About 3 years ago a friend asked me to look into a multi-million-dollar, international, multi-level marketing company that she was considering. She had been recruited by a woman who promised her great things in return for selling bundled utilities at reduced prices. Maybe she trusted my analytical ability or maybe she just knew I had free time, but she wanted me to give her my opinion of it.
I went undercover on this project and was able to meet with a real rep who was trained in the company rhetoric. Assuming I was interested in joining too, she dazzled me with stories of reps who were making millions of dollars a year and had customized license plates on their Bentleys. But when I asked her to explain the formula for revenue she couldn’t do it. When I asked her how much I would make off my sales, my recruits, or the reps that they recruit, she told me that there were way to many variables for me to calculate on my own. She was quick to point out however that she knows another rep who makes so much money that she paints her poodles nails in real gold (OK, I may have made that one up).
Now I’ve created spreadsheets with hundreds of variables. There is no possible formula I can’t model-up in Excel – unless you refuse to tell me what it is! Furthermore, one of the things everyone learns in business school – or in life in general – is that a complicated revenue model is a doomed revenue model. Yet this clown just kept stonewalling on the important questions while playing to my fantasies. It was only when I found a question she would answer that the veneer started to crack. “How many reps fail before making any money?” I asked. “99%,” she responded, but then added quickly – “that just underscores how important it is to be the best and keep recruiting. Because the best…”. That’s around the time I stopped listening.
What she was telling me was that almost all the reps that join, pay the 500 dollar fee, sign up their 10-20 friends, and then drop out never making a dime. Meanwhile the Company keeps all the customers, the revenue, and maintains a steady stream of new recruits who are willing to chase the dream until they realize they can’t catch it, at which point they sulk away quietly, hoping no one notices.
This also suggests that following the introductory period, the Company is likely to raise prices. Without a rep to assist, converting back would be complicated and likely costly, creating a captive audience environment. I called my friend who by this point had signed up many of her family and friends and warned her to check the numbers on her earliest conversions. Sure enough, the promises she had been making to her closest circle were untrue. Prices were not lower, or about the same, but significantly higher.
She hadn’t yet made any money, and now she was faced with the task of calling all her customers, apologizing profusely for the losses they had suffered, and manually switching them all back – one customer at a time, one utility at a time. Drag, man.
The Company is basically honest to its reps – her friends and family were her easiest customers, they may or may not save money but they will switch as a favor to her, and if she can extend her network to additional customers and reps she would make money. What they didn’t tell her was, it is more likely that her peeps will not save money, she is unlikely to extend her market, that the Company makes money either way, and it is very unlikely that she will ever make her initiation fee back.
The Company is publicly aware of its reputation and train their reps to combat it. They have been accused of fraud and operating a pyramid scheme. At least two states have brought cases against them. The Company’s General Counsel states that “[The Company] is aware of the bad press that’s out there on the internet, and we pretty much ignore it.” So how does a company like this continue to exist and even thrive?
The answer – it turns out – is Donald Trump! The businessman who touted playing into people’s fantasies in his book “The Art of the Deal” has extolled the virtues of this Company for years. He has praised the innovation of their business model in YouTube videos and twice featured the Company on his show the Apprentice. According to the Wall Street Journal, this relationship has netted “the Donald” millions of dollars.
When I researched the Company several years ago, Trump’s picture and quotes were all over the Company’s marketing material. Today however, with his Presidential campaign steamrolling across the country, all reference of him has been removed from the Company’s website and he claims – in typical fashion – “I do not know the company. I know nothing about the company.” Still, YouTube is peppered with videos that demonstrate what a lie this is.
Trump’s attraction to this company isn’t the business model that sells a great product that people want. It is much more likely that he appreciates using the seduction of fantasy to encourage naïve reps to sell a lucrative but worthless product at absolutely no cost to the Company.
Donald Trump may have looked slightly presidential after his win on Tuesday, but his involvement with this sham suggests that he has no moral compass when it comes to business. Companies that do not add value, or prey on their constituents, do not have a place in society even if they can scam some money out of a few people for a few years. People who endorse and profit from such companies are nothing short of greedy hucksters.
And one more thing, I am going to go out on a limb here but a man who in one day publicly makes two references to his penis, one including proximity to Mitt Romney’s face, does not deserve to be President.