Last night, I found myself on Skype with a gentleman named Shawn Stoik who was telling me about this fantastic new product, and the unbelievable opportunity I had to "get in early" in marketing Verve to Canada.
Within about four seconds, I was pretty sure it was a pyramid scheme. But I played along for an hour and asked the tough questions (to which he didn't have answers).
Here's why I think it's a pyramid scheme.
I was brought into a meeting by a friend who told me she wanted my advice for a new social media marketing company she started up (or so I thought).
Shawn started off by telling me how much money he and all his friends were making in this "billion dollar" business. He mentioned that he retired when he was 26, and proceeded to show me his pay cheque for last month - $3,600.
I had to hold back a laugh.
Not only is $3,600 not an incredible sum of money for a 30 year old "retiree", he was adamant that it was a REAL cheque written from the company's president.
Usually when managers assure me that the company pays with real money, I get a little concerned. He then went further to insist that the product is endorsed by Dr. Oz and Oprah. There was a lengthy discussion about the incredible health benefits of the product such as anti-inflammatory properties, cancer prevention, fighting off colds, etc. I let it slide, but the health claims would prove to be an interesting point when I did more research later (see bottom of page).
The real red flag came when he couldn't explain this one simple question: Where is the income produced?
The products are never sold outside the pyramid, so I was failing to grasp how thousands of dollars could be generated per month in revenue per salesperson. I tried at least three times to frame the question differently, but each time he just went on to tell me how fast the company is growing, how much money he's making, and how I don't want to miss out on this opportunity because there will be dozens of people who would happily fill my spot.
What qualifies a pyramid scheme as illegal?
According to the Canadian Anti-Fraud Centre, an illegal pyramid scheme has three criteria:
Compensation is paid for recruiting a new salesperson.
There is inventory loading, that is, the recruits must purchase an unreasonable quantity of product. Purchases are required as a condition of entry. (You may, however, be required to pay for a sample kit, but this kit must be at cost).
I'd like to address each of these points, and how Vemma meets each and every one of them.
1. Compensation is paid for recruiting a new salesperson.
Each new salesperson who gets recruited buys in for $500, which gets them 192 cans of Verve energy drink ($2.60 per unit). They can do whatever they want with those 192 cans - drink them, give them away, have a party, etc. Shawn was adamant that new recruits don't have to sell anything at all (which isn't actually true, because their sole purpose in life is to sell the new recruits on signing up). They could literally throw the energy drinks in the garbage, as long as they recruited new people.
One thing that he was sure to emphasize was that I would make my money back in the first week. If I just signed up two new people (who each paid the $500 entry fee) I would get a $700 bonus, more than making up for my entry fee. For every two new people that I signed up thereafter, I would also be given a bonus.
That sure sounds like getting compensated for recruiting new salespeople to me.
2. There is inventory loading, that is, the recruits must purchase an unreasonable quantity of product.
After the initial buy-in, recruits have to subscribe to a certain amount of product per month. The minimum monthly order was 48 cans for $130 ($2.70 per unit). He assured me that I could order more cans per month if I wanted, but that was the minimum.
Since the recruits aren't actually selling the product, but buying it at a massive...
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