How MLMs and Pyramid Schemes Trap Average Americans

Mindy:
Welcome to the Bigger Pockets Money podcast. Today we have a very special show from our Money History series that we are running on Wednesdays in January. Today we are dissecting MLMs.

Jenner:
The American system proper has condoned multi-level marketing for decades now. And so people like Mark and Deanne knew that, they were aware of Amway, they had been part of other multi-level marketing companies, and as much as we want to call them scammers and fraudsters, the American government condones this form of business despite the fact that it is predatory to everybody in a down line, and that only the first members of a multi-level marketing company become wealthy.

Mindy:
Hello. Hello, hello. My name is Mindy Jensen and with me as always is my non leggings wearing co-host, Scott Trench.

Scott:
Thank you, Mindy. Today’s episode is bursting at the seams with information about multi-level marketing companies.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or build a pyramid. We’ll help you reach your financial goals and your money out of the way, so you can launch yourself towards those dreams.

Mindy:
We’re not helping people build a pyramid, Scott. Today’s show is a bit different. First of all, we’re releasing on a Wednesday and second, we have a bit of a history lesson about the beginning of MLMs read by our esteemed producer, Kailyn Bennett. This episode is diving deep into MLMs or multi-level marketing companies.

Scott:
Yeah, first, we don’t give enough credit to Kailyn. Thank you for everything you do, and we’re really excited about these new money series that we’re going to be getting into. I think this was a fantastic episode where we really shine a spotlight on this wealth building tool as it’s promoted. But Mindy, I think it’s fair to say that we are not fans of multi-level marketing companies and neither is our guest, Jenner Furst, and I think I can speak for Kailyn, that she’s also not a fan. And the problem with these multi-level marketing businesses is that the participants are often convinced and truly believe in the ability to pursue the American dream through these quote unquote opportunities. And for well-intentioned people looking to build wealth and passive income, the genuine belief that the multi-level marketing participants have in what they’re doing can be dangerously seductive and very convincing. And we hope to shine a spotlight on the problems with multi-level marketing companies, and why only a tiny fraction of people at the very top of the organization, I guess I can’t use the word pyramid in a legal sense, can really make the money.

Mindy:
I agree with you, Scott. For the well-intentioned people that are just looking to make a little extra income on the side, you can buy into this hype. Nobody comes up to you and says, “Hey, I’ve got this business opportunity,” and they use air quotes when they’re talking to you. “You’re probably not going to make any money, but I’m going to make it sound like it’s great. I’ve got this total scam I want to tell you about.” Nobody’s going to share that with you. They’re going to make it sound really amazing, they have great salesmanship. And I think the biggest thing to watch out for is when somebody has a business opportunity for you, it’s probably not going to cost you a lot of money to buy in. That’s not how a legitimate business opportunity works.
I mean, if you’re buying a franchise, that’s different than buying into a company where you’re selling … “Own your own company. Be your own boss.”

Scott:
Yeah, it’s seductive.

Mindy:
It is. It’s very seductive. Okay, before we explore MLMs, let’s take a quick break. And we are back. Today we have a story from our producer, Kailyn Bennett. She will be taking us through the history of MLMs, and then we will be talking to Jenner Furst, who was the documentarian behind the documentary LulaRich.

Kailyn:
In recent years, we’ve seen an increase in attention to multi-level marketing as a business model. Now controversy embroils most, if not all, the major MLMs that operate in the US. However, multi-level marketing companies have actually existed for over a century and still seem to be going strong in the US and across the globe. They’re actually a worldwide phenomenon with reports that they are growing and developing economies, especially in China and post-communist countries. So how do multi-level marketing companies actually work? Are they a pyramid scheme? Are they a legitimate way to make money? How did they begin? And what are the prospects of these companies in the future?
Multi-level marketing companies began in California in the 1920s and thirties. Remarkably, both the companies that were the first MLMs still exist, albeit with different names and slightly different formats. The first one was called California Vitamin Company, which was later renamed Nutrilite. The other one was called California Perfume Company, which later became the infamous Avon. Probably most of us are familiar with the Avon company. Many of us knew an Avon lady or someone that came into your home and tried to sell you personal products such as cosmetics, skincare, and so on.
So what’s the potential issue with this business model? A multi-level marketing company, as the name suggests, is something that operates through a very strict hierarchy. You’ll have people at the top who typically make a lot of money, and then you have distributors, associates, sometimes called down line members who traditionally make a lot less. And it’s around these people, the distributors, associates, down line members, that the controversy surrounding MLMs revolves. But the way a multi-level marketing company starts in and of itself isn’t anything sinister. You have a product that you want to sell directly to consumers rather than using a middleman such as a supermarket chain or a store. As a business owner, you want to avoid these middleman fees, so you hire people who will go directly to people’s homes and sell your product. These folks will earn a commission off the products they sell, and in and of itself, that seems like a very sensible business model.
However, what often happens with these companies is that they run out of selling steam. This especially has happened in recent years with the rise of online shopping conglomerates such as Amazon and Walmart. Eventually, you can’t compete with these retail outlets that offer very similar products at a wider choice and a lower price point. So what ends up happening is you can no longer make money from selling your product. But some multi-level marketing companies have been known to do to start generating more profit is hire more and more people. The people at the top of the multi-level marketing companies end up earning commission off of hiring more distributors. So now you have all these managers who are responsible for hiring more and more people and convincing them that they can turn a profit from their commissions from selling direct. This practice has been outlawed as a part of a way to eradicate illegal pyramid schemes, but many MLMs still function legally.
In 1975, the FTC accused Amway of operating as an illegal pyramid scheme. After four years of litigation in 1975, Amway won their case. A judge ruled that Amway was a legitimate business versus a pyramid scheme. The defining difference between illegal pyramid schemes and MLMs from the ruling was that distributors could make commission on not only recruiting new members, but also from selling product. While pyramid schemes have no exchange of goods and make money only on recruiting new members. However, numerous reports have demonstrated that people actually don’t make the kind of money off of commissions as multi-level marketing companies often advertise. In fact, a recent study by USA Today found that on average, a bottom of the ladder distributor at a major MLM will only earn 100 bucks per month. And people have been known to go into massive debt just in order to stay a part of one of these companies. People are encouraged to buy a lot of products up front, or they have to meet a certain monthly purchase to stay as an active member.
There’s also this pressure to join, not required, but highly encouraged activities like training sessions or conferences. And these expenses are at a direct cost to the distributors themselves. It’s estimated that a shocking 99% of distributors lose money rather than earn money. And by comparison, only 97% of Las Vegas gamblers lose money. In addition, any MLM company that has been going for a long time is likely to generate you a high income due to a saturated distributor market. What tends to happen in MLMs is people make a decent profit early on when the company is new and there’s this great buzz around it. So you’re going to see a few old timers with large salaries being advertised by these companies as a shiny example of what you could achieve. However, you’re highly unlikely to achieve that amount of success as a new distributor. So are MLMs fraudulent? Technically no. But are they likely to help you generate income? That’s highly unlikely unless you joined an MLM from the very start.

Mindy:
All right, Kailyn, thank you so much for that fascinating history lesson about MLMs. I really learned a lot from that. Now let’s bring in Jenner Furst. Jenner Furst is the documentarian behind LulaRich, the documentary slash expose about LuLaRoe specifically, and the multi-level marketing industry in general. He’s worked on projects like The Pharmacist and Fyre Fraud, and he’s here today to talk about multi-level marketing companies. Jenner, welcome to the Bigger Pockets Money podcast. I am so excited to talk to you today.

Jenner:
Thank you so much for having me. It’s great to be here.

Mindy:
I loved your documentary. I just got done with it. And can you tell us about your documentary, LulaRich, and the premise behind it?

Jenner:
Sure. We were introduced to this story by our partners at Story Force, another production company. And the second that we saw … My company, The Cinemart, has done stuff in the true crime space. We did a film called Fyre Fraud, which raised a lot of attention for influencers and the way in which the illusion of an event or an idea could be portrayed over the internet and the way in which people could be duped and fall for a fantasy that wasn’t real. And of course, driven by a very charismatic founder and leader, and in that case, Billy McFarland who went on to be indicted. So we had a lot of experience in this space, and for us, LulaRich represented the same type of story, but an advancement and an exploration deeper into an idea. And so in Fyre Fraud, it was distinctly millennial. A lot of the people that were going to that event wanted the illusion of being on a yacht with Kendall Jenner and seeing all of these incredible music acts in this exclusive setting and were willing to hawk their life essentially, to get the money to go.
And of course, they show up and there’s FEMA tents and cheese sandwiches, and it wasn’t real. And I think that was one side of millennial culture, but an examination that was distinctly economic. So here we are talking about money, and in that case, you have a generation that is for the first time in American history, with tangibly less opportunity than their parents. The economy has been jacked, the housing market is upside down. All the money you spent on education isn’t getting you necessarily the job. The middle class has been depleted for generations at this point. And so millennials who were seduced, many of them were still living at home and not able to buy homes, not even interested in buying real estate. And all these things that I think were a bigger economic examination in which we always try to center on characters, on human beings.
And so we looked at LulaRich and we looked at the story of LuLaRoe, and we see these incredibly charismatic founders, Mark and Deanne Stidham. Not only were they incredible to be in the presence of in that they really rallied support amongst their teams, they were also extremely driven and had been extremely driven. And for us, it’s a human story. And these things just are not coincidences, nor are we as storytellers fascinated or seduced by the idea that there’s these bad people that do bad things. And if all we could do is just get these bad people off the street, bad things wouldn’t happen anymore. And that’s not America, that’s not the world. There’s systems at play and people are part of system. And in some cases on the economic side, there are bad actors who know that their product is not real and they sell it anyway.
But there’s a system at play. And I think when we examined the story of LuLaRoe and what Mark and Deanne were able to do was they were not reinventing the wheel, and that multi-level marketing has been essentially cosigned by the American system for generations almost. I mean it’s back to the sixties and seventies, Amway. And Amway was challenged in the eighties. And if you actually look at the story of Amway, which I would recommend to the listeners to check out an amazing podcast called The Dream, and it really goes into detail about the Amway case, but the American system proper has condoned multi-level marketing for decades now. And so people like Mark and Deanne knew that, they were aware of Amway, they had been part of other multi-level marketing companies. And as much as we want to call them scammers and fraudsters, the American government condones this form of business, despite the fact that it is predatory to everybody in a down line and that only the first members of a multi-level marketing company become wealthy.
But the reality is, is that the promise that Mark and Deanne made to those first retailers came true, and many of them did become millionaires, but every single tier beneath them suffered. And by the time you get to the average experience of a multi-level marketing or the average retailer’s income in 2020 for LulaRich, was $1,400. That’s the average income for a retailer at LulaRich by the time you get to 2020. And that’s the way multi-level marketing works. And despite that, America seems to think that it’s appropriate that it be legal. And that’s the bigger story that we want to tell.

Scott:
Can you define the difference between a multi-level marketing company and an illegal pyramid scheme in the eyes of the law and what the differences are?

Jenner:
So this is really what’s fascinating is because in the Amway case, they were able to put forward these rules. For Amway, Amway presented almost a Mia Culpa as far as regulations of themself that somehow, have now become precedent. So as long as a multi-level marketing company honors these quote unquote Amway rules that have become precedent for this form of a company, they are no longer a pyramid scheme and they are a multi-level marketing company. But when you look at that, what it does is it says, “Okay, you’ve had some bad behavior. Here’s a speeding ticket. And as long as you honor these Amway rules moving forward, you’re legit.” And in the case of LuLaRoe, they had brought on essentially a multi-level marketing fixer who was able to look at all of the improprieties of their system, and how they were essentially a functional pyramid scheme and say, “Here’s what we’re going to do. We’re going to change this policy, we’re going to change that policy. We need to just let the retailers know about this, that, and this. We need to limit the amount of retail. We can’t say this, we can’t say that.”
And then all of a sudden you’re legit and you get a speeding ticket. And even if you looked at the verdict in the attorney general’s case in Washington against LuLaRoe, that even if every state in the country, which we hope they would’ve, we hope that people would’ve watched LulaRich, it came out over a year ago and that other attorneys general’s around the country would’ve said, “Look at what Washington did. They were able to actually hold this company accountable for defrauding the residents of Washington. Why didn’t California do the same? Why didn’t Utah do the same? Why didn’t New York or so on and so on?”
And you could add up all of those verdicts and you still wouldn’t even dent the large amount of profit that Mark and Deanne’s family has made from this business venture. And so in our system of commerce, as long as you have good attorneys and as long as you’re ready to pay fines and as long as you have creative legal strategy, you can break the law, you can assert some kind of faux regulatory structure on top of your multi-level marketing company, become legit as far as the courts see it, and pay a speeding ticket. And that, when you look at the human story of countless mothers and families in this instance, whose lives were turned upside down and tangibly destroyed, is the price that we all pay for this idea that greed is good and making money is what drives our country and all is fair in the system.
And unfortunately it isn’t. And the regulation should be stronger. And it’s very hard to look at the facts around multi-level marketing and make any distinguish at all between a pyramid scheme. It’s very hard even with these Amway rules to do that. So I think that’s the bigger story, is why is there a system in place? Why are these regulations even considered sufficient? And why are we not looking at the overwhelming evidence that unfortunately, despite creating a lot of wealth and despite the myth of trickle-down economics and that if we create big amounts of wealth for people at the top, it’ll somehow funnel down to these families that are desperate for an opportunity and desperate to just be part of the middle class, despite that not working in the case of multi-level marketing and despite it being an obvious pyramid scheme, the American system proper condoned this.
And that’s the bigger story. It’s not so much about how Mark and Deanne are bad people or how the other retailers on the upline were bad people. We don’t believe in stories like that. We believe that there’s a system, we’re all complicit. And despite the shot in Florida of, “Oh my God, I would never fall for that, look at these suckers. They fell for this crazy scam. They’re so dumb.” That’s not true. We all fall for things. We all do things. We’re all complicit in the illusion that we’re getting over, when in actuality we’re falling hook, line and sinker for things every day. And our type of storytelling is to empathize and open our hearts for everyone on all sides.

Mindy:
So I would’ve totally fallen for this. And I was watching the video and I was still like, “Hey, those pants look cute and I want one of those skirts too.” The Amway rules, are those at the end of the video? Because there was the attorney, the female attorney was saying they have to have a buyback policy, the 70% rule, and more than 10 customers. Are those the Amway rules that you’re talking about?

Jenner:
Those are essentially the short form of the Amway rules. And I think that that is what any quote unquote multi-level marketing company needs to offer consumers of the product, which in this case a multi-level marketing company functions as a wholesaler, and the people who are buying in are the retailers. And so as long as these basic options are in place for the quote unquote retailers, that this is not a pyramid scheme, this is a multi-level marketing company, which somehow is legal. Or as others love to rebrand, it’s network selling or it’s a new term that sounds sexier than multi-level marketing because of the bad press. But in the end, if it walks like a duck, it sounds like a duck. It’s a duck.

Scott:
Jenner, would you mind telling us what is the culture inside of one of these multi-level marketing companies, and why and how does it attract people to them?

Jenner:
So that’s another really centerpiece in that I’ve benefited from capitalism and I am someone who does believe in the pursuit of prosperity and survival of the fittest and all of these different things around capitalism, while also being someone very socially minded and believing that we should have safety nets and provide services and that there should be more of a protection of the middle class dot, dot, dot, dot, dot. So I want to caveat what I’m saying by acknowledging that all capitalist pursuits in a sense, if you look at America, whether it’s Wall Street, whether it’s even academia, everything to a certain extent has a cult. At the root of culture, is a cult. You have to buy in, you have to dress the way that the people dress. You have to talk the way the people talk. And you have to, to a certain extent, no matter how altruistic your pursuit is, you have to drink the Kool-Aid.
And so I think that what you see in multi-level marketing is an extreme form of that, in which the only way that this can work is if the culture is so airtight and that we are playing to the desire, the human desire, to be a part of, and the fear that you could see in even extreme religious circles. So you see this confluence of cult-like behavior, which is necessary and it is directly tied to money, and this idea of a prosperity gospel that if you follow the letter here and you do what we do and you don’t listen to the outsiders and don’t listen to the haters, you are going to be rich like Cindy is rich, you are going to have a house like she has. You are going to have that Escalade, that double Escalade with the vanity plates. You’re going to have two Escalades with vanity plates, just like her.
And I think that that is what a lot of the women were attracted to. And in order to get that, you have to follow this model. And so I’m not saying that LulaRich, the story, is unique in any way or that LuLaRoe as an MLM culture is unique in any way, but to a certain extent, all of us in this system, whether it be podcasting or filmmaking or running a film studio, we all have to buy into a culture. And when you get into some of these high controlling environments where … All you have to do is Google, all you have to do is listen to someone who dropped out two months ago from a bad experience, and you may have doubts yourself about whether or not this company can provide the dream that it sold you. And so what multi-level marketing does, is it functions like a cult in that essentially it tries to control the information as much as possible, because only in that environment can the quote unquote consumer believe wholeheartedly in the mission.
Because the second you start allowing the scientific process … Go talk to people, ask so-and-so who dropped out how they feel. The second you do that, it starts to fall apart like a house of cards.

Mindy:
Can you talk about the pay structure at LuLaRoe? How did it start and how did it modify over time?

Jenner:
I think that as far as the details and the stats on that, you have a situation with LuLaRoe and other companies that are similar in that they’re able to do certain things in the beginning while they’re growing. You mentioned, for example, when you first saw the leggings and the quality of the leggings and you wanted a pair of those leggings. Well, there was a time when it was almost like the wild, wild west and new retailers were able to make a ton of money because there was a lot of down line so to speak, a lot of people that you could recruit and sell and you could have these events and trunk shows and take over a house and there was an energy to it. And at that same time, Mark and Deanne were storing the leggings and the dresses in their garage, and then they went to a slightly bigger warehouse and then another warehouse and they were bursting at the seams.
And at that point, they were able to tell all the retailers that these buttery soft leggings were made in America. And what happens I think with anything is, you can only sustain that level of quality and that level of prosperity for so long. And I think MLMs, pyramid schemes, they’re a great overlay for the system at large. And so the larger you get, the more the quality suffers, the less the opportunity exists. We unfortunately can’t. We don’t have trees that grow money on them and we don’t have factories that can make you the buttery soft leggings with endless amounts of patterns and so to speak, without starting to run into say, manufacturing issues or timeline issues. And so you see an additional confluence of issues. When LuLaRoe becomes a certain size, they have to go global, and now all of a sudden they’re part of this whole other story, which you could see in companies like H&M or Forever 21 or Urban Outfitters, in that order to sustain that sort of demand, they have to engage in what’s called fast fashion, and now they have to use factories overseas.
And now all of a sudden the quality is changed and now all of a sudden some of the retailers are saying that their merchandise is like wet toilet paper and it’s falling apart in their hands and they’re getting stuff with mold on it because they left the merchandise out in the parking lot for two months. So I think that all of it reflects in the pay structure in that you made great money in the beginning if you joined, and if you joined in the middle, you just broke even. And if you joined at the end, well you were [inaudible 00:29:03] out of luck.

Scott:
Yeah, I think in the documentary, I think it appeared that one of the consultants bought $63,000 a product and flipped it for $78,000. That’s a cool 15 grand in a single month, but that the bonus checks were $51,000 in pure profit tour. Can you walk us through the incentive structure for the participants in the scheme and how that led to really perverse incentives?

Jenner:
So this is exactly at the heart of what is a multi-level marketing company, quote unquote, and what is a pyramid scheme. And at its core, a pyramid scheme is a lot more about recruiting new members than it is about selling merchandise, because you’re trying to grow and grow and grow, in that you’re being incentivized for your recruitment, not incentivized for selling merchandise. And so what I think some of the regulations aim to do is to offset that. And to answer your question, and it ties back to the original question you asked, in the beginning, people were making hundreds of thousands of dollars from bonuses and only making, as you said, three figure or four figure margins on their merchandise being sold. And so if you look at that just as a simple fact, the reward was for recruiting people. The reward was for simply bringing people in, and that’s where the millions were being made.
And we have an amazing moment that takes place in the third episode in which we examine this giant almost publisher’s clearinghouse cardboard check given to one of the early members. And in the crowd, you have a bunch of aspiring retailers, some of them who have just bought their first package ever. And part of the culture or the cult of this was, you need to come to the events, you need to come to the cruises, you need to hang out with the winners. And here at that event with all these aspiring retailers, they watch an early retailer receive a check for a million dollars. And so if you are in the crowd, you are thinking, “I too could make a million dollars if I work hard because this is America. And so all I have to do is work hard and follow the rules like these women did, and I’m going to make that big cardboard check one day too.”
But what they didn’t tell anyone in the crowd was that a majority of that check was from bonuses, not from selling any of the product that these women had bought in the crowd and not from being a grinder and having great trunk shows and making margins on your leggings. It was from recruiting people. And if you look at the late stage of that, there’s no people left to recruit to get a bonus that big, and there’s no down line left on the planet. And one of the great things that we’re able to do in the film is show you the way in which you run out of people on planet earth to sustain a multi-level marketing company and the bonus structure that exists for those at the top. So no matter how you play it, mathematically, there are not enough people on planet earth for your down line to ever look like the down line of someone who was there in the beginning. And that’s the illusion and that’s where the fraud is.

Scott:
Just for folks who have not yet seen the documentary, can you go through the specifics of how someone might collect a bonus check and how that pay structure worked at LuLaRoe, so that we can understand the beginnings of that analysis of you run out of people, and how someone can get a million dollar check?

Jenner:
So the way that multi-level marketing works is similar to a classic pyramid scheme in which the second that you enter, anyone who enters as a result of you, including people who enter as a result of someone who entered as a result of you, you are rewarded for. And so if you are there in the beginning or you’re on the second tier or even the third tier, which is the most exciting time to be part of a multi-level marketing company, it means that the 10 people that you recruit, that not only do you get rewarded for recruiting the 10 of them, each one of them is going to go out and recruit 10, and almost like the mafia or something, it’s getting kicked up to you. And so, in your kicking, the majority of the money gets kicked up to the founders, because they’re at the very top.
So the founding people of this organization, this is not a democracy, this is not some kind of egalitarian society or a co-op. The money goes upward and the deception rolls downward. And so essentially, if you were on the second tier or the third tier, Mark and Deanne’s promise to you came true. You were making a hundred thousand dollar bonus checks month after month, after month. And you were making them on autopilot because now, the 10, 20 or a hundred people you recruited have each recruited a hundred people, and those hundred people have each now recruited a hundred people, and now those hundred of the hundred of the hundred, are scraping the bottom to each get 25 or 20 or five. Because what they didn’t tell anyone is that there were 75 plus retailers in Myrtle Beach.
So if you signed up in Myrtle Beach thinking you had a great opportunity, it was tapped out. It was not only tapped out to sell the merchandise because there were sellers everywhere, it was tapped out for any additional retailers, which is what you would’ve gotten your bonus check from. So no matter how you look at it, it doesn’t work for everybody. But boy oh boy, were those bonuses great for the people who joined in the beginning.

Scott:
But specifically, the reason that’s happening is because the people you recruit are paying an entry fee to get into the organization of, I think it was $5,000?

Jenner:
There was a culture. And so basically, you have a base level entry fee. And this is one of the things that if you look at the way that LuLaRoe has changed since the scandal around the company, they made that entry fee a lot lower because it became very clear that to basically convince people to go into debt, to mortgage their home, to borrow money from their family, to beg, borrow and steal whatever they could because they needed a $5,000 buy-in because only with 5,000 could they really offer their customers the type of variety. And this sense of gaslighting, which is another thing that’s common in cults, which is this idea that I’m telling you that it’s raining out when it’s sunny. This idea that I’m giving you this information and portraying it one way when you in your own eyes, could see something else. And one of the aspects of that was you were asked to pay a lot of money to become part of the organization to buy this merchandise, and then you were told that it was a benefit that you could not choose the merchandise.
And that a mystery box equating to your $5,000 buy-in would show up, and in the box was a sense of excitement and promise, and the unboxing of your entry purchase was a ceremonial event. Well, what was that really? That was a way of saying, “We don’t know how to even handle this fire hose of orders and we’re just going to have to slap some things into this box without knowing what they are. And people are going to have to look at this like a blessing when it’s actually a problem.” And so women were ordering $5,000 starter kits, and getting a bunch of lame ducks. They were getting hamburger print leggings with the hamburger on the crotch. They were getting designs of a Leaning Tower of Pisa that look like phallic. All of these lame duck or donkeys, as Roberta Blevins called them. They weren’t unicorns.
So they appropriated these terms like a unicorn as a term for a startup, which for all intents and purposes, LuLaRoe was a unicorn. They were a startup that was heading towards a one billion dollar valuation in a matter of years. And the leggings were called unicorns, but really in actuality, you opened the box and you had donkeys.

Mindy:
There was a part, I actually quoted, I wrote this down word for word. At one point, the interviewer, which could have been you asks Mark right after that check, it was a 1.4 million check. And I only know this because I literally stopped watching, I finished it up about 45 minutes ago. You ask Mark, “Do you think it’s maybe easy to get the impression that the way to make money at LuLaRoe is to recruit people?” Because you asked him point blank, “What was this check for?” And he said, “That was her bonus, her recruiting bonus.” It had nothing to do with how much the person was selling. And Mark responded, “The recognition of huge achievement is not meant to mislead, it’s meant to inspire. And if you’re misled by it, that’s on you.” And I, first of all, congratulations for not bursting out laughing at him for saying that because that’s so absurd. You’re absolutely trying to mislead people when you present somebody with a 1.4 million dollar check and saying, “Thank you, this is for all your hard work.” All your hard work selling? No, all your hard work, recruiting more people.

Jenner:
I think that’s a great point. And many of us in our field of interviewing stumble on these moments and it’s like leading a horse to water, and he drank it up. I have a really interesting moment about ethics and morality because when asked Deanne responds by saying she made it from selling the leggings, she was a hustler and she sold a lot of leggings. And one of the central components of this particular culture was also this Christian overlay. Honesty, compassion, mercy. Mark and Deanne are part of the LDS church and many of the members were part of the LDS church, Church of Latter Day Saints, which people refer to as Mormon. And there was this overlay of just good, honest family values. And at that moment, I think Mark puts his patriarchal, “Let me correct the record here.
It wasn’t from selling, these were from bonuses, but let me put a tuxedo on this dog and tell you that these were for bonuses. But if you think that’s a problem, you are the problem.” And I think that’s essentially what Prosperity Gospel does, is it tells you that if something’s going wrong, it’s because of you. And there are certain aspects of that when it comes to moral character and life choices, that are really valuable. But when you apply them to late stage capitalism and to the idea that there’s an entire class of people, which arguably is 99% of the population who is susceptible to this, and that if you sell them a bill of goods that is defective and then tell them that it’s defective because of them, you are actually doing something far different than encouraging them to find their best self.
You’re defrauding them. And in this instance, by presenting a check for over a million dollars that the 99% of people in that crowd think is related to that $5,000 starter kit or that grinder ethic or whatever, when it’s really related to straight-up recruitment, and there’s not enough people on planet earth for them ever to make that check. Not one of them in the crowd could make that check, let alone five of them, let alone 10 of them, let alone all of them. Then you are doing something far different than encouraging the best moral character in them, you’re defrauding them.

Mindy:
Moving on to how this company kept growing. Let’s talk about social media because this company came on about the same time that this meteoric rise in social media really started to take off. Can you talk about how social media played a part in the growth of multi-level marketing companies in general, and in LuLaRoe specifically?

Scott:
Yeah. And in perpetuating the culture that you just articulated about, you just described for the last few minutes here, how did LulaRoe use social media to harness that?

Jenner:
You can’t have the rise of LuLaRoe as a company, you can’t have the incredible belly flop of Fyre Festival and arguably you can’t have the political climate that we currently have without social media. And what social media does is it allows us to choose a reality and it allows people that benefit from curating a reality, to thrive. And you used to have to go door to door. If you were an Amway salesperson, you used to have to go door to door and people would have to look in the white of your eyes and decide whether they wanted to buy something. And now with social media, they can look at your car, they can look at your family and they can look at the idea of you and the way that you present yourself, and make a decision that way. And that’s what everybody in our culture is currently doing.
We’re spending more time with our neck craned looking at our phone than we are looking at flowers or sky or real life people in front of us. And so I think that you can’t have multi-level marketing in a modern way the way it is today, without social media. And social media is an incredible engine for growth in which you can explode off the scene and you no longer need to go door to door, the same way you no longer need to go door to door as a politician, and you no longer need to go door to door as the retailer of a new product. You can just have a great social media presence and you can get out to millions and millions of people. And if there’s no ethics and there’s no follow through and there’s no code of conduct in place and it remains the wild, wild west, you’re going to have snake oil salesman on steroids who are able to use the illusion of something, to present a reality that isn’t real.
And I think that many of the women bought into a dream that was existing purely on social media. And to advance that point, Facebook Live had just become very popular. And it was through Facebook Live that selling events were happening and the culture of selling events and the fervor and passion that they were part of something live and sellers were developing these identities on social media through Facebook Live. And that’s really where you saw the sales skyrocket. And so you can’t have growth at this level without social media. And although social media, we all want to believe that the proliferation of information is a good thing, and to a certain extent it is, this hearkens back to the idea that do we and are we living in a post-truth society where the facts and truth can no longer exist because it’s a choose your own adventure through a morass of things that aren’t real.
And so if the base human instinct is to put your head in the sand, when you go on social media, you get to do that, and when you’re in business you get to do that. And what happens as a result, is that people end up going hook, line and sinker for something that isn’t what it seems. And I think the biggest message of LuLaRoe and LulaRich as a story, and for those who haven’t seen it, it’s on Amazon Prime and we all have to remember that whether it’s in business, whether it’s in politics, or whether it’s in our community, if it’s too good to be true, it isn’t true.

Scott:
That’s awesome. Jenner, where can people find your works, a list of them, dive in and really immerse themselves in the stories you have to tell?

Jenner:
I really encourage people to look at our work going back 10 years. You can find our work on all the major streaming platforms. You can watch Time, The Kalief Browder Story, which was a definitive piece about race and the criminal justice system and Kalief Browder’s Plight, that’s on Netflix. Our story of Trayvon Martin’s family and the Birth of Black Lives Matter is on Amazon. Our incredible look at one father’s journey to avenge his son’s murder and unknowingly discover the opioid epidemic is on Netflix. That’s called The Pharmacist. And of course, Fyre Fraud is on Hulu. We’d like to think we made the better of the two documentaries. There’s another one on Netflix, hats off to our competitors. I think without the two films, they wouldn’t have been as big respectively, but ours is on Hulu and you can catch LulaRich on Amazon Prime. And just simply Google The Cinemart. Go to our website for new films.
My Instagram handle is Jenner Furst. It’s very simple, it’s just my name and I encourage viewers to check it out. And as I’ve done in the past, whenever I am on a public forum like this, I have no fear in telling you my direct email. And my direct email is [email protected] And if you’re trying to be a filmmaker or if you have a story or if you just want to connect about some piece of work, I am available, I’m reachable and I think that it’s important to be real in our business and you can contact me at any time.

Scott:
Awesome. Well thank you so much. We appreciate it.

Jenner:
Thank you both, it was a great interview, I really appreciate it.

Mindy:
All right, that was Jenner First, the documentarian behind the documentary LulaRich, the story of LulaRoe, the company that sells leggings and skirts and all sorts of other things. Scott, did you learn anything?

Scott:
I learned a lot and really I didn’t put together when I watched the documentary that he was also the guy behind the Fyre Festival documentary, or at least one of them, the better of the two. We’ll give him some …

Mindy:
Fyre Fraud.

Scott:
Yeah, I haven’t watched the other one yet, but I’m really going to … I think I need to dive into a lot more of his work and look forward to learning from other stories he has to tell. One thing that he mentioned to us is that he will not cover one of these stories unless the founder or leader of the organization that he’s documenting, I guess that’s the word in the documentary space, is willing to chat with him and really share their side of the story and open up so that he can get to know all aspects of that. And it’s really not, in his opinion, as he mentioned several times, about the people in the organization. While there can be bad actors, that’s not really the story. The story is about the systems and the damage that they can do. And that’s the problem with multi-level marketing pyramid schemes, it’s that system that can really hurt people at scale.

Mindy:
I like what he said at the end, if it sounds like it’s too good to be true, it’s too good to be true, it isn’t true. And I mean that’s pretty much the case for everything. If it sounds like it’s too good to be true, it’s not true, don’t fall for it. And you’re not going to be able to become a millionaire by selling leggings to your friends at your house over the weekend. That’s not going to happen. Now, people did become millionaires through LuLaRoe, but they didn’t become millionaires by selling. They became millionaires by signing people up underneath them

Scott:
It’s much more fun to become a millionaire as one of the top people at one of these multilevel marketing companies than by spending way less than you earn, grinding away for five to 10 years, investing steadily in income producing assets that slowly appreciate and produce cash flow and spending 1000 to 5,000 hours self-educating about personal finance and financial literacy. But I have my preferred approach.

Mindy:
I’d rather do that than sell leggings every weekend. All right, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
That wraps up this first episode of our Money History Series of the Bigger Pockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, stay stretchy.

Scott:
If you enjoyed today’s episode, please give us a five-star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
Bigger Pockets Money was created by Mindy Jensen and Scott Trench. It is produced by Kailyn Bennett, research and writing by Anna Cochart. Additional research and writing by Kailyn Bennett, editing by Exodus Media, Copywriting by Nate [inaudible 00:50:37]. Lastly, a big thank you to the Bigger Pockets team for making this show possible.