The Recruitment Trap

Everybody is searching for ways to increase income. Unfortunately, MLMs often look like an easy way to start a business without taking on the cost of a traditional company. The pitch sounds simple. Buy the product, follow the plan, and put in the work. The numbers behind those promises often tell a different story.

Today's guest, Stacie Bosley, has spent years studying what really happens inside MLMs. She is a professor at Hamline University in Minnesota and holds a Ph.D. in applied economics. Her research covers multi-level marketing, consumer protection, income claims, and pyramid scheme fraud. She has also served as an expert witness in cases involving the Federal Trade Commission and the Securities and Exchange Commission.

We talk about what separates an MLM from a pyramid scheme or a Ponzi scheme. Stacie explains why these opportunities attract smart and motivated people. We'll learn about the role of recruitment including those hidden expenses and fake or misleading success stories. We also learn questions people should ask before investing their money and time in any business opportunity.

Show Notes:

• [01:03] Stacey explains how her background in applied economics led to research on multi-level marketing, pyramid schemes, and income misrepresentation.
• [03:22] Early experiences in rural Wisconsin and changes in retail and internet commerce sparked an interest in how people pursue business opportunities.
• [05:07] Pyramid schemes rely on a pay-and-recruit structure that mathematically leaves most participants with losses.
• [08:57] Adding a legitimate product does not change the underlying structure when profits still depend primarily on recruitment.
• [10:33] Ponzi schemes generally use investment language, while pyramid schemes tie a participant's compensation directly to recruiting others.
• [12:38] Products, demographics, religious communities, and other affinity groups can shape how MLM opportunities are marketed.
• [16:17] Reward-responsive people may be attracted to the recognition, status, and sense of competence these opportunities promise.
• [19:47] Anyone considering an MLM should define what they hope to gain and examine their realistic chances of reaching that goal.
• [22:53] The appeal of a turnkey "business in a box" can cause people to skip the research they would normally do before starting a business.
• [25:32] Earnings often look far worse after product purchases, training costs, conference fees, and other expenses are deducted.
• [28:13] Companies making income claims have a responsibility to explain what participants typically earn and spend.
• [31:02] Disclaimers such as "results not typical" do little to correct exaggerated success stories or earnings claims.
• [34:08] MLM losses can affect finances, relationships, social connections, and a participant's sense of personal worth.
• [37:12] Limited time, money, and energy can be diverted into opportunities that fail to improve a family's financial situation.
• [40:03] A company may be operating as an MLM regardless of its chosen label if participants earn from the activity of recruited sellers.
• [42:22] Important questions include the typical startup cost, ongoing expenses, earnings, profitability, and participant retention.
• [44:23] Claims that unsuccessful participants simply quit or failed to work hard can be used to dismiss troubling outcome data.
• [46:12] Encouraging sellers to recruit their own competitors conflicts with basic principles of supply and demand.
• [48:03] A large number of local sellers may be presented as community support even though it can indicate market saturation.
• [49:47] Resources such as Stacey's TED Talk, Truth in Advertising, and her published research can help people investigate these opportunities.
• [50:59] A reminder to look beyond the sales pitch and ask what people actually earn after expenses.

Thanks for joining us on Easy Prey. Be sure to subscribe to our podcast on iTunes and leave a nice review.

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