Selling a Dream and a Drink

The energy drink company Vemma is being built by a fleet of charismatic young people, but is its business model ethical?

image.png

A version of this story entitled “Cash Money” appeared in the September 2014 issue of This magazine

There is something about the combination of money, caffeine and fraternal support that wrestles hopes and dreams up out of the benign depths of the adolescent imagination. In this student house in uptown Toronto, that’s as true on a Sunday night as it is on any work day. Cars fill the driveway and line the curbs for a few hundred metres on both sides of the street. People are constantly walking in and out of the front door which is just open enough to make you feel ridiculous for knocking. Inside, the walls around the entrance are plastered with the same sort of hideous wallpaper you’d see on the set of a 70’s sitcom. The meltwater from the pile of shoes is soaking the carpet. After a quick “hello” with an acquaintance on his way out, I notice a young man on his cell phone in the living room, pacing like a caged bull while he recites a well-rehearsed sales pitch. It soon becomes obvious that everyone in the house is either giving or receiving this same pitch.

This is the hive. There was supposed to be a big meeting here today—“a house event,” as they’re known—where two very successful young people from Michigan would drive hundreds of kilometers to personally deliver this pitch to anyone interested in Vemma, a nutrition company best known for its healthy energy drinks and multi-level marketing business model. It was cancelled after they were turned around at the border—“some shit with their papers,” I was told—but people are still showing up.

Instead, I’m here to meet Emilio Nafarrate, a friend and former highschool classmate of mine. He is a Vemma affiliate; someone who both sells this drink and recruits new affiliates. Back when he was still relatively new to the company, he offered me a chance to join, pitching me some variation of what I was now overhearing in the living room.

It begins with a claim that with some elbow grease, a can-do attitude, and the proper guidance from the now wealthy young people who recruited you, it will be within your power to achieve the financial freedom known only to movie stars and professional athletes. They’ll tell you you’ll make residual income after you’ve done enough legwork to establish yourself; like how Donald Trump makes money when you play on his golf course without actually joining your foursome. They’ll tell you when (rarely “if”) you hit a certain rank, the company will provide you with a leased Mercedes Benz or BMW. They’ll tell you this is a product that you—a young person who presumably drinks Redbull, Rockstar, Coke, Sprite, Powerade and Gatorade—should be drinking. They’ll tell you it’s been on Dr. Oz and is the official drink of the Phoenix Suns.

If you don’t know any better, you’ll start looking for the dotted line on which to sign. If you don’t know any better, you’ll see the piddly getcha started fee as a worthy investment. And if you’re like me, before the end of your first meeting, you’ll be deciding whether to personally pick up your first batch of product or get it ordered to your house.

Morton - March 9

Like many businesses though, the reality is a little different than the pitch. It’s all right there in Vemma’s annual affiliate earnings.[1] Last year over 90% of active affiliates earned under $12,200 which is less than one would make working 20 hours a week at minimum wage. These affiliates were also required to order a certain amount of product every month—about $150 worth—which means that only about 12% made any money at all.

For this reason, Vemma has drawn fire from critics saying it’s a pyramid scheme, an illegal business model where no new money is brought in and members within the company are paid with money that comes from those who are losing money. The truly discomfiting bit is that in these models, people are paid based on how well they can recruit others into the business. But, for reasons that have been enshrined in economic law and common sense, the vast majority cannot make money.[2] People caught up in pyramid schemes will tell you that some new recruits will succeed and, in more sophisticated models, even make more than some of those above them in the hierarchy. That’s true, but the fact remains that the entire framework would crumble if everyone could succeed as promised.

In other words, the problem is not that there are more losers than winners, it’s that the winners unknowingly stand on the backs of the losers.

Morton Tweet 1

*

William Keep is the dean of the New Jersey business school. He has served as an expert witness in the prosecution of pyramid schemes for several years and has co-authored a number of papers with a Peter J. Vander Nat, an economist employed by the U.S. Federal Trade Commission. While he has not personally taken an official stance on the Vemma’s legitimacy, he did issue a warning to his college students about Vemma, saying that they “should know that some MLM companies have been identified as illegal pyramid schemes where almost everyone who joins loses money.”

He says that Vemma “has a tendency to rewrite history” insofar as it “presents some logical arguments that have some huge logical flaws.” With a very tiny bit of digging, I learned that these arguments were equally common in the $8 billion MLM giant Herbalife. For example, both Herbalife and Vemma have partnerships with professional sports teams and according to one member of the hive, “organizations like the NBA just don’t partner with scam companies.” It is treated as bulletproof fact that because David Beckham has Herbalife pasted across the front of his L.A. Glalaxy soccer jersey, the company must be legitimate. Or there’s the well-perpetuated myth that any company with a viable product—or a good product, even according to non-affiliates in Vemma’s case—cannot possibly be a pyramid scheme. Not so.

“Even though the company is selling a viable product and their message is one of developing a retail customer base, companies found to be pyramid schemes were operating businesses where buying in involved purchasing the product and the purpose was to be rewarded when you got people to buy in,” says Keep. While Vemma has approximately nine different methods of compensating its affiliates, the business model is built around those two fundamental points: affiliates must purchase the product on an ongoing basis and they are rewarded when their recruits do the same. There is nothing that requires any of these purchases come from people outside the company.

Morton - February 28

And Herbalife? The company recently came under intense scrutiny when Wall Street hedge fund manager Bill Ackman made a $1 billion bet that the company would collapse. As of the time of this writing, it hasn’t and the company has mounted a defense. But even after operating for 34 years, Herbalife has been unable to shake the claims that their business model is—to put it politely—questionable. Vemma has been operating for only 10.

How then, if there are potentially legitimate legal issues with these businesses, do they continue to operate unfettered under the proverbial noses of massive government bureaus like the Federal Trade Commission? Keep wrote a piece for CNBC where he explained that MLM companies “could be legitimate” if they placed an emphasis on its true retail customer base and limited rewards for recruitment. Yet it’s very difficult to prove Vemma affiliates aren’t selling to unaffiliated customers, even though there is zero incentive to do so. According to the numbers released by the company last year (see above), there was an nearly exact[3] 30/70 split between affiliates and customers respectively. No other information about these particular figures was released publicly, and the only other information the company offered after being pressed is that “at no time were customers ever affiliates.” In other words, the company was less than forthcoming about where the money is coming from.

None of this has stopped Internet commenters from trying to hash out this dispute in a predictably mean-spirited manner. Even the more articulate blog, article and video comments are just regurgitated spiels, copied and pasted from elsewhere on the Web. And any commenters that don’t feign cool indifference [4]  viciously attack anyone who dares question company wisdom. Here, as in real life, everyone who encounters the business model—and thus, the sales pitch—is swept up in the debate, forced to believe that they are either being duped or presented with a great opportunity. There is no in between. Apathy is alien.

—-

Photo courtesy of Andrew Hood
Photo courtesy of Andrew Hood

It’s getting late and I’m sitting across from Emilio in Andrew Hood’s bedroom. Hood is Nafarrate’s upline, the young man several levels above him in the company or, as Emilio first introduces him with a sarcastic smirk, the “pyramid leader.” He is an unexpected listener for the first part of the interview, leaning against the back wall while he absently plays with earbuds hanging around his neck. At first, the baby-faced 20-year-old is both quiet and unimposing: someone who wouldn’t seem out of place playing the voice of reason in an American Pie movie. Emilio, by contrast, sounds like a sped-up recording (I know because when I slowed down the recording, he didn’t sound like he’d been shot with a tranquilizer dart). This would be surprising if I was meeting him for the first time or didn’t already know how much product he’d consumed.

They give me one of the drinks to try, just to get a sense of how it stacks up against more ubiquitous pick-me-ups. It’s one of the company’s original products, Verve, a red-bull sized can of orange fizz with a slightly sour medicine-y taste. It brings to mind like a chewable multivitamin for kids. I enjoy it and when I tell Andrew and Emilio this they seem unsurprised. When Emilio leaves to take a call, Andrew sits in his place and begins answering questions, “educating” me in defense of the company.

Both are a part of a movement known as the Young People’s Revolution or the YPR which includes all Vemma affiliates under the age of 30. In a news release from January 2013, the company publicly credited this massive body for being “one of the driving forces behind the [30 per cent] increase in sales” in 2012. Last year, that increase jumped to 89 per cent with sales rocketing from $117 million to $221 million[5]. If you’re a young person and you’re a part of Vemma, you’re part of the YPR. It’s made very clear to every potential recruit that success is impossible without the help of your upline. Opting out is just another avenue to failure.

“There are three aspects for enrolling somebody in Vemma,” says Hood, “knowledge, credibility, and trust. You and your friend trust each other, but what you lack is the knowledge and credibility.” Hood reckons that at first, any potential affiliate will ask the recruiting affiliate two questions: “how does [the business] work and how much money have you made?” If you’ve just signed up, odds are you don’t really know how the business works nor have you made any money, at which point the pitchee will promptly tell you to fuck off. But, if you can coax them into a house event, where they will meet people who have made money and who do know how the business works, then they’re likely to change their minds. “In fact, I’ve had literally hundreds of people come to my events thinking it’s a pyramid scheme and left enrolling,” Hood says. Here at the hive it’s easy to see why: the heartfelt camaraderie, the promises of mutual success, and dreams of making more money at 25 than the vast majority of the population could squeeze out of their savings at 50, people (like Emilio) have a tendency to “dive right in” with a resounding “fuck it!” That’s just the effect the YPR has.

Of course, following these caffeine-fuelled gatherings, it’s hard to imagine these young people ever consider the more labour-intensive route to success: getting out there and actively selling some drink rather than waxing poetic to other impressionable adolescents about Rolexes and company cars in hopes of cashing in on their recruitment bonus. The YPR fosters this outlook. Plain and simply, their purpose is to put the dream on display. A more cynical reader might see that and say the YPR’s membership has grown fat feasting on the insecurities of young people, luring them away from jobs they don’t want to do, misrepresenting a longshot as a viable means of dealing with mountains of student debt. But such a conclusion is not for the journalist to make.[6]

*

There is one young man who has recently become the Internet’s foremost authority on all things anti-Vemma. He is a self-styled pariah[7] of the YPR who runs a blog that brings in over 1,000 views a day. In his posts, he methodically dismantles claims made by the company and its affiliates citing research, personal experience, and anecdotes from defected corporate employees. His articles routinely appear near the top of Vemma-related web searches and he says that veteran affiliates have instructed the newbies to avoid his blog. He himself left the company after a friend and mentor confided that many must fail for a few to profit. “You know what I’m talking about man,” YPR pariah later wrote of their conversation, “some of us hit gold the rest pay up.”At the time of his remarkably civil break, he was positioned atop a team of a few hundred affiliates making several hundred dollars a month.

But not all members of the YPR have the same constitution or wherewithal to leave like he did. And that’s not their fault. In fact, this blogger maintains that he’s still friends with many affiliates.

While some newcomers approach the business with a Machiavellian mindset, ruthlessly cutting down those in their way in hopes of achieving success, the consensus among successful affiliates is that those people fail even more often than everyone else. They can’t function in the system. Most of the successful people in this business are well-intentioned and hardworking young people who’ve come to believe that this drink is the key to their financial freedom and are actively committed to evangelizing (or “educating” as they prefer to say) other people. They aren’t trying to fool or mislead potential recruits. Each of them is tangled up in a web of distant promises where the only hope for their own success is to embrace others into the sticky warmth of the fold.

That’s why when Andrew says the only way for him to really succeed is by helping others below him, he’s telling the truth. When Emilio punctuates his sentences with business-building aphorisms—like “we’re not hunters because then people feel hunted, we’re farmers because we grow relationships”—he means it. It’s not that they are being intentionally misleading; it is that misrepresentation has been built into the business model, obscured by the same hopes and dreams that brought these young people onboard in the first place.

Morton Facebook

When I first signed up for Vemma, I told Emilio that I wanted to do some research before I ordered $500 worth of product and became an active member. Like a good salesman who believes in his product, he didn’t break eye contact and he didn’t get discouraged.

“You’re just going to see a bunch of stuff about it being a scam and shit.”

*

The gap in viewpoints between Vemma’s supporters and critics essentially comes down to odds of success. If you ask Andrew Hood, there is nothing wrong with selling the opportunity to make substantial sums of money, no matter how unlikely. After all, everyone has the same compensation plan.

“The only X-factor is you,” Emilio says repeating a well-worn cliché of the self help genre. It means if you don’t succeed it’s your fault rather than that of any business model that may or may not depend on the failure of the vast majority of its members. Here’s another analogy often used to expound this mantra of personal responsibility: “It’s like if you go get a gym membership but you don’t go into the gym and a month later you go back and say ‘you guys scammed me, I bought this gym membership and I’m not jacked.’ No dude, you didn’t work out, you didn’t run on the treadmill, you didn’t lift weights,” Hood says.

Alex Morton is this viewpoint personified. He’s become the unofficial poster boy of the YPR and at 25, is among the ten highest earners in the company. If you have the pleasure of listening to Alex speak (he’s on YouTube) or perusing his YPR Facebook feed, it will become painfully obvious that he has no time for losers. He’ll belligerently scold laziness, stopping just shy of outright telling his wide-eyed, mouth-breathing audience that he don’t give a fuck if you sign up for Vemma or not. He makes it very clear that hardworking people “will” get rewarded—not “may.” He says it with the same certainty one would use to assert a scientific law. His Facebook feed is peppered with posts that can be crudely summarized as “luck is bullshit” and he’s fond of reminding people that he was once just an Arizona State student getting kicked out dorms and being put on academic probation. My personal favourite post, though, is an image of him in sunglasses and a hoodie posing alongside big bold letters that read: “All dreams are crazy, until…they come true.”

Ill-placed punctuation aside, there is one hypothetical scenario that could undermine this the-only-problem-is-you outlook: What if there were no quitters? What if the company was full of keen, ambitious, young people like him? Would they all, at the very least, make some profit? I tried to get in touch with Morton as well as four other high earning affiliates to ask them just that. I got one, “msg me on fb,” one unfollowed-up “how are you” and one “not interested.” I also got the run-around from the PR company connected to Vemma HQ which, apparently, couldn’t find a single person in a building of more than 200 people who had time for a ten minute phone call or written statement. They had several weeks to do so.[8]

*

By the end of the night, it becomes clear that Andrew would not be happy if I used his name in the article, a sentiment he shares with at least one other affiliate I spoke to. While Andrew made it clear that every word attributed to him should indicate his full support of the company he has good reason to be nervous. YPR pariah says missteps and bad words about the company usually result in names being “dragged through the mud” and even when the Varsity, the student newspaper at the University of Toronto, got in touch with Vemma HQ, the spokesperson did not reveal her full name.

Tweet - March 22

The reality is that this business is a controversial one, and few are willing to go out of their way to embroil themselves in that controversy. It simply isn’t worth it. They have their audience and, in the case of the successful affiliates, that audience hangs off every word they say. Morton has more than 22,000 Twitter followers. Why would he step away from that audience to answer a few questions for an article he knows isn’t changing any minds? After all, he’s walking proof that the dream can be a reality. The business model incentivizes people like Morton to bring all your insecurities screaming to the surface, because even if you do think this business is a whole bunch of baloney, you cannot possibly argue with the fact that he makes more money than a lot of us do.

But what if the opportunity he was selling was not only very likely to fail but financing the golden bait he was dangling in front of you? What if the truth was that the dream would never be more than that? If you were about to become one of his customers, wouldn’t you want to know?

Notes:

[1] These are privately released numbers and to my knowledge have not been verified by any external bodies.

[2] It’s not that this ‘vast majority’ will not make money. The problem with this model is that the vast majority must lose money in order to function as it does.

[3] This itself is suspicious considering the Federal Trade Commission’s “70 – 30 rule.” That is, “70 per cent of product must be sold to customers outside of the distributor chain for a company to qualify as legal.” Vemma Canada’s numbers are almost the same at 71.4 per cent.

[4] The most popular comments are all some variation of: “I’m driving a BMW thanks to Vemma so fuck y’all.”

[5] See note 1.

[6] I should make it clear that despite the tone of this piece, there is absolutely zero ill-will directed at Emilio, Andrew or the other affiliates. I am not one of the YPR’s frequently cited examples of a young affiliate who had signed on and failed. I never paid for the product and never attempted to sell it, I simply signed up to secure a spot in the pyramid-looking network but decided not to go ahead after I began researching.

[7] Revealing his identity would have compromised his ability to collect information about the company.

[8] I am obligated to admit here that when This accepted a similar article (several months after the one you’re reading here was already written) Vemma COO Brad Wayment did send me an email. He gave me the familiar “results aren’t typical” spiel that you find in tiny disclaimers at the bottom of all their bolded success stories and cited some obscure term and/or condition which says affiliates can say how much money they make but must also tell the person on the receiving end of that information that they must look at the Vemma income disclosure statement. I know I’m going to catch some flak from those of you who read your terms and conditions top-to-bottom (probably the same people who read footnotes) but I’ll go ahead and say very few affiliates know of that condition and even fewer follow it, meaning this information doesn’t merit anything other than a footnote on it. Also, Vemma fucked off as soon as the deadline for the magazine passed, leaving several unanswered questions in this humble—but more thorough—piece.

Advertisements
Selling a Dream and a Drink

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s