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What's up, guys?
Helen here.
You don't have to be choking down an Herbalife protein shake
while wearing a buttery soft pair of LuLaRoe leggings
to know that multi-level marketing is everywhere.
You may associate MLMs with your Facebook friend Ash Linden,
the homecoming queen who got married young
and now slides into your DMs with business opportunities.
But globally, 100 million households
buy into an MLM every year.
And at any given moment, one in six American households
are under contract with one of these companies.
And trust us, they would love to make you
their next recruit.
And yes, dunking on MLMs has become something of a pastime.
You've seen John Oliver's eviscerating expose
on "Last Week Tonight"
or perhaps listened to the podcast The Dream,
but just in case you were still debating whether or not
to take a second mortgage out on your home
in order to buy a wholesale supply of protein bars,
let us be crystal clear, MLMs are categorically a scam.
Statistically, you're more likely to profit
from gambling in a casino than from joining an MLM.
That said, today, we're not gonna regurgitate every point
about this icky industry,
no matter how alarming and valid those points may be.
Instead, we're going to ask,
why have MLMs becomes such a mainstay of the global economy?
And what does it say about us, both as people and a society.
I'm scared to learn the answer, but sure,
let's explore in this Wisecrack Edition,
how MLMs took over the world.
But before we dive in,
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And now back to the show.
Now, to understand the power of MLMs,
it helps to know where they came from.
The basic MLM model was first invented
and implemented by an unlikely trio of men
in the early 1940s,
a failed entrepreneur, a radio show psychologist,
and a salesman turned sales manager
for the world's fanciest cemetery.
A real holy trinity of dudes
you wouldn't wanna sit next to on a cross country flight.
Each of these men is unique.
First we've got failed entrepreneur Carl Rehnborg,
who banked his fortunes on selling evaporated milk
to the burgeoning 1920s Chinese market.
Despite the fact that the culture's cuisine
used almost no dairy.
After a couple more failed businesses,
he put processed alfalfa sprouts into a capsule,
called it a vitamin,
and then desperately tried and failed to sell it
via his company, Nutrilite.
Also in this bro squad, we have radio show psychologist,
William S. Casselberry, who wrote books with dubious titles,
like "How to Work Miracles in your Life:
The Golden Secret of successful Living."
Hurting for money, Casselberry signed on
to become a salesman for Rehnborg's Nutrilite.
But the most interesting player has got to be Lee Mytinger,
Door-to-door salesman turned sales manager
for Los Angeles Forest Lawn Cemetery,
which is only a few miles
from Wisecrack's world headquarters.
Today, your decaying body can still find rest
in this fancy-ass burial ground,
and we hope you love it there.
But heads up, that you will be surrounded by an art museum,
gift shop and reproductions of classic Italian statues
that have a penchant for randomly toppling to the ground.
Mytinger's job might seem innocuous in a modern day context,
after all, the funeral process is really (beeps) expensive,
no matter where you live.
But prior to 1920,
most people used to get their burial plots at a low cost
or via donation from churches or other nonprofits.
That is until entrepreneurs sent hoards
of direct door-to-door salesman
to pedal yoga mat sized chunks of land
to people who were, well, not dead yet.
And when someone had actually died,
these salesmen would often exploit the grief
of family members.
They'd do things like pressuring them to do right
by their dead relatives
by investing in expensive funeral costs.
Now it's not like people woke up one day
wanting to spend thousands of dollars
on their final resting place.
So the more than 100 cemetery salesmen that Mytinger managed
had a very specific and very ambitious job,
they had to create a widespread want and need
for a product that nobody had asked for.
They weren't responding to natural consumer demand,
they were providing a supply of something
people were used to getting for cheap and/or free.
But Mytinger was annoyed by one aspect
of his job description,
training salesman who would eventually
get promoted to manager.
Once promoted, he stopped earning commission
off of their sales, let alone anybody they managed.
Mytinger dreamed of creating a business model
that would allow him to continue to profit
off of his underlings' success.
He envisioned a world where I keep the income
from the people I develop.
So cemetery guy and the radio psychologist
met in a self-improvement course and became best buds.
In 1943, they developed the plan,
which they brought to their vitamin buddy Rehnborg.
The plan was a new way for him to market
and sell his alfalfa capsules.
This plan detailed the nuts and bolts
of multi-level marketing,
AKA a recruitment based direct sales force.
And this alfalfa sprout has sprouted MLMs
as we know them today.
Faced with an unremarkable item that nobody wanted to buy,
our trio did something savvy.
They created a fake demand by recruiting a growing army
of salespeople who had to buy a stockpile of vitamins
they would then try and fail to sell.
And those 1940s salespeople were spurred on
by all the same promises you hear today,
endless revenue possibilities,
becoming a small business owner,
working flexible hours and so on.
And if they recruited some unsuspecting friends,
they'd be paid a pretty penny for their trouble.
The company had a standard five get five plan
in which each member, starting with founders,
was tasked with recruiting five new salespeople.
So you get commissioned for everyone you recruit
and everyone your recruits recruit, and so on.
This might seem innocuous at its face,
but pull out a calculator,
and you'll quickly see that this process can only last
for approximately 13 rounds
before you'd need to recruit
more than the entire population of the planet,
according to multi-level marketing critic,
Robert FitzPatrick.
And there's every reason to believe
the founders of the first MLM
knew that the exponential growth plan
was entirely unsustainable.
In fact, one of these clowns even joked
that everyone on earth would eventually
be selling the product.
And in a way, it worked.
Nutrilite's revenue grew by an astounding 50000%
in just nine years.
Of course, that revenue under the plan
mostly flew to the top 4% of the food chain.
Those who had recruited early on
and now had thousands of people beneath them.
It was less people earning money
and more a transfer of wealth from the bottom 96%
to those at the top.
Then in the late 50s, two seasoned Nutrilite salesmen left
and formed a new MLM, Amway,
which sold basic household items
like detergent and body wash.
These dudes, one of whom birthed Betsy DeVos's husband,
didn't merely carbon copy the model, they brought in God.
As FitzPatrick puts it,
Amway turned earning money into a moral crusade
by promising wealth as a salvation
and proclaiming failure as a sin.
That is to say, good Christians sell soap, and lots of it.
It's no wonder that one sociologist called Amway
a quasi-religious corporation
for its success at grafting commercialism
onto existing models of evangelical Christianity.
As FitzPatrick elaborates.
Amway's moral tone and Christian rhetoric,
blended inexplicably with patriotism and capitalism,
were adopted by many MLMs that followed.
Christian churches became hotbeds of MLM recruiting
with clergy in the uplines.
That's right, your pastor might be trying to sell you
on a lucrative opportunity involving laundry detergent.
And importantly,
many of history's most successful MLMs today
sell products like face creams, vitamins, and diet pills.
And these just so happen to be products
known for their reliance on questionable marketing claims,
which encourage the same magical thinking
that gets people to join MLMs in the first place.
So now that we know where MLMs came from, it's worth asking,
how do they get millions of people to join?
And more bafflingly, how do they get people to stay
in an economic opportunity
that's mathematically destined to fail?
Let's investigate via Amway, the big daddy of MLMs.
Amway exploded during the economic downturn
of the mid-1970s.
It was a time of stagflation, the destruction of unions,
the privatization of social safety nets, and so on.
This environment created the perfect conditions
for MLMs to seem like an enticing opportunity.
Amway's success would only intensify
in the buzzy, consumer happy decades to come.
So it doesn't sound that hard to make people join.
After all, as human beings,
we're wired for low effort, high reward prospects,
just ask your great uncle
who buys five lottery tickets every week.
But let's say you're intrigued by an MLM.
How do they get you to stay
once you've learned that it's hell on earth?
It's simple, they take over your life.
That's according to Stephen Butterfield,
a former Amway salesperson who wrote a tell-all book
about their practices.
According to him, Amway slowly but surely takes over
every aspect of your existence.
Your upline recruiter convinces you
to give up outside friends and hobbies.
There's also low-key brainwashing.
For instance, Amway convinces you to buy
expensive motivational tapes
recorded by the company's founders,
and tells you to listen to them every day.
This practice is what FitzPatrick describes
as pseudo-psychological self-improvement programs.
This makes sense because MLMs don't actually offer
tangible economic rewards to their participants,
so they have to, like cemetery salesman,
sell people on an idea.
As FitzPatrick puts it,
MLMs seek to capture the mind of the recruit.
Money will follow.
The more they believe and the longer they believe,
the more money the company gets from them.
And once they get you to buy in,
they keep you by exerting increasing control
over your choices.
As Butterfield explains,
you follow your recruiter's advice on everything
from how to cut your hair
to what kind of motor home you should buy.
He details the various bonkers advice that MLM leaders offer
on things like marriage, sexual practices,
and how to raise your children.
We see a similar ethos reflected in current MLMs,
most notably LuLaRoe.
- We were...
supposed to be empowered at first
and then the husband was supposed to takeover.
- And like other MLMs, Amway also demands all of your time.
As Butterfield notes, Amway insists distributors
work five to six nights a week on recruitment
and sustaining their business.
They pump you up at creepy social events,
where upwards of 10,000 people stand for hours in the dark,
holding candles, shouting Amway themed chants.
Butterfield says that the events often go past midnight
and crowds pour out into the streets at 3:00 AM,
still chanting their mantras.
♪ Let's take a trip ♪
♪ Let's get away ♪
♪ On an Amway super trip ♪
It's no wonder then that author Amanda Montell argues
that MLMs are, if not straight up cults,
at the very least, cultish.
For more on that, check out our recent video on the topic.
Like a cult, an effective MLM
subsumes the lives of their members.
It reshapes their worldviews and priorities.
And it threatens serious social and economic repercussions
to anyone who even considers leaving.
But maybe you're thinking,
it's all worth it for the money you're gonna make, right?
Did you just black out?
You absolutely will not profit,
unless you invented the MLM or joined right away,
you will lose money.
So there you have it,
MLMs are an almost guaranteed economic loss
and a very not fun culty vibe.
So how have they survived?
Well, importantly, they've bought a (beeps) ton
of political clout via their gigantic
direct marketing lobby.
Checkout FitzPatrick's "Ponzinomics"
for an in-depth breakdown of that insane story.
But for now, we're gonna focus on the culture
and the psychology that has sustained MLMs,
because that seems just as important
as the government corruption that's helped them along.
And for that, we'll need to jump back in time again
to the moment MLMs appeared on the scene,
the post-World War II economic boom.
This was approximately the same time
as the birth of the consumer based economy,
where increased production capacity
meant there was a lot more (beeps) being made,
and thus, a lot more (beeps) to buy.
Suddenly, consumer behavior needed to stop being
entirely needs-based
and started becoming a whole lot more wants based.
So how do you get people to want (beeps)
they don't absolutely need?
You sell them hard.
Unsurprisingly, the late '40s, early '50s
was also the birth of the salesification
of American society.
Per historian Richard Huber,
while sales was once considered a separate occupation,
it was rapidly becoming a way of life.
America was becoming a nation of salesmen.
At the same time, sociologist C. Wright Mills concurred
that the growing influence of sales in this time
meant that in public and in private,
there was the tang and feel of salesmanship.
Salespeople, especially of the door-to-door variety,
had once constituted a specific small role in the economy
and were often derided as kind of predatory,
but as companies had more and more (beeps) to sell,
sales got a major rebrand,
and the explosion of advertising, PR, marketing, and so on,
meant that more and more people's jobs
were based around getting people
to buy more (beeps) they didn't need.
Check out our How Advertising Changed video
for more on that.
Anyway, that's why the emergence of MLMs
at this moment in time makes perfect sense.
Multilevel marketing is the logical conclusion
of a sales based economy,
where everything revolves around selling products,
then selling people on the opportunity,
to themselves sell more of these products.
But this, as many a tortured economist
has held under the wind, doesn't make sense.
See, the reason 80% of MLM recruits quit in the first year
is because MLMs don't function under rules
of supply and demand.
They grow not because of consumer demand,
but by selling the members on the lie of economic success.
Then those people buy a ton of the product
to sell themselves, thus generating revenue for the company.
After a while, you've completely oversaturated
any given area with salespeople.
It's the equivalent of every person
who likes going to their local Wendy's
subsequently opening a Wendy's on the same block
because the cashier was really (beeps) charismatic.
But let's set aside the irrationality.
The real point is that the salesification of society
has normalized the interactions you have over Facebook
with Ash Linden, as she tries one last time
to get you to come to her meal replacement soy shake party.
In an MLM-led world,
the mix of money and friendship no longer seems strange.
According to FitzPatrick, prior to 1930,
bringing up finances or money-making with buddies
wasn't super kosher, but he elaborates,
overall reactions to these devious financial intrusions
into personal spheres of life,
worship, friendship, family,
have declined from moral outrage to mere annoyance
or grudging tolerance.
For many others, there is no longer any boundary at all.
And to us, that's what's most nefarious about MLMs,
besides, you know, the bankruptcy, clinical depression,
divorce, and overall despair
that the industry has been known to cause.
Because on a socio-cultural level,
MLMs obliterate the line between markets and private life.
Family members and customers, friends and employees.
In doing so, they essentially reduce all human relationships
to transactions.
Butterfield wrote as much, saying,
"Amway begins to change your life
the first time you approach your friends and family members
to sell them the products,
or recruit them into the business.
Hitherto you related with them as friend, brother,
sister, son, daughter.
Now you're relating as a salesperson to a customer.
Friendship is no longer primary, it is a means to the end."
According to him, once you recruit a friend to an MLM,
your relationship becomes
a completely prefabricated business association,
in which honest friendship gradually becomes impossible.
This is almost too fitting for our weird era
of late capitalism, where everything is a commodity
and every person a brand
with potential to peddle that commodity.
And above all, MLMs work at an almost lizard brain level,
exploiting the most American belief,
that all you need to succeed is an opportunity,
hard work and dedication.
And on the flip side, if you fail to succeed, it's on you.
Now, obviously this is a myth that has become
increasingly untrue over recent decades.
Work hours and productivity are way up,
while wealth is down for most folks by every metric.
If MLMs were somewhat delusional
for our grandparents in the '50s,
for us, they're a downright fairytale
where nobody becomes a princess in the end
and not in a subversive Shrek way either.
- I'm supposed to be beautiful.
- But you are beautiful.
- [Helen] And in this way,
MLMs aren't that different
from the American economy at large,
which assures us that hard work will be rewarded
with high pay, or that an expensive college degree
will yield a steady lifestyle,
or that home ownership will equate to lifelong security.
MLMs are just an exaggerated, almost cartoonish form
of this toothless myth.
They offer riskier opportunities,
make bolder promises and screw you over even more.
- And I'm also having to claim bankruptcy.
- In this way, they're an almost too perfect distillation
of a society that over-promises, under-delivers,
and then blames you for your problems.
But what do you guys think?
After everything you've heard,
are you still interested in starting your own small business
where you pick up your own hours and are your own boss?
If so, please let me know in my Twitter DMs,
because boy, do I have an opportunity for you?
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And as always, thanks for watching.
Peace.
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