Near-pyramid scheme spreads on campus

Since the start of the school year, Vemma, a relatively obscure company, has recruited students to sell products and grow the company by convincing others to join. Vemma has generated controversy for its non-traditional business model, which some have called a pyramid scheme.
Vemma is a 7-year-old multi-level marketing company that is currently recruiting high school and college students to be “brand partners,” salespeople of the company’s line of energy drinks. Like the majority of multi-level marketing companies, Vemma’s business model is centered on the premise of recruitment, and as such, the company does not pay any hourly wages. Instead, Vemma compensates its salespeople for convincing other people to buy into the company.
Due to its recruitment-oriented foundation, Vemma has been accused of being a pyramid scheme, a business model that is illegal in the United States. Pyramid schemes function on recruitment, and must have an exponentially increasing enrollment of members to sustain themselves. Technically, Vemma is legal because its business model includes products such as the Vemma Verve, an energy drink that is marketed for more than $3.00 per 8.3 ounce can. Under federal law, companies are classified as pyramid schemes when the only source of revenue is recruitment.

While Vemma has not been found to meet the legal definition of a pyramid scheme, it has been criticized as a “de facto” one. William Keep, dean of the business school at the College of New Jersey and an expert on pyramid schemes, released a statement to the nonprofit warning students excited about the company.
“Vemma presents itself as an exciting new opportunity…yet, when compared to previous companies that have been found to be pyramid schemes, there are too many similarities to ignore. Essentially, Vemma invites students into a competitive free-for-all where an increasing number of Vemma ‘Brand Partners’ chase a decreasing number of potential customers,” Keep wrote. “The financial return on a student’s investment of time and money will be negative for an overwhelming percentage of participants.”
In order to join Vemma, individuals must first make a purchase, typically either a $150 starting pack or $500 combo pack of Vemma’s energy drinks. After they buy in to the company, brand partners are instructed to recruit two branches of salespeople underneath them. Although compensation is not solely determined by one’s position in the hierarchy, profit falls into an uneven distribution favoring a select few founding members of the company.
Potential employees are first introduced to the company through informational meetings hosted by local affiliates of Vemma. At these meetings, senior members of the company show pictures of expensive vehicles and talk about how nearly anything is possible with Vemma.
“One of the guys from UCLA [was speaking, and] he was obviously an honor student,” senior Lillian Zhou said after a Vemma meeting. “He [talked about] the stories of other people who worked with Vemma…and [how] they went from working minimum wage jobs at McDonald’s to making six figures a year.”
Some students are attracted to Vemma’s ideology, which emphasizes youth initiative towards business opportunities and involvement in a system that values effort over time—what Vemma calls a “Young People Revolution.”
“[The speaker] was actually really motivational and he talked about like ‘Oh we [teenagers] shouldn’t be paid for spending time, we should be paid for the effort we make and our talents,’” Lillian said. “And usually with a business, some guy has a brilliant idea and then he sells a whole bunch of stuff and keeps a lot of the money for himself, but this was like the buyers are keeping something for themselves.”
Many students have left information meetings optimistic about possible profits and career opportunities offered by Vemma, but as with any multi-level marketing company, the legitimacy of such claims is always in question.
This August, after facing media backlash for allegedly exploiting minors, Vemma altered company policy to bar minors from joining the company after September 1. Brand partners who joined before the cutoff date were allowed to stay in the company as long as they received parental approval. However, Vemma has offered a way to bypass this regulation; by allowing prospective employees to register under their parents’ names, students are able to evade the age policy and to join the program.
Much of the media criticism surrounding Vemma’s recruitment process of minors comes from the potentially misleading claims that Vemma presents at their information meetings. One student, who preferred to remain anonymous, left a meeting convinced it was a good idea and bought a starter package. Though Vemma promises that those who dedicate time and effort will make a profit, the student found it was much more difficult to recruit people and make money than initially anticipated. Additionally, he felt that the recruiting process was hurting his relationships with others.
“I don’t know what [Vemma’s] definition of working hard was. What I got out of it was bugging people on Facebook at 1 a.m. to try to make them come to a meeting,” the anonymous student said. “I actually tried to get about 50 people to come to meetings but only ended up having four to five of them actually come. It started to get overwhelming.”
The recruitment process is made tougher when many students from the same area are involved in Vemma, such as at Los Altos High School.
“‘[It’s] especially difficult when you’re recruiting teens. When you go on campus and recruit a whole bunch of teens who are friends and you say, ‘you just have to recruit some people,’ well you just recruited all of their friends. So what’s left for them?” economics teacher Derek Miyahara said.
Some students engaged in Vemma still view it as an opportunity for business experience, rather than purely as a means for profit.
“[In Vemma] you need to be able to develop leadership skills, you need to develop and sustain a team, as well as learn skills such as following-up, closing, inviting, basically establishing meetings,” Vemma brand partner junior Larry A. said. (Last name of involved students have been omitted). “I’ve learned more from Vemma in the past one and a half months than I [had] in my two years of FBLA because it’s using real life situations. I’m presenting in front of speakers and I’m constantly on the phone… When I first started, I had such a hard time talking to people, but now it’s just so comfortable because I’m so used to it.”
However, Dean Keep disputes the claim that Vemma models a real or profitable business experience.
“Business school deans should be concerned that not only does Vemma resemble companies found to be pyramid schemes, it [also] teaches students all the wrong lessons when it comes to business,” Keep said. “Students are taught to disregard business fundamentals—understanding markets, competition, the cost of doing business and accountability —in pursuit of short-term selling based on quickly attracting other students who are then encouraged to quickly attract other students in an apparent endless chain.”
Though Larry joined the company a month and a half ago, he has only recently turned a profit. For a Vemma employee, however, Larry’s story can be considered a relative success. Due to the hierarchical structure of the company, more than half of its members will have a negative net profit at any given time. According to Vemma’s 2012 income disclosure, posted on their own website, over 85 percent of the company earns an annual wage of less than $1300.
Vemma has also faced controversy in the media due to its pragmatic and ethical concerns.
Miyahara believes that students lured by easy money may not be fully considering what it takes to earn back their initial investment. To succeed, students need to have the “proper attitude” about what they’re getting into and what they’re looking to get out of it.
“If you’re looking at this as easy money, then in that case you’re just a ‘mark,’” Miyahara said. “I think that there’s a lot of people who are going into [this] saying ‘well it’s going to be easy money… If [a business opportunity] seems too good to be true, it probably is.”