INSIDE THE WONDER OF AMWAY

How to get rich by selling toothpaste to yourself.

You're sitting in a Starbucks on a quiet midmorning when a stream of customers begins to congregate at the table next to yours. You try to concentrate on your coffee and scone, but can't help overhearing snippets of furtive conversation: "downlines" and "distributors" and "building the business." Glossy brochures and order forms are passed back and forth. The group becomes more animated, more motivated, more psyched as an apparent leader begins to rally his sales force.

A meeting is taking place, a business meeting, and that business is Amway. Shunned by society, cast out of normal homes and offices, these are the self-employed shock troops of direct sales, or multilevel marketing (MLM), forced to meet in secret like the members of some persecuted sect—which in a sense they are.

Skeptics and believers alike testify to the difficulty of making Amway anything more than a grueling part-time job. Yet reasonable people are drawn into its multi-tiered hierarchy, attend its fervid sales rallies, then find themselves imploring friends to brush with Glister.

These are their stories. Voices from both inside and outside the organization tell of Amway's lure, its cultish stigma, and its frustratingly elusive promise of financial freedom. By turns embarrassed, defensive, candid, and amused, they try to explain to the rest of us—the uninitiated, the scoffers—why anyone would join a company whose average US sales rep grosses only $88 per month, according to a 1997 Wall Street Journal estimate.

Showing the plan

"At its core, it seemed like a fine idea," recalls a two-year Amway veteran we'll call Chet (who, like others interviewed for this story, preferred not to be identified by his real name). "I had no perception of it," recalls the bright, personable 35-year-old sales professional and homeowner from Seattle, who had his first contact with the company in the early '90s. "I was open. I had no idea what it is."

Just what Amway is was revealed to Chet and other neophytes in a lectern-thumping presentation in the downtown Seattle Westin Hotel. Sitting in neat rows of folding metal chairs, he remembers, they had been lured by "friends"/sponsors to hear more about an unnamed multibillion dollar international business that boasted "low entry costs and unlimited upside potential." Rolex-rattling sales types confidently diagrammed the business with easels and pointers: You buy products wholesale from the parent company "like a buyers' club," not dissimilar to Costco or REI, then retail them to others at a fair profit. You would also earn commissions based on your overall sales volume—which sounded reasonable enough to Chet.

"They take concepts and phraseologies that we're all comfortable with," he explains. That helped to cushion the shock when the dreaded A-word was uttered at the end of the evening. Some immediately fled in horror, while others like Chet remained to hear the gospel according to Amway.

The official line depicts an all-American company founded in 1959 by two Michigan entrepreneurs, Rich DeVos and Jay Van Andel, both of them refugees from a similar direct sales business, Nutrilite. Leaving behind nutritional supplements for soap, then eventually diversifying into telephone service, mutual funds, and travel packages, the two men built an empire that reported $5.7 billion in global sales in 1998.

Unlike most empires, however, Amway rests upon a pyramidal foundation of mostly part-time citizen sales reps, or "distributors" in company parlance. In 1998 Business Week placed their number at some three million worldwide, with 750,000 in the United States. Here in the Northwest, exact numbers are harder to come by, since distributors build their organizations autonomously from the central company.

Why do so many enroll, you wonder; what's the appeal? For many, it's the dream of starting their own business. Amway's promise of enfranchisement offers escape from the soul-crushing, nine-to-five drudgery of working for the Man. For others, like Chet, lacking much career direction after college, it was a way to get off the ground. "I was in a vulnerable place," he recalls. Amway seemed like a legitimate part-time job opportunity.

Soon he found himself making weekly trips to his sponsor's house to pick up his product inventory, then racing home to break it into individual orders before his own customers arrived, then filling up his evenings with appointments and calls to discuss this sure-fire opportunity with like-minded friends, arranging "first looks" and "board plans" to lure new members. Regular company functions and sponsor reviews added to his 15-20 hour per week schedule—a normal workload, he was told, for building his business. Yet as Chet observed of his fellow Amway recruits, many were also somewhat "naﶥ about business."

Increase your downlines!

That lack of sophistication made them targets, Chet realized, as he was immediately pressured to recruit underlings for his own distributorship. "It's all about recruiting," he says today, using "peer pressure and coercion" to draw new blood into the organization.

Under Amway's controversial structure (shared by other MLM companies like NuSkin or Herbalife), these new sponsorees, or "downlines," would be generating commissions for Chet based on their sales—above and beyond his own. In other words, the more downlines you accrue in your quasi-independent franchise, the more money you should make, and those byzantine sliding-scale commissions of 3 to 25 percent apply to your downlines' downlines in the ever-growing shape of, well, a pyramid.

But Amway insists, and the federal government agreed, that it's not a pyramid scheme like a chain letter or Albanian bank. A 1979 FTC ruling found that Amway met the "70-10 Rule," meaning that a distributor had to be able to unload 70 percent of his inventory in a month, including at least 10 retail sales (outside the organization). By distinction, a classic pyramid scheme forms a closed, captive market where distributors sell only to themselves and the supervising company acts like a plantation store, setting unfair prices and receiving exorbitant profits.

However, Chet discovered, that 70 percent requirement could be met by simply buying goods for one's own personal use. Many distributors, Chet says, end up "selling" mainly to themselves, habitually checking off items from their monthly shopping lists in the Amway catalog. And a percentage of that regular monthly tab then goes to their upline sponsor. Speaking of his own modest downline network, he recalls, "The greatest place you're going to make your money is to get people to buy for themselves."

As for the 10 retail sales, Amway has little accounting control over how its franchisees set prices or what they deem a legitimate retail sale. Free samples are often substituted for this self-policed requirement.

Of course the flip side to gaining and profiting from new downlines is the knowledge that you're still somebody else's downline, somebody else's stooge, and that somebody will always be higher up than you, making more money than you, and earning a percentage off your sales.

Dream nights

That gulf between Amway's haves and have-nots was unintentionally emphasized at the famously evangelical sales rallies attended by Todd, a 30-something Eastsider, who finally quit the business after 10 years of sporadic involvement. Up to 12,000 people attended regular weekend rallies in the Portland Coliseum, he recalls, featuring spotlights, pounding music, and constant exhortations from Amway ber-distributors on stage. There heavy-hitters like the legendary Bill Britt of North Carolina crowed about their successes, flaunted their wealth, and taunted those laggards in the pews who hadn't sacrificed or worked hard enough to attain personal financial salvation.

These revival-style meetings aren't conducted by the company itself but by Amway's star performers through autonomous organizations like World Wide Dreambuilders LLC. Having clawed their way up the sales ladder to coveted Direct Distributor status, they are then freed from the tyranny of their prior upline sponsors. (Generous 1991 Forbes magazine estimates say only some two percent of distributors make the grade.) "Going direct" is the grail of all Amway reps, meaning that you've built your business into an independent franchise, with you alone profiting at the top. (Farther beyond lie such exalted titles as Ruby, Emerald, Diamond, Double Diamond, and Crown Ambassador.)

For Todd and others, though, it seemed that these motivational rallies were generating the real commission-exempt fortunes for Amway's superstars. Today the president of his own small media/advertising firm, he believes such gatherings are "the vehicle for these people to make a huge amount of money, to really profit from the books and tapes and speaking business." The organizations, however, claim to be nonprofit.

To remain in good standing within Amway, "you have to attend every function," says Todd. When forced to buy these weekend junket packages, his out-of-pocket expenses could exceed $500, all of it going to these lucrative side businesses purporting to inspire—not fleece—the rank and file.

Meanwhile, the motivation racket encourages distributors to stay the course, recruit new members, and disdain all naysayers. Chet recalls bitterly, "The whole time they're playing on your sympathies and emotions for building a better future."

The price of the pyramid

Shunning skeptics often meant avoiding friends and family, Chet remembers, as prepaid Amway functions began to dominate his schedule. "They talk about 'do it for your family,'" he says, "but they started holding these meetings on three-day weekends, like Memorial Day and July Fourth, which are big weekends to get together with your family."

Amway's constant emphasis on so-called "association" also meant socializing only with fellow distributors and recruits. "They don't want you to see the light," Chet adds, while noting that his own non-Amway friends also shrank from possible contamination: "It's such a taboo that most people won't even talk to you about it."

Todd recalls, "It would be difficult to have a close personal friendship with someone if they weren't in Amway." Did he feel the mandate to recruit was leading him to exploit his friends? "Yeah," he says, adding, "Amway would take precedence over friendship." By contrast, he explains, today he can enjoy a Mariners game and strike up an innocent conversation with someone in the bleachers feeling relieved that "I'm not having to recruit them."

Eventually, Chet remembers, "I began looking at the social cost and the time cost" of Amway. Doing his taxes forced the realization that after his own product consumption, seminar costs, and routine business expenses were calculated, "you spent more than you earned." Then he recalls asking himself, "What about all the hours?" How should he value the time he might've used for other purposes? Had it all been wasted?

The payoff

Not according to one unabashed Amway distributor, Phil, who scoffs at such idle "nonproductive time." Sitting in his Mercer Island basement home office that's cluttered with Amway brochures, paperwork, and open cartons of products, Phil, 36, sees himself as the ultimate boss and beneficiary of his own labors. "I don't want to be a sales executive who is responsible for creating shareholder value," he says, "I want to create Phil-holder value."

While conceding that the side income from Amway won't replace his day job anytime soon, Phil, an Ivy Leaguer working in software sales, declares: "I always believe that I will retire in the Amway business." So what makes him believe he'll finally beat the odds and go direct? "See that wall?" he asks by way of an answer, gesturing to a giant rack of 100-200 motivational tapes, each presumably holding the secret to his eventual success.

And, in the meantime, what about all the hours, all the travel, all the expenses? "That's another reason why I can't quit the Amway business," Phil adds, "because it's too good a tax write-off."

Ultimately, those who fail to make their fortunes in Amway also accrue some nondeductible benefits. "On the positive side," Chet concedes, "I learned a fair amount about sales." Phil says much the same thing about his own day job, explaining, "that's definitely where I've seen the biggest dollar return" on his investments of time and money.

Having gained those skills, however, many of Amway's most able recruits may graduate out of the organization to join the real economy—although not totally unscathed by the experience. "I would say . . . that it's an embarrassment that I was duped," Chet says.

But he laughingly recollects two occasions since quitting Amway when strangers approached him as a potential recruit (both times in grocery stores). So did he, the jaundiced veteran, try to warn them away from the business? "No," Chet chuckles, "I just let it go," knowing that Amway is its own best debunker.

 
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