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Multi-level today is a graveyard. Nearly every MLM giant has been crushed. Tupperware, which built its empire on mid-century housewives seeking recognition, autonomy, and purpose, went bankrupt in 2024. Avon, which promised women for generations that they could turn their social circles into cash selling cosmetics, got dissolved that same year. New Age, which sold millennials the dream of making money from anywhere by drop shipping superfood supplements and CBD beverages straight from their phones, collapsed into bankruptcy just 2 years before Avon and Tupperware. Medifast, which sells weight loss coaching and meal replacements to vulnerable, desperate dieters, has seen its valuation evaporate 96% from nearly
$300 to $11 a share. Nu Skin, which pedals anti-aging devices and skin care tech, has fallen from $90 to single digits. And the biggest MLM of all, Herbalife, is down over 80%. In short, anyone who's invested in an MLM in the past decade has lost just about all of their money. Like today's prediction markets, MLMs walk a thin line between legal and illegal, and they intentionally ride the gray area as long as possible. Despite operating in completely separate categories, all of these companies do the same things. They promise life-changing fortunes, empowerment, freedom, and entrepreneurship to anyone willing to sell. They claim their products are too advanced and innovative to be sold in stores, so the only way to buy these
groundbreaking inventions is behind closed doors through individual reps. They parade scientists, doctors, nutritionists, or PhDs in white lab coats to serve as proof that their products actually work. They throw glamorous events that feature dancers, celebrities, motivational speakers, give away cars, cruises, jewelry, and make sure their spectacle and generosity is filmed for all to see. The top sellers are crowned crazy titles such as presidential black diamond executive, talk on stage about their lifestyles as new millionaires, and repeatedly hammer home that if you work just as hard as they did selling these products, you too can be just like them. And wherever these companies go, controversy is sure
to follow. Tupperware cooked its books for years by dumping inventory onto sellers who had never ordered it and recording it all as revenue. Avon bribed government officials with millions in cash to secure a business license ahead of other MLMs. Meanwhile, Mannatech trained sellers to target cancer patients and parents of children with Down syndrome, framing its products as cures with fake clinical data. Nu Skin was fined for running illegal high-pressure recruitment rings and hiding its pyramid from regulators. Herbalife hustled low-income minorities into a selling frenzy with get-rich-quick spews for decades until the FTC fined it $200 million. Yet none of these scandals ever seem to materially hurt their businesses.
Whenever these companies cross the line in one country, they'd simply pack up and redeploy the same playbook in another country with weaker regulation and fewer consumer protections. Keep in mind, the companies we've named are just the few that got big enough to IPO. Beyond the public markets lies an even bigger graveyard filled with generations of dead, bankrupt, and defunct MLMs that peddled everything from essential oils and leggings to miracle juices and survival seeds. In a healthy business, you make money by selling to customers. In an MLM, you make money by recruiting people who become your customers. When the seller and the customer are the same person, revenue can be manufactured.
This is why MLMs are regularly accused of being pyramid schemes. In a pyramid scheme, you make money from recruitment. You pay to join, you get paid when you recruit others who also pay to join, and the money flows upward from new entrants to the people above them. Pyramid schemes are illegal because they're guaranteed to collapse. Every level needs a larger one beneath it to keep going. As soon as recruitment slows, the whole thing falls apart and the majority stuck at the bottom are the biggest losers. An MLM is near identical, except it sticks a product into the equation. That product is the entire legal defense. If the product is sold to real customers outside the pyramid, then the
business is deemed legal. But if sales come from sellers who are buying product only to qualify for commissions, then recruiting others to do the same, then it becomes a pyramid scheme. This is the line every MLM walks. They survive by keeping just enough product moving to real customers to stay legal, while the real money and growth come from recruitment. A normal business pays out of its own pocket to acquire customers through marketing, advertising, real estate, a salaried sales force, or all of the above. An MLM externalizes all of these costs onto independent, voluntary, and unpaid sellers that work purely on commission. These companies stay asset light, which is why even though their
operating margins look weak, the return on invested capital can be extraordinary. It's easy to cry scam and write off every MLM as a pyramid scheme. But it's far more useful to understand why the model exists at all, what problem it solves, and the organizational and psychological strategies the biggest players use to exploit millions of people every year. The model is scummy, but it's also extraordinarily effective. If dangling money and a rags-to-riches dream were all it takes, then every consumer brand on Earth would run some form of MLM instead of collectively burning billions every quarter on Facebook and Instagram ads for a measly 1% conversion. A massive global sales force that costs
nothing in real estate or payroll, works purely on commission, and sells passionately and persistently is a powerful thing for any company to have. In this episode, we analyze the economics of MLMs from Tupperware to Herbalife to Nu Skin, break down the six telltale signs that define every MLM, and explain why for the company and for everyone in the pyramid beneath it, the good times never last. MLM started in North America in the 1940s as a twist on traditional direct sales. A salesman knocked on doors, sold a brush or appliance, and earned a commission on whatever he moved that day. These were the original gig workers who got paid purely on performance with no salary.
This model dominated for generations until a vitamin company called Nutrilite changed things up. Instead of earning only off their own sales, salesmen could now make money by recruiting other salesmen and taking a cut of whatever their recruits sold. That was the innovation. At their core, MLMs don't change how people sell, only how they're paid. Someone still has to pound the pavement, demo the product, and close the sale. Tupperware became the poster child for MLMs. The company grabbed this new business model and wrote it to global success, doubling sales through the '60s and '70s. Before MLM, Tupperware's plastic food containers had been rotting on shelves. Customers
couldn't grasp the value of the product through print ads. Yet, once the company switched to direct sales, business exploded. It targeted suburban housewives to be both customers and sellers, teaching them to sell from their living rooms by inviting friends, family, and neighbors over for casual get-togethers. After all the cake and gossip, they'd launch into pre-planned product demos, sales routines, and recruitment pitches. Guests would be convinced of Tupperware's merit or simply pressured to buy out of guilt or courtesy. The host held every advantage. She controlled the venue, hand-picked the guests, and pocketed 25% of every container sold. And if she recruited her buyers into becoming sellers themselves, she earned a cut of
their sales, too. Ultimately, the pivot to MLM worked so well that Tupperware eventually pulled its products from stores entirely and made them available only through its growing pyramid of housewives. But, MLM was just an accelerant and not the root cause of Tupperware's success. In the mid-century, the company had no real competition or retail equivalent. With a patented airtight seal and proprietary plastic, there was genuine merit to its products. Tupperware's real legacy was the playbook it handed to modern MLMs who swapped out its one redeeming feature for overpriced generic goods and predatory recruitment where sellers are pushed to build pyramids as wide and deep as possible rather than actually
sell product. Once Tupperware's patents expired in the '80s and '90s, the company became a prisoner to its own sales channel. Once the patents expired, cheap alternatives flooded store shelves. Ziploc, Gladware, Rubbermaid, and Tupperware lost its moat. There was no longer any reason to sit through a living room party just to buy plastic containers, and the housewives who hosted them were now working 9-5 jobs. As US sales slid through the '90s and 2000s, Tupperware tried to crawl back to retail signing a deal with Target, but its sellers felt betrayed. Why pour unpaid hours into chasing commission when the company was now selling the same products on a shelf and poaching
their customers? Sellers quit, revenue fell further, and retail threatened to destroy the only channel keeping the company alive. Tupperware hastily abandoned the Target deal and retreated to direct sales. The channel had become the product, and from here on, the company had no choice but to lean deeper into multi-level marketing just to survive. Thus, the first sign of an MLM is a company that continually adapts its products and brand to feed its sellers. This is the exact opposite of a traditional brand which pushes a single identity, value prop, and core positioning across every market so that it means the same thing everywhere it operates. In contrast, an MLM reshapes itself into whatever it needs to be to
make the next sale. Through the 2000s, Tupperware slapped its logo on whatever was trending. Because its sellers worked purely on commission, the company couldn't mark down its products to move inventory without enraging the very people it depended on, so it just kept adding more products to sell. In the US, it sold baby bottles, educational toys, pressure cookers, and knives. In China, water filters. In Korea, kimchi holders, in India, branded water bottles, in Europe, food processors, specialty sauce makers, cookbooks, and micro steamers. There was nothing inherently wrong with any of the products, but beyond the plastic containers, they were all generic commodities picked out of a
third-party catalog and dressed up in Tupperware's colors and logo. The company would rebrand a product just enough to make it look like a special, groundbreaking, exclusive invention that its sellers could pitch, even though the same item sat on a store shelf and sold for much less under a different name. So, while MLMs like Tupperware always portray themselves as innovators, the business is really no different from a drop shipper's. You source it, brand it, mark it up, and move it. As a result, MLMs have relentless product pipelines. Sellers need something fresh, exciting, and trendy to pitch every quarter, and they can't wait 3 to 5 years for real R&D. Everything comes down to spotting a
trend, slapping on the logo, marking it up, and shipping it out. Under this lens, products are just an ever-widening net that's cast out every month to pull as many people into the pyramid as possible. The second sign is that an MLM product can never be cheap and must always have some theatrical element. It has to be priced at a premium, so the average seller feels the commission is worth the time, money, and social capital they'll invest in making a sale, but never so expensive it's out of reach of the mass market because the business still runs on volume. It must also involve some kind of demo, or the direct sales channel has no reason to exist, and it must be framed as a lifestyle
investment, something financial or personal to justify the premium. So, by default, every MLM product is overpriced and lives in a paradox where it's too complex to be sold in stores, yet needs to be simple enough to wow a room. The third sign is that recruiting is the lifeblood of every MLM. It didn't start that way for Tupperware, but it quickly became the backbone once the company lost its product mode. An MLM will only ever go as far as the size of its salesforce. The more sellers, the more pitches they'll make, and the more shots on goal, the better sales will be. Direct sales is a brutal field. With no salary to fall back on, attrition is absurdly high. It's a salesforce that
can never grow on its own, and the channel is more like a leaking bucket that companies must constantly refill just to stay where they are. There's a hard cap on how much anyone person can sell, since there are only so many hours in a day, so many prospects in an area, and so much utility a product can offer. Thus, when an MLM has no product mode, the business inevitably devolves into recruiting. But, the question is, what gets these people to actively sell, recruit, and stay? An MLM has no sticks. Sellers aren't employees. There are no salaries to dock, no managers, no performance reviews, and no way to fire someone or order them to work harder. In short, the company has little control or
visibility into its salesforce. The only thing it can control is the structure those sellers operate in, and the only tool it has are carrots, cash bonuses, fancy prizes, luxury trips, recognition, and titles, all of which Tupperware learned to dangle in front of its sellers. Every pyramid is built on two essentials, a promotion track that gets you to the top, and a quota system at the base. The promotion track is a career matrix of titles and escalating rewards that pushes buyers to become sellers, and sellers to become recruiters. The quota system is the minimum volume every seller has to move to stay in that matrix. This kind of gamification isn't unique to MLMs, as career matrices exist everywhere in the
corporate world. MLMs simply took that psychology and stripped out the salary, job security, and most of the substance. Under this lens, an MLM operates a lot like an HR department, where it's powerless on its own, does little of the actual work, but designs the structure and pay bands to reward the behavior it wants. Tupperware learned the hard way that every market needs its own incentives, and like the products, the rewards have to feel fresh, exciting, and worth chasing quarter after quarter. For MLMs, there are only three levers to the business. The first is recruitment, bringing in new sellers and growing the sales force. The second is activation, getting existing sellers off their
couches and into the field. The third is productivity, getting active sellers to move even more volume. Of the three, recruitment is the only one with no ceiling. You can only activate the sellers you have, and you can only push a seller so far before they hit the limit of their hours, their network, and the product itself. Recruitment is the only lever that scales and boosts the other two, which is why every MLM is structurally forced to optimize for more sellers, rather than better sellers. The model pushes every seller to build their own pyramid, and the company sits on top as the single pyramid that contains all the others. But activation is equally important. When discount buyers flood
the base of the pyramid, productivity craters, and the real sellers get dragged down. Tupperware learned to be ruthless about weeding out the bargain hunters and inactive sellers. And this in turn creates another paradox. If the product is good enough that people are happy to buy it at a discount without ever becoming sellers, then no one has a reason to join the pyramid. A customer who only buys for themselves must stay outside the pyramid, otherwise they will drag down the levels above them. Each layer stops feeding the one above it, the structure stops sustaining itself, and the pyramid collapses inward. As a result, Tupperware learned to hold weekly local rallies, where sellers
would march, cheer, and sing together. These were a powerful draw for under-appreciated mothers and housewives, who received little validation from society or their spouses for raising children or running a home. At these events, these overlooked women would be recognized, celebrated, and awarded ribbons, pins, and applause for their efforts to sell Tupperware. This was activation in its cheapest and most potent form, as it cost the company almost nothing, converted recruits on the spot, reactivated idle sellers, and sent them all back into the field energized to chase the next round. Meanwhile, the top sellers got to attend a glamorous convention at HQ where they were awarded mink coats, diamonds, and
keys to new cars. The company would also bury televisions, washing machines, and jewelry in a field and then hand the best sellers a shovel to dig out their prizes in front of a cheering crowd. All of this success was filmed and publicized by design to remind the rest of the sales force that they too could make it there with enough hustle and volume. In short, Tupperware staged the spectacle, materialized the carrots, and let peer pressure and jealousy do the rest. The fifth sign of an MLM is relentless expansion. The only way to keep the pyramid intact is to keep stacking more pyramids on top of it. When one market weakens or clamps down, the only path forward is to chase a new
one, so there's always fresh growth to offset churn. As Americans and Europeans slowly caught on that being a seller was nowhere near as easy as advertised and that the same product sat on store shelves for less, Tupperware sales force and business in the West began to slide. By the 2010s, seven of every ten dollars came from the developing world where regulation and scrutiny of MLMs were far weaker and low employment made the pitch land even harder. Tupperware chased women in those countries and bent the brand to fit the local culture. In Indonesia, it hijacked social lottery clubs where women met to draw lots and got them to reframe Tupperware products as the jackpot. In India, it called
sellers lifestyle consultants and taught them to frame their sales events as prestigious seminars on financial literacy and entrepreneurship even though they were really just selling water bottles and containers. In Mexico and Brazil, where door-to-door selling had been normalized for generations, it elevated the everyday hustle into glamour and spectacle, handing out jewelry, new cars, and luxury vacations at televised events to portray Tupperware as an escape for women trapped in low incomes and casts. Ultimately, when you run a pyramid of pyramids, every pyramid matters, no matter how small. It's why Tupperware refused to pull out of Venezuela during hyperinflation or Egypt during the Arab
Spring. But by 2019, Tupperware had been disrupted on every front. The smartphone enabled better paying and simpler gig work with the advent of rideshare and food delivery. The sales force shrank year after year and the cost structure turned lethal. Commission is a variable cost. When falls, selling costs fall with it. But that does nothing for the fixed overhead of factories, wholesale contracts, and the salaried corporate layer that manages every country. Tupperware was the worst of both worlds, operating as both an MLM and a product company. It couldn't fully outsource manufacturing because its lifetime warranty and quality promise was the last thing separating its core products
from generic Walmart knockoffs. The company briefly recovered during COVID as the world was thrown back into the low information under retailed isolated conditions where MLM businesses historically thrive in. Yet as society reopened, business once again dropped like a stone. Every underlying problem returned. The post-COVID generation valued time and freedom and the old carrots of jewelry, trips, and career ladders no longer tempted them. At the same time, Tupperware could not keep up with what the market wanted. The category that the company had pioneered had been upended as consumers moved away from plastic and towards glass and stainless steel. Combined with a
declining sales force and outdated sales channel, every pyramid crumbled one by one and the company they held up went bankrupt. Modern MLMs studied Tupperware's flaws and engineered around them. No company did it more notoriously and successfully than Herbalife. Registered in the Cayman Islands, Herbalife started in the US in the 1980s selling powdered protein shakes for weight loss. The product was nothing special, which is exactly why its founders went to MLM in the first place, relying on private in-person sales and invite-only recruitment seminars to push a product behind closed doors that lacked the science and brand power to earn a place on store shelves. Sellers waved before-and-after photos in
high-pressure pitches and positioned the shakes as a dietary breakthrough. Naturally, its biggest market was Americans. By the 2000s, Herbalife faced Tupperware's exact pressures. Consumers were getting online, researching nutrition, and becoming better educated as supplement stores spread nationwide, stocking competing products. We talk a lot on Modern MBA about market leaders and the motes that protect them. Right now, it's said that every day your business is late to AI, you're falling 2 days behind. But how do you keep up? The competition is only moving faster.
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getting to the next level. Once Modern MBA scales to that seven-figure milestone, we plan to adopt NetSuite Next ourselves. For the first time ever, you can try NetSuite Next for free. If your revenues are at least in the seven figures, go to netsuite.ai/modernmba. That's netsuite.ai/modernmba. Built for every industry, ready for every boardroom. Thank you to NetSuite for supporting Modern MBA and making this episode possible. Herbalife had also been charged through the '90s by the FDA, Canada, and California over false medical claims where the company had been found guilty of teaching sellers to close deals by promising customers that they were guaranteed to lose weight with their
purchase. But, where Tupperware clung to its past, Herbalife reinvented itself for the modern age. It repositioned from weight loss to the broader, vaguer, legally safe umbrella of nutrition and wellness, and changed how the product was sold. Instead of $120 tubs meant to last weeks, it distilled the powder into single servings: a tea, an aloe shot, and a shake sold as a combo for eight to $10. This shift to high-frequency, low-commitment consumption dramatically lowered the bar for a sale and forced buyers into regular correspondence with their sellers. Every interaction was another chance for their seller to nudge them toward another purchase or toward becoming a seller themselves. Beneath it all, Herbalife ran an aggressive point
system. Every product carried a fixed value, and the only way to unlock higher commissions and cheaper wholesale prices was to hit a monthly quota. This incentivized buying your way up as sellers could spend thousands on inventory and stash it in their garage just to move up the ladder. Unlike Tupperware or traditional business where you earn commission only when a product reaches an end user, Herbalife sellers earned commission the moment their recruits ordered inventory from HQ. A recruit could trash the product or pile it in their garage and the seller above them still profited, which pushed everyone climbing the ranks to keep pressuring the rows below them to order more, regardless of whether or not the
product could ever be sold. Yet, Herbalife's real growth engine was its clubs. In the early 2000s, low-income communities in Mexico loved the product but couldn't afford a whole tub alone. Local sellers turned their living rooms into makeshift cafes, gathered the neighbor- hood and split a freshly mixed shake into single servings for $2 to $3. It was the Tupperware party reborn, but with the new and critical addition of immediate communal consumption. A Tupperware party sold you a product to take home, a Herbalife club had you drink it on the spot with everyone else.
Drinking Herbalife became a daily social ritual where people high-fived and celebrated progress over drinks, while the shared energy in the room fed the placebo. The only problem, like before, was scale. A living room could only hold so many people. Herbalife systematized it, pushing sellers in other countries to pool their own money for commercial spaces to dispense product, serve customers, host seminars, and store inventory. The company never put up a cent. It was the sellers who found the location, signed the lease, and split the rent, which only deepened their commitment to the Herbalife pyramid.
Instead of one host pitching strangers in their living rooms, sellers rotated shifts to serve a constant stream of attendees in a professional commercial space. The venue was an all-in-one social hub, sales floor, recruitment center, and fulfillment warehouse. By the early 2010s, there were over 20,000 of these nutrition clubs in Mexico and thousands more in every major country, dispensing millions of shakes, teas, and shots to an army of regulars. At this point, Herbalife faced the same crossroads as Tupperware. The clubs were thriving, so why not take the obvious next step, put up signage, open the doors to the public, and turn them into proper juice bars and neighborhood cafes? If formalized as retail
storefronts, these venues could capitalize on foot traffic and move far more volume than they did as these unbranded invite-only neighborhood clubs. Yet, Herbalife said no. Opening the doors to the public would break the entire pyramid because every sale needed to flow through a specific seller. To remain an MLM, Herbalife clubs are strictly forbidden from becoming stores. There's never any exterior signage, listings, advertising, and open windows. Entry is by invitation or referral only. And no one walking by would even know the club was there unless they were guided in. But, there still needed to be
some equal exchange of value so that sellers would keep funding and operating these venues out of pocket. So, in return, Herbalife gave them legitimacy on the world stage. The company poured hundreds of millions into sports sponsorships to buy mainstream credibility, signing Cristiano Ronaldo as a brand ambassador, sponsoring FC Barcelona, and a slew of other big clubs, becoming the longest-running jersey sponsor in MLS with LA Galaxy, and partnering with national Olympic teams around the world. Herbalife would spend nearly a billion dollars on sponsorships over the next 20 years. The logic was simple. No one would trust an unbranded storefront with blocked windows, but they'd learn to recognize
and trust the Herbalife name and brand if splashed across the chests of the world's biggest athletes. That association did all the advertising that the clubs were legally forbidden from doing themselves. Familiarity became a stand-in for legitimacy. Inside, sellers were taught to give wellness evaluations as ice breakers to steer vulnerable customers into purchases under the guise of personalized nutrition. There was no medical rigor as most of these evaluations consisted of a simple weigh-in and a handwritten questionnaire. To first-timers, the clubs looked like cafes, but they were really sales floors and recruitment centers. Like Tupperware, Herbalife targeted communities that were communal,
low-income, underemployed, yet motivated to move up. While Tupperware rode the 1950s suburban housewife, Herbalife rode the 21st century Latino. For them, soccer was a religion and the sponsorships only deepened their trust in the brand. In American metros, Herbalife aggressively recruited Latinos who lacked the credentials, documentation, or English proficiency to enter the white-collar economy. Unlike corporate employers, Herbalife didn't check immigration status and offered a rare pathway to non-manual work for people who were stuck in low-end retail, restaurants, construction sites, farms, and factories. By the early 2010s, the overwhelming majority of the US pyramid was Latino. Across Asia, Herbalife
chased unemployed youth, new grads, and part-time gym trainers, people with the physical credibility to sell a wellness brand. While Tupperware leaned on a loose calendar of rallies and conventions, Herbalife took the psychology to the next level to convert recruits and motivate sellers. It created an escalating ladder of events, each more exclusive than the last, and where access was gated by how much inventory a seller was willing to buy. Those at the bottom of the pyramid started with free public pitches held in hotel conference rooms and nutrition clubs. They watched before-and-after photos and heard testimonials from customers who swore by the product and
top earners who swore by the business. The goal was to get attendees to sign up as sellers on the spot. New recruits were then funneled into monthly seminars, which were billed as essential product training, but in reality were meant to push participants to buy inventory on the spot. Above that was the leadership development weekend, which was open only to the top performers who hit the monthly quotas. These events were engineered to bring sellers to their most emotionally vulnerable state through hours of shouting, singing, crying, and clapping. And at the very top was the annual extravaganza, where Herbalife packed an
entire stadium with tens of thousands of sellers and brought on celebrities, dancers, pyrotechnics, and tearful speeches from the top sliver of earners who had quote-unquote made it. The best sellers were flown to luxury resorts and made to document every trip, so the dream always looked close enough to touch for the rows of sellers below them. The message at every event was identical. Anyone could get rich so long as they committed fully, bought inventory, and recruited relentlessly. Thus, while Tupperware spectacle rewarded sellers for moving product, Herbalife rewarded sellers for buying it. With brand awareness handled, Herbalife moved to manufacture legitimacy for the products themselves.
The company cut back on outsourcing and began building its own factories to claim ownership over quality and ingredients. It paid academics across the US and Europe to produce cherry-picked clinical studies asserting its products were superior to ordinary dieting. It bought the endorsement of a Nobel Prize-winning scientist for tens of millions of dollars and slapped his name, face, and credentials right on the label. These studies and scientists handed sellers an unassailable weapon against skeptics. By the mid-2010s, Herbalife was launching hundreds of products a year tailored for every market like high-protein iced coffee for Americans, rice pudding flavors for Mexicans, dairy-free formulas for Europeans, and kulfi shakes for Indians.
By 2015, the company had become the biggest MLM on the American stock market. What Herbalife got right was selling consumables where Tupperware sold durables. Herbalife made money shipping product to sellers. Tupperware only made money on the containers carried home by real customers. This distinction enabled Herbalife to sustain earnings along with the appearance of recurring demand because sellers were incentivized to keep buying inventory regardless of whether or not anyone ever ingested the product. Tupperware had no such cushion. Its durables were one-time purchases built to last a lifetime. Herbalife's rapid growth, questionable accounting, and high-pressure sales tactics caught the attention of Pershing
Square, one of Wall Street's most aggressive hedge funds. Bill Ackman was convinced that Herbalife was a pyramid scheme, one where revenue came from sellers hoarding inventory rather than from genuine consumer demand. His conviction ran so deep that he sank a billion dollars into shorting the stock and spent tens of millions more funding private investigators, whistleblowers, and documentary filmmakers. He lobbied politicians, civil rights groups, and regulators to investigate. As we covered in the Chipotle video, bearing companies in bad press was Ackman's MO, but with Herbalife he took it to an extreme, declaring on live television that he'd ride his short to the end of the earth and that the only sane price for the
company was zero. His entire position rested on the belief that the US government would agree with him, declare Herbalife as an illegal pyramid scheme, and shut down the company for good. No short seller in history had ever been so publicly and financially committed to the destruction of a single company. What Ackman was asking for was not unreasonable. The FTC had shut down companies in the past for being pyramid schemes like Equinox International and Trek Alliance in the 2000s. These were all small private companies that operated at a fraction of the scale of Herbalife and didn't have the resources to survive the years of litigation. Yet, the US government had never successfully
taken down a big established MLM. The last time they had tried was in 1979 and the FTC ended up losing. The courts found Amway innocent of being a pyramid scheme, but guilty of price fixing and misrepresentation, which were lesser charges that the company easily absorbed as slaps on the wrist. The FTC learned that once an MLM scales to millions of sellers, grosses billions in sales, and can afford armies of lawyers, the bar for proving a pyramid scheme becomes impossibly high. Herbalife would become the first major MLM in more than 30 years to face a federal pyramid investigation. Thus, Ackman's ask was reasonable, but his bet on a successful conviction was crazy as it depended entirely on something that the US
government had never achieved in its history. Herbalife went on an immediate counteroffensive. Rather than wait for the government to decide, the company proactively rewired the very mechanics Ackman was attacking. It rolled out generous buyer protections, offering first-time sellers a full refund on starter kits and memberships within 90 days, along with a 1-year money-back guarantee on all unsold inventory. With a return rate of just 1%, Herbalife argued it had disproved Ackman's assertion that poor people were losing their life savings on inventory they couldn't sell. Because if that were true, they'd simply have sent it back. But Ackman's biggest argument was that Herbalife's products weren't actually
landing in customers' hands. Because the business recognized inventory orders as revenue and made no distinction between retail and wholesale, he argued the company had no idea and no reason to care where shipments ended up since everyone along that leg of the pyramid got paid. This was the literal definition of a pyramid scheme. Herbalife responded by building a direct-to-consumer website for every seller, where customers could buy online and have it shipped straight to their homes. Since the seller never paid up front or touched these orders, the inventory accusation fell apart. How can you load inventory you never hold? The websites also undercut Ackman's claim that no rational customer would pay full
retail. Yet here were customers doing exactly that online with full freedom to price shop. What Ackman fundamentally underestimated was the cult-like core of MLMs. For all the millions Pershing Square spent on exposés, no mass exodus ever occurred. No spreadsheet can capture the psychology that holds a pyramid together. The social bonds between sellers and customers, the daily routines the products built, and the belonging the clubs provided were all far more resilient than Ackman had imagined. His message may have been right, but he was also the wrong messenger. Ackman came across as an out-of-touch billionaire attacking tight-knit working-class communities who were just trying to make better lives for themselves. From this lens,
Herbalife's customers weren't really paying for nutrition. They were paying for friendship and community, and the daily shot was just the price of admission. With empirical proof of customer demand, the US government had no grounds to shut Herbalife down. It couldn't be branded a pyramid scheme even if the underlying why behind the demand was flawed. But Herbalife was still charged with deception. It had marketed selling as a pathway to life-changing financial freedom and fortunes to millions when in reality those at the middle and bottom of the pyramid earned on average less than $5 a month. It had also pushed sellers to start clubs as a way to supercharge their earnings even though internally the company knew that the average owner
barely broke even on what they put in. The clubs were never the get-rich-quick path that Herbalife had sold. The FTC fined the company $200 million and forced it into a leaner, tighter structure. At least 80% of US sales now had to be verified retail purchases and only 1/3 of commissions could be earned off inventory orders. Herbalife was also forced to split its pyramid and permanently remove the vast majority of members who were really just discount buyers purchasing for themselves at wholesale prices. Sellers now had to complete a full year with the company before opening a club and all lifestyle advertising was banned. But because the settlement let Herbalife keep operating,
the stock surged to new highs and Ackman had no choice but to close his position having lost over a billion dollars across four years. Herbalife had survived Ackman. What Ackman fundamentally underestimated was the cult-like core of MLMs. Its core North American markets had matured and the battle with Ackman had left a black cloud hanging over the brand. In its strongholds of Mexico and the US, the clubs had hit saturation. Operating domestically had become painful under the new mandates from the FTC settlement. Like Tupperware before it, the company predictably turned its attention and investment towards developing countries with weaker regulation and the massive underemployed, uneducated populations that MLMs thrive in. It ran the same
playbook tailoring products to local tastes and introducing smaller, cheaper packaging to lower the barrier to entry, so even the poorest could make it into the pyramid. But, while Herbalife still earns billions today, the stock has cratered 80% over the past decade. The gig economy gutted its recruiting pool. Anyone wanting flexible side income now opens Uber, DoorDash, or a local equivalent for simpler work and immediate payouts. And, like Herbalife before, these apps conveniently don't check immigration status. Meanwhile, GLP-1 drugs have upended the entire weight loss category as objectively superior alternatives. And, inflation has squeezed the very clubs that kept the brand alive. A daily $9 shake and tea combo has gone from an affordable
pastime to a luxury splurge for the working-class customers it depends on. Herbalife these days is stagnating rather than growing as the company has simply hit the ceiling of its own pyramid. While Herbalife built its business on weight loss consumables and Tupperware on kitchen durables, Nu Skin engineered its empire around beauty, scarcity, and the razor and razor blade model. It sold proprietary $300 devices whose gels, cartridges, and primers had to be replaced every 30 days. So, once a seller closed the deal on the hardware, the customer had to keep coming back to them for the refills that kept it running. In short, the device was the hook and the refills were the subscription. Nu Skin pulled more money out of customers than Herbalife and
Tupperware, and built itself a predictable revenue floor in the process. The pitch behind it all was that Nu Skin's devices uniquely attacked the biological sources of aging rather than just covering up wrinkles. Like Herbalife, it manufactured its own credibility, keeping scientists on payroll to deliver presentations at global conferences and turn cherry-picked findings into sales ammunition. The underlying message was always the same. These products were so advanced, so cutting edge, that they could never be sold in an ordinary department store. While every MLM suffers from erratic revenue due to the unpredictable nature of a volunteer sales force. Nu Skin solved that volatility by institutionalizing product cycles. It fed prototypes and clinical
data to sellers, who then drip-fed that information to customers to build hype months before a product ever hit the market. Every product launch would occur at a big splashy convention in limited quantities. That artificial scarcity drove buyers to rush in and secure the first batch. The company would then pull the product off the market for months, so sellers could rebuild the hype all over again before the wider rollout. Nu Skin's value prop landed the hardest in East Asia, where youth preservation is a cultural standard, and skin care is a form of social and professional currency. Nearly 90% of the company's revenue came from outside the United States, with China, Japan, and South
Korea as the backbone of the business. It targeted middle-class women who already spent heavily on premium beauty and wanted a high-status side hustle that could signal that they were on their way up. But, the product moat faded through the 2010s and 2020s. The beauty tech market that Nu Skin had helped popularize became saturated with cheaper competitors who didn't gate their products behind MLMs, conventions, and artificial scarcity. Like the others, Nu Skin's products had to be aggressively marked up to compensate everyone in the pyramid, and customers eventually realized they were paying a premium for the sales channel, rather than for a better product. At the same
time, the overall beauty category itself evolved as consumers shifted away from $100 mechanical devices and toward more convenient, cheaper, portable alternatives like serums and topicals. Nu Skin has since gone down market, away from high-ticket device systems, and toward small, affordable $20 OEM products like toothpaste, face masks, and lip gloss that its sellers can easily pitch on social media for virtual sales. But, the commission on a $20 tube of toothpaste is worlds away from a $300 device system, and the low-cost line couldn't offset the collapse of the premium segment. The new generation of beauty sellers also possess none of the
blind loyalty of the old guard. Traditional sellers had local in-person networks and had sunk thousands into inventory and training, all of which locked them into the New Skin pyramid. Today's social media sellers have no switching costs and no interest in maintaining pyramids. Whenever the algorithm changes or hotter brand emerges, they simply redirect their posts and their audience goes along with them instead of New Skin. Ultimately, the biggest disruption of all came in New Skin's historic strongholds as Chinese, Korean, and Japanese women have become the most sophisticated, price-transparent beauty buyers on the planet. Broadly speaking, MLMs have become obsolete. Modern brands openly
compete on availability, transparency, product, and reputation rather than the information arbitrage, psychology, and gig workforce that sustained these pyramids in the first place. These companies all run on the same machine. Once they switch on that flywheel, it can never be switched off. To keep it spinning, the company has no choice but to keep feeding new products, fresh incentives, and bigger dreams to the sales channel keeping them alive. They have no other play, even when the market, consumer, and competition is about to or has already left them in the dust. Thus, every MLM ends up trapped by its sellers as much as its sellers are trapped to them as two sides that are
just milking each other for everything they can get with no loyalty between them and no vision beyond the next quarter.
