Book Review: Ponzinomics
I highly recommend Ponzinomics: The Untold Story of Multi-Level Marketing by Robert L Fitzpatrick if you are at all interested in the history of MLM companies. This book goes into great detail about the history of the industry and the companies that started it all. Perhaps an excessive amount of detail in places. There was a chapter in which Fitzpatrick talks about all the previous business ventures of one of the founders of Nutralite, the first MLM company, and there were moments where I thought it was more information than was strictly needed. Still, you can't deny he was thorough.
Fitzpatrick talks about the founding of Nutralite and Amway, and the early lawsuits that shut down companies like Holiday Magic but left Amway untouched. He describes the earlier concepts that were built on to form the business model of MLMs, including ways direct sales were compensated in other companies the key players were involved in, and some fascinating stories about chain letters that I knew nothing about prior to reading this book.
Fitzpatrick also covers the short sale of Herbalife stock by Bill Ackman and the investigations into Herbalife and legal cases against them. He talks about the incident and its aftermath. There was also a lot of information about the ties between the MLM industry and the US government. I was aware of some of the connections, but I had no idea it was so pervasive.
Early on in the book, there is a great explanation of the pyramid structure, including mathematical proof that, no matter how big the pyramid grows, the majority of people will always lose money - because the way the pyramid grows means that the majority will always be on the bottom. It's laid out in a clear, easy to understand manner. He also points out something I hadn't considered but which makes sense, around the loss rates. Those that talk about MLMs often bring up the studies into how the majority of people lose money, but Fitzpatrick postulates that the loss rates are actually even worse than the terrible stats would suggest, because the income disclosure numbers are generally measured year-by-year. The people at the top who are making money tend to be stable, staying in the company because they've found success, but the people at the bottom are in a state of constant churn, with new ones being recruited and old ones leaving because they kept losing money. This means if you look at it over a longer period, the number of people who lose money may be actually greater than the numbers the annual income statements give. Which is horrifying.
The book does touch on the MLM industry today, but it's first and foremost a history of the industry. There is a lot of plainly laid out information covered in a fairly academic manner, but in a way that can be easily consumed by a reader. I
In a lot of ways, the book feels impersonal. It talks about the people involved in the history of the industry, but doesn't really talk about the people who get hurt. It's not a book of anecdotes or sob stories from the victims of MLM companies, but it sheds light on where these companies came from. Some of the information, I was already somewhat familiar with, but other parts were new to me and it was very interesting to see how the pyramid recruiting structure evolved from earlier concepts and to find out more about the people who invented it.
Fitzpatrick is definitely thorough. The book isn't the most fun I've read on the subject of MLMs but it's packed full of interesting information, and I would definitely recommend it if you want a thorough grounding in the history of the industry. Four stars.
