For the second time in six months, a client of ours who is convinced that they have started a small business, has come to us (well, me in particular) and asked me if I wanted to "join" a business opportunity, or would I know anyone (such as my wife) who would like to "join" a business opportunity. The "business opportunity" is to hawk hair-care and skin-care products from a company which I can not name due formal complaints that I have made on behalf of her which I want to stick; appears to be some kind of Multi-Level Marketing group which has finally got its claws into a new group of unsuspecting rubes in Australia.
I make no bone about the fact that I think that this company is nothing more than a sophisticated Ponzi/Pyramid/MLM scheme. Companies and schemes such as this are able to hold out the illusion of seriousness because just like any other confidence trick, perps are always able to find vulnerable marks in an unlimited supply of them. A sucker is born every minute because having been drawn into the scheme, shame and guilt for quitting are then instantly deployed by knaves.
The online reviews for their product are twofold. They either come in 1-star reviews which criticise hideous flaws and/or claims from the product or 5-star reviews that most look like pro forma replies.
As for the products themselves, as I have no way to judge the goodness or badness of nondescript goop in various bottles, then I pass no judgement on the quality of the product other than to say that this company must take its customers for eejits, as there is no sensible way that they can possibly worth 7 and 8 times as much as similar products which commercial hairdressers use.
I do not think that the the quality of the product being sold is necessarily relevant with regards to the business model. Reading through the documentation that comes with the starter pack itself, it appears that the vast majority of income to be made comes from bonuses and portions of profits made by other people downline who have recruited newer members. New members pay upfront costs which are then redistributed upline to the chain of partners who enrolled them. Those newer members in turn recruit underlings of their own, a portion of the subsequent fees they receive is also kicked up the chain.
One of the features of the documentation of the program, is the strange terminology used to describe everything. A new member who is called a "Volume Partner" is invited to buy a starter kit and maybe a few goods of what appears to be fairly average hair-care and skin-care products for the price of $109. These have a "Personal Volume" index of nil. From there, the Market Partner is encouraged to take on new stock to the have of several hundred dollars, for which they will receive 30% commission as well as various PV points. They will also receive points known as "Total Volume" or if they have accumulated a small team, "Downline Volume".
In order to become a "Volume Leader" a person needs to have gained a "team" of at least 6 people under them, shifting at least 30,000 in total Downline Group Volume of stock. I worked out that at bare minimum, a Market Mentor would need a team of minions shifting at least $48,000 worth of stock; which they would have collected $68,572 in revenue and for which they would have made $20,571.60 in profit. To get anything approaching the median wage in Australia, someone will need to shift roughly $228,000 worth of stock; at that point, this no longer looks like a business which can be effectively run out of someone's garage.
What I find even more insane is the published structure within the documentation. There are in fact only 32 actual paid employees on the books of the company; which accounts for literally everyone labelled as a "Market Mentor" and above. My immediate guess is that the revenue figures which are published in the brochure are complete garbage and a more likely story is that there are 13 actual employees and 19 people who work on a part-time basis.
The structure as published in the brochure is thus:
2 - Executive Director - $386,364
4 - Associate Executive Director - $135,088
7 - Managing Volume Leader - $79,582
19 - Volume Leader - $39,176
66 - Managing Volume Builder - $7,797
480 - Volume Builder - $5,244
2280 - Managing Volume Partner - $1,524
4890 - Volume Partner - $112
It is not my job (yet) to do a forensic look at the accounts but even if you add all of these revenue figures together, then the total revenues of the group works out to be about $9.6m. Now I'm not saying that a 9 million company is anything to be sneezed at but if the hair-care and skin-care products were that great, then why the jinkies had I never heard of them before? Also, if you were a serious company, why would you share the revenues of a $9.6m company with 7500 people? That strikes me as being so unbelievable as to not believe it.
My general problem with people using anecdote and saying that something "worked for them" is that people as the heroes of their own universe, are hideously unreliable narrators. Anecdote is not evidence. Anecdote might be the beginning of evidence but only if it is part of a much broader data set.
The most basic due diligence checks which you should do if someone asks you to become a "Partner" or wants to invite you to start a "small business" are as follows:
1 - do they want you to get an ABN?
2 - have they given you a Tax File Declaration form?
3 - are they prepared to show you any Tax Invoices that they have generated, that contain the usual statements of ABN and GST on them?
If the people who want you to "join" them, can not give you at least one of those things and the immediate relationship between you and them in a business sense can not be very reasonably and quickly established, then the product which they have arranged for you to sell, is not the actual product of the transaction. You are the product and whilst the arrangement might not actually be a pyramid scheme, you are very much a mark and a rube.
The next thing that you should test is how much people react if you leave or quit. If you are somewhere up the chain and your leaving would cause many of your followers to disappear, then that put their position in jeopardy.
I expect that the truly successful people in the program, make new members feel really special, as if they have just been introduced to something exciting. From what I can determine, the process to recruit new members involves love-bombing and gaining of trust, in what looks all the world like grooming.
Multi-Level Marketing schemes eventually fail if they are going to because the business model is inherently unstable. To shift roughly $228,000 worth of stock basically assumes that you are already in charge of 2 Managing Volume Leaders or 5 Volume Leaders. Already that means that there is only room for about 4 such people in the organisation; which says that they only real method of accumulating that kind of turnover, is the constant recruitment of Volume Partners. As a volume partner is someone who has bought a starter pack and is highly likely to be disillusioned, then the required turnover of new Volume Partners is massive. Very quickly, this looks like a ponzi scheme.
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