that was a pretty good situation, but apparently he thinks I can do better. and retire soon. WEll I think when I get home from work I am going to ride my beautiful motorcycle that's paid for by working for somebody else.

Posted by: tanktop6@hotmail.com at June 19, 2007 03:54 PM

I agree. I had a friend introduce me to it, and he was nice enough to go half on the ticket for the meeting, so I don't feel too ripped off. It annoyed me when they talked to my friend like he was an at-risk person they took under their wing. I also told them about my career plans, I'm 21 now and I'm in good financial standing, and they acted like I was headed for disaster. In addition, I got called a naysayer for asking a few simple questions that they didn't really answer. A lot of you have probably experienced something similar to this, but I just want to get it off my chest now.

Posted by: meye0875@umn.edu at December 24, 2007 04:09 AM

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