Amway: Selling the Dream of Financial FreedomPublished: May 05, 2011 in Knowledge@Wharton
Anyone who has been up watching late-night television has seen them: the get-rich-quick evangelists, usually promoting a system involving real estate. Their pitches are invariably laden with phrases like "financial freedom" and "the lifestyle you deserve." We may scoff at them, but they exert an undeniable pull.
Hardwired into the American psyche is a kind of tireless optimism, a certainty that we can master our destiny. The American Dream, as it has come to be known, has fueled the ambitions and creative energies of countless individuals from the United States and beyond, often in positive ways. But for some, its promise holds considerable peril. Erik German's very short but moving and perceptive memoir, My Father's Dream, is the story of how his own father became lured by the get-rich schemes of Amway and nearly lost everything.
German has two memories of seeing his father cry, and they both involve money. The first is when Erik is a toddler and his father, who wants nothing more than to become a writer, comes home with his first paycheck from a magazine. The success is bittersweet as he confesses to his wife that he is never going to be able to support his young family through writing: "I'm going to have to do something else." That something else turns out to be Amway, a venture that begins with great promise but soon flounders. The second is 10 years later, when Erik wanders downstairs in the middle of the night for a drink of water, only to hear his father weeping as he tallies all the things he cannot provide his family, especially his son. Soon after, the family moves in with Erik's grandparents, and the Amway dream is over.
Amway was founded in 1959 by Jay Van Andel and Richard DeVos. Its early product line featured soaps and cleansers, and has grown to include a range of health and beauty products. From the start, its distribution involved network or multi-level marketing (MLM), a system in which distributors receive commissions not only on their own sales but on those of their recruits. While MLM is legally distinct from a pyramid scheme, the Federal Trade Commission (FTC) cautions against plans in which prospective income derives mainly from one's recruits rather than outside sales. Amway has expanded worldwide and is ranked by Forbes as one of the largest private companies in the United States, with annual earnings of more than $9 billion.
Get Paid Forever
German opens My Father's Dream in the present day as he attends a pitch session at the Long Island Marriott Hotel and Conference Center aimed at potential Amway recruits. German wants to put himself in his father's shoes and understand what drew him, 28 years earlier, to hitch his dreams to this company and its promises. As a young man, his father "was good at just about everything he'd ever tried, from football to carpentry to poetry. How could anyone so talented give up writing to sell soap? And yet my father failed catastrophically."
The meeting is presided over by Jean Valerio, a charismatic older woman who builds her pitch around her own life story. "If you want to know what the American dream looks like," she tells the crowd, "you are looking at her." Later she says, "I'm going to talk about a business where you can make $150,000, in your spare time, over the next two to five years. And it's going to cost you about 250 bucks." German can see the appeal in her message. But he can also see the way she shrewdly "seizes on the disappointments and humiliations of lower-middle-class life ... and juxtaposes them with her own success." She is adept at capitalizing on her audience's insecurities. "If you came here and you were skeptical, so is everybody," she says. "After a while you'll take your skepticism and put it in your pocket. And there's a lot of room -- because there's no money there."
A few weeks later, German, still posing as a potential recruit, sits in on a mentoring session where a rookie salesman is coached by his Amway sponsor in the art of "contacting." Here it becomes clear that the real money comes not from selling products, but from selling the Amway vision to others: recruiting friends and family to become sellers, and encouraging them to do the same. "You find three people that want to make money in this thing," the sponsor encourages his protégé, "that listen to you and stick with it, you'll make $150,000 a year. Find six, you'll be wealthy. Nine, you'll be a multi-millionaire many times over." It is, he insists, a "repetitive, progressive, residually-based income. Work once, get paid forever."
The exponential promise of the numbers that Amway veterans spout is seductive. What is stunning is that Amway's own promotional materials -- albeit in fine print -- make it abundantly clear how long the odds are of reaching those goals. Two-thirds of registered Amway salespeople see average incomes of less than $115. The remaining third vary wildly. The upper income range, $45,000 to $700,000, accounts for only .6% of the sales force. And that high end of $700,000 (the dream Valerio and other recruiters exemplify) is only .0024%. At the low end are the many who, like German's father, actually lose money. Those losses have produced a considerable cloud of controversy surrounding the company, which has been the subject of numerous lawsuits and investigative reports. In 1979, the FTC cleared Amway of operating a pyramid scheme but did find it guilty of price-fixing and making exaggerated income claims. In 2010 Amway settled out of court a class action lawsuit on similar charges.
Juggling the Dream
When first recruited, German's father holds onto his magazine job. He writes during the day and hustles his Amway network at nights and on weekends. But the long Amway hours take a toll on the father's journalism, and after a year he quits the magazine and finds a job selling used cars that pays better and leaves him more time for Amway. At that point, he feels that leaving the magazine will actually bring him closer to making his writing dreams a reality.
Yet German's father can't make headway and starts falling into debt. He takes on a third job stocking shelves at night. "From midnight to 8:00 in the morning, Dad stocked shelves at the store. After grabbing an hour of sleep in our two-door mustard-colored Pacer, he drove to the dealership to sell used cars all day long, until 5:00 p.m. Some nights he made it home to eat with the family."
Six months into this grueling routine, German's father hits a wall, emotionally and financially. Deep in debt, with no gas to heat the house, his father admits defeat and moves the family into his parents' home.
How did German's father -- by all accounts an effective recruiter who was fully committed to the Amway vision -- actually lose money? His network of recruits, and those that they recruited (collectively termed a distributor's "downline"), quickly grew to 100. To this day, his recruits remember him as a force of nature, inspiring and conscientious.
German locates part of the answer -- a big part, he feels -- in a peculiar "shadow economy" within the Amway organization. The actual products being sold appear to garner a modest profit at best. What is primarily sold within Amway is Amway itself and its vision of financial freedom. Despite the early promise of getting rich in your spare time, Amway recruits, once sufficiently invested, are encouraged to make recruiting a part of their daily life. Inseparable from this activity is a slew of for-sale "motivational tools." It starts small with a motivational tape or two, usually urged onto a new recruit by his mentor in an early training session. Then there are books, seminars and out-of-state rallies. Books and tapes start arriving in the mail. Distributors with a significant downline are encouraged to buy them by the box and push them down the line.
German's father eventually finds out that none of this money actually goes to Amway itself. The material is generated by those at the top of the chain, and it is they who reap the rewards. When the father realizes the tapes in his basement are made for pennies a piece, he loses the will to push them on his downline. It is here that his business falters. Some former Amway employees believe that those at the top -- "Diamond-level" salespeople like Jean Valerio -- generate at least half of their income from the sale of motivational tools, and often more. One former recruiter wrote a memoir about her 13 years in the business and estimates that a Diamond-level seller whose office she managed drew as much as 95% of his income from motivational tools and functions.
No Hard Feelings
What is ultimately remarkable about My Father's Dream is that what could have been a tale driven by resentment and the need to settle an old score ends up being something more knotty and complicated: a meditation on the intersection of dream and delusion.
If German is able to rise above mere recrimination and aim for something higher and more ambiguous, he takes his cue, it would seem, from his father, who to this day holds no grudge against Amway. He works as a remodeling contractor and has begun writing again. "I still think it's a good organization," he says. "I still think that, correctly done, where you're moving product, it can be a good business."
The few who are very successful at Amway are those with a narrow material focus. The dream German's father bought into was something more abstract and elusive. German cites the work of Michael Pratt, an organizational psychologist who has spent much of his career studying Amway. The key, he has found, is the way the company "carefully exploits the gap between a recruit's current and ideal selves." It is both heartening and heartrending to witness the purity of the father's dream, his lack of bitterness and his refusal to see himself as a victim. When asked about his Amway days, "he speaks distantly of a past self whom he regards with shame, resignation and a little bit of awe."
My Father's Dream is available only as an e-book. It is part of Amazon's new Kindle Singles program, designed for works that are longer than magazine articles but shorter than traditional books and whose purpose is to lay out one central idea. German's book runs the equivalent of 30 print pages, delivering a concise and satisfying work.