Introduction to Herbalife MLM Compensation Plan
A few days before I set about writing the current batch of reviews of multilevel marketing (MLM) companies, I went to the movie theater with my mom, my brother Brian, and Brian’s wife. My niece and nephew, along with some of my younger cousins, stayed home with my dad, who impressed them with his skill at roasting marshmallows over the barbeque. Going to the movies at Christmas has become a family tradition in our family, and my sister-in-law has always enjoyed it but, as she has two children under the age of six, has been on babysitting duty for Christmas movie theater night for the last few years, and it was, in large part for her sake that my dad decided to do a Christmas encore of his Halloween marshmallow roast, and then all the other kids in the family also wanted to go, as well as some adults, so, if anything, we were the ones who missed out on the fun. The movie we saw was The Big Short, about several misfits, who, independently of each other, looked at the data in just the right ways that they were able to see the handwriting on the wall before the big housing market crash of 2008. I knew, going in, that I was going to enjoy the movie, since I am no stranger to distaste for and distrust of corporate America. But I had no idea how much the movie was going to inspire me. The Big Short was to the current phase of Notebook Crazy MLM reviews what the Pink Floyd planetarium show of 1998 was to my erstwhile classic rock blog.
I came out of the movie theater determined to write a blog that would look at all the MLM companies out there from just the right angle that the cracks in their architecture would be obvious to all who looked. I came out determined to warn people about all the shady MLM companies out there, and many of them are shady. But those had been my goals for a while, even before I saw The Big Short. What changed when I saw The Big Short was that, now I dreamed of exposing the audacious antics and dramatic downfall of an MLM company with a life cycle that sounded like it could be a movie plot. Today I found one, and now you can read about it here in my Herbalife review.
Herbalife: The Company and Its Products
Herbalife is an A list MLM company. Its name recognition is up there with Amway and Avon. When I first saw that today was my day to write the Herbalife review, because if you have reading Notebook Crazy, you know by now that nutraceuticals are one of my least favorite things in the world, but a closer look into Herbalife’s history reveals enough shady business and brushes with ruin to inspire a whole generation of screenwriters.
Herbalife products include dietary supplements geared toward weight loss, improved athletic performance, and general health. Mark Hughes founded the company in 1980, when everyone wanted to be skinny but cocaine was expensive. Herbalife rode the wave of crash dieting and fad diets in the 1980s. The company has never been without its share of controversy. There have always been concerns about Herbalife side effects. Many of Herbalife’s products from the early days used stimulants such as caffeine to suppress appetite, and some of its weight loss products achieved their effect through laxatives. If you are old enough to remember the 80s, you probably know someone who took stimulants, laxatives, or both in order to lose weight; the 80s were the Golden Age of over the counter diet pills. You probably also know that there is not a nutritionist on earth who thinks that these are safe ways to lose weight. In 2002, when the first laws were passed that would eventually lead to ephedrine being banned in dietary supplements, Herbalife discontinued its products that contain ephedrine. (Ephedrine occurs naturally in some herbs, and it has medical uses, such as in local anesthesia and as a treatment for asthma.)
We might consider these things to be reasons why Herbalife is bad, or we might just consider it a product of its time. But the diet pills that feed on people’s desperation to be skinny are not even the most 80s thing about Herbalife. Herbalife used to hold, and still holds, something called nutrition clubs, which from my understanding are something like a poor man’s Weight Watchers or Jenny Craig. Perhaps a better description of them would be a financially illiterate man’s version of Weight Watchers or Jenny Craig, since MLM tends to feed on financial illiteracy the way that whales feed on plankton and the way that dwarf crocodiles gearing up to aestivate feed on small crustaceans. Herbalife nutrition clubs are set up like a friendly support group for people trying to lose weight, which is actually less of a sham than when other MLM companies try to get you to act like MLM home sales parties are actually fun. You can’t convince me that Herbalife is the worst MLM company out there, because I have seen much worse. (If you don’t believe me, read some of the other reviews on this site, or just Google “snake skink Boris the spider”, “organic belligerent planetarium”, or “quadruple crown diamond barf” and see what happens.) Herbalife is not the worst MLM company out there; it just happens to be the one surrounded by the most interesting controversies.
Mark Hughes, the founder of Herbalife, lived a life that could have been a movie plot if screenwriters had a better imagination. By age 19, he was in drug rehab; around this time, his mother died from an accidental overdose of prescription drugs. He founded Herbalife at age 24, and the company was a huge success. Various government entities, including the Food and Drug Administration, sued Hughes in the 1980s for making claims about the health benefits of Herbalife products when he did not have the authority to make these statements. (Beyond not being a medical doctor, Mark Hughes only had a ninth grade education.) When brought before the U.S. Senate in May 1985 on charges of making fraudulent claims about the health benefits of Herbalife products, Hughes responded, “If [the nutritionists called on by the Senate to testify against Herbalife] are such experts in weight loss, why are they so fat?”
Mark Hughes died of an accidental overdose of prescription drugs in 2000, at age 44, but that was not the end of Herbalife, and it was not the end of the controversy surrounding it. The real trouble started in 2012, when a wealthy hedge fund investor named Bill Ackman decided he had a bone to pick with Herbalife. He very publicly made a short bet against Herbalife, betting over a billion dollars against the company. The price of Herbalife stock began to plummet. Soon the Federal Trade Commission was on Herbalife’s case, beginning a formal investigation in 2014 as to whether to consider Herbalife a pyramid scheme.
The Herbalife Compensation Plan
To make a long story short, the Herbalife compensation plan is much like any other MLM compensation plan. The canonical Herbalife compensation plan has to be one of the least interesting ways people make money in ways related to Herbalife, and Bill Ackman’s short bet, while it could probably make a reasonably entertaining movie, is not even the most interesting. It seems that Herbalife has attracted a bunch of ancillary industries that seek to make money off of the same cash-strapped marks who would be likely to hang their fate on Herbalife. These meta-Herbalife companies remind me a little bit of the tie dyers and falafel makers that follow the Grateful Dead from one town to another, with the possible exception that the latter probably take themselves a lot less seriously. For some really interesting reading, I recommended reading the article on The Verge about Barron Hansen, a web developer from a landlocked state who conducted an investigation (that was probably a lot like a much lower budge version of Ackman’s early research) into a bunch of clearly bogus work at home schemes and found that all roads lead to Herbalife. Income at Home and Online Business Systems were just two of the online business scams that were fronts for Herbalife. These companies would recruit people for some sort of vague at home business and get you into their downline before anyone ever said the word Herbalife. It actually took a lot of persistence on Hansen’s part to get any of the recruiters he spoke to to speak the name of the products they were recruiting people to sell. But that wasn’t even Hansen’s most disturbing discovery. Almost everyone who managed to make rich people money, the 1% of the 1% of MLM distributors, the ones who actually get a share of the bonus pool, did it by running other business schemes like Income at Home and Online Business Systems. Now that is sleazy enough to sell out movie theaters on a Saturday night, even in a recession.
Advantages and Disadvantages
- Herbalife has name recognition. Other MLM companies have name recognition, but Herbalife takes it to a whole new level. The New York Times wrote an article about Bill Ackman’s short bet against Herbalife. All you have to do is read one New York Times article and watch one WWE match, and you will be convinced that America does in fact have a high culture and a mass culture, and never the twain shall meet. MLM belongs firmly in the latter camp. The fact that The New York Times spilled so much ink about Herbalife is astounding. Everyone knows about Herbalife. Even the 1%.
- (Spoiler alert!) Even the U.S. Senate, Bill Ackman, and the FTC couldn’t take Herbalife down. It has managed to bounce back from almost anything like could throw at it.
- While they are more expensive than the nutritional supplements that you can find at the supermarket or drugstore, Herbalife products are more competitively priced than most other nutraceutical MLM products.
- I love 80s music as much as anyone does, and, truth be told, I still have a few Transformers and He-Man action figures somewhere in my basement behind all the unsold MLM merchandise, but the scary diet pills are a part of the 80s we are better off leaving in the past. Long live big booty women!
- From a practical standpoint, if you are going to sell MLM merchandise, sell something that stands out from the crowd. Herbalife products do not stand out; they are just a more expensive version of supermarket vitamins and protein powder. If you’re going to sell me something I don’t want or need, at least make it something interesting and weird. If you try to sell me a magic wand that jolts the organelles in my cells into formation, an expensive cocktail of frankincense and plankton, or a nicotine patch with holograms instead of nicotine, I will at least respect you for having the guts to go out on a limb. Not so Herbalife, unless you preface your sales pitch with a summary of this article and then still expect me to buy the stuff.
As of 2016, Herbalife’s shares have risen in price again. It could be because there really is a financially illiterate person who is desperate to lose weight born every minute. It could be because of a bailout by the 1% of the 1%. I don’t really know, but I do know that creepy feeling I had when I walked out of the movie theater this Christmas after seeing The Big Short.
You know the last verse of the song “Synchronicity II” by The Police? The one that says, “Many miles away, there’s a shadow on the door of a cottage by the shore of a dark Scottish lake?” Yeah.
If you have had enough outrageous stories about MLM and are ready for some practical advice, schedule a call with me.