Betting on a company's collapse. Crazy or genius?
A few days ago, my husband and I sat down to watch Betting on Zero. I had been wanting to watch the film and it is currently available on Netflix as an instant streaming option.
The documentary follows hedge fund manager Bill Ackman as he bets one billion dollars that the multi-level marketing company Herbalife will soon collapse. Ackman puts together a case against the company and drums up some press coverage and controversy. It is enough for a temporary decline in the Herbalife stock but a few other twists and turns have yet to keep Herbalife from completely collapsing.
My mom participated in three MLMs over my childhood years. She worked extremely hard and was actually successful at them (and that was the age before all these Facebook parties). Watching her work hard and be her own boss was inspiring to me in a lot of ways. I loved working alongside her and helping her with the business. It felt like I was really contributing to the cause and helping her advance in her goals. We traveled a bit as well as a result of her MLM efforts. We even orchestrated a whole trip to Disney World around a convention where she was hosting a booth.
The biggest difference between Herbalife and other MLMs, however, was that (at least at the time Ackman placed his bet against them) there was no way to make money on your Herbalife sales unless you recruited people in your downline. Selling the products alone would not render a paycheck. Herbalife also encouraged their representatives to open up "health clubs". To do this, they would have to find a commercial space and sign a lease. Very few Herbalife representatives make money in the long-run and most representatives actually lose money. The odds are definitely against new reps.
Because of Ackman's work and trying to bring light to the issue, Herbalife was told by the FTC to make some dramatic changes to their business model.
I already feel like multi-level marketing companies have the cards stacked against people at the bottom of the pyramid. The later a person enters the "business opportunity", the more difficult (perhaps impossible) it will be for them to climb to the top. Therefore, the new recruits just feed the top 100 reps in the industry who each make half a million to a million dollars per year. Pretty great gig if you're one of the top 100 reps in any of these companies.
However, at least in most MLMs you can make some money. Maybe not a lot and maybe not even enough to replace your full time income but you can make something. And you don't have to recruit people in your downline to make money -- you can make money just on your own sales and never recruit a soul if you would like.
With Herbalife, you had to recruit people in your downline to start earning a commission. This single fact makes them a pyramid.
It will be interesting to see if Ackman wins his bet. He's done it once before with another company (not an MLM) that he bet against and it took seven years. It has been about 4.5 years since he placed his initial bet against Herbalife. Time will tell.