Five ways business coaching is like a pyramid scheme
Has business coaching become a pyramid scheme? Find out how the industry can sometimes resemble the MLM industry, and the signs to watch out for.
Over the past 10 years, we’ve seen the world of business coaching change dramatically. And we can’t help thinking that, more and more today, it is resembling a pyramid scheme.
And we’re well placed to spot one! We have been investigating the multi-level marketing (MLM) industry since 2016, so know well how this particular business model works. And if you have read any of our dozens of investigations into the MLM world, you’ll know we believe that MLMs are pyramid schemes.
And, worryingly, we see many of the same red flags common in MLMs in today’s business coaching world. So it’s not surprising, when you look into the background of some business coaches, that they have connections to MLMs in their past.
So what are the signs we see? And how can you know when to avoid signing up to a business coaching programme? Before we explore the similarities between business coaching and pyramid schemes, let’s look at how we got here.
What’s the history of business coaching?
The contemporary history of business coaching can be traced back to the 1970s, when Thomas Leonard founded the first coach training school in the USA.
Leonard was apparently inspired by the work of American psychologist Carl Rogers, who believed that everyone had the potential to grow and change. Leonard saw coaching as a way to help people unlock their potential and achieve their goals.
In the 1980s, business coaching started to grow in popularity as a way to help businesses improve their performance. Coaches began to work with businesses on a range of topics, including marketing, finance, and human resources. They also helped businesses develop and implement new strategies.
In the 1990s, business coaching became even more popular, and coaches began to work with businesses of all sizes, from small startups to large corporations.
Today, business coaching is a thriving industry, with thousands of coaches, many highly qualified and experienced, working with businesses of all sizes.
How has business coaching changed?
Fundamentally, today ‘traditional’ business coaching hasn’t changed; there are still highly experienced consultants helping executives improve their skills and performance.
But there is another type of business coach that has emerged in the past few years. This coach doesn’t work with large organisations. Instead, they help freelancers and small business owners.
There is no requirement for these business coaches to be qualified, insured or even experienced in business. And many are not.
We’ve seen the number of these coaches increase dramatically recently. Many of them are excellent at what they do, and approach their work with ethics and professionalism. This article is not about them.
But there are a worrying number of coaches who don’t work with ethics and professionalism, in our opinion. Instead, they get rich by operating what is looking increasingly like, to us, a pyramid scheme.
And just like an MLM, these coaches can leave their victims financially poorer and emotionally scarred by their experience with them. This article is about these people.
Five ways business coaching is like a pyramid scheme
So how exactly do we believe that business coaching can be like a pyramid scheme? Here are five common similarities we have observed.
1) You’re taught to fake it ’til you make it
One problematic strategy taught in MLMs is fake it ’til you make it. Or as you and I might call it: lying. Basically, you are told to pretend that you are more successful than you really are, in order to lure people into buying from and working with you.
And we’ve seen this used and taught in business coaching, too. An example is the boastful “I’ve had a six/seven/eight figure launch” posts, and what has become known as ‘attraction marketing’. Essentially this means pretending you have an amazing life packed with material possessions, adoring family and friends and luxury travel, so your envious followers will want to be you.
It doesn’t take much to see the lies behind some of this fakery. A quick search on Companies House will let you know if the business coach in question genuinely does turn over huge sums of money. Or if, as some claim, they have a string of successful businesses behind them (to date we have never found this particular lie to be true).
Even if the coach is making good money now, it is often only from peddling the lie that they understand the secrets to making money running a business. In reality, the only thing they can teach is how to sell the dream of success and wealth, as they have done to their recruits.
We’ve also seen well known coaches buy Instagram followers, likes and comments, to help make them appear more popular and successful than they really are.
The problem with this kind of lying, is that the business coach lures people onto their programmes with a false impression of what they can achieve. And then they simply teach their new followers the same strategy.
One reader sent this email about a friend she was concerned about. This friend has completed a course run by a business coach:
“I see all the copy and paste profiles of her ‘friends’ and the misinformation that is churned out by them and it worries me what it is doing to their bank balances and mental health. My friend appears to have loads of clients paying thousands of pounds to her, but they are mainly freebies given away and she has taken on a job in marketing to keep afloat.”
We argue that you should not need to sell your lifestyle to sell your products. The only business that we know that recruits people based on the (often fake or exaggerated) wealth of the business owner, are pyramid schemes, where there isn’t actually a product – at least not a product that has any value.
2) The only way to make money is to recruit
The definition of a pyramid scheme is a business structure without a product; or without a product that is actually sold to people outside the structure. (Most MLMs only sell to their recruits – as this expert admitted.)
And business coaching is no different. Because, a lot of the time you aren’t actually taught how to start, grow and sell an actual business (despite what their marketing may promise); instead you are simply taught how to replicate the sales strategy they used on you. So basically, you only learn how to ‘recruit’.
The reason for this is because, as already mentioned, many of these business coaches don’t actually have a successful track record in business themselves. So they aren’t able to teach business skills.
What they have mastered, we believe, is the art of the con. Of manipulating people to believe they hold all the answers, and relieving those people of their money. So the only way that you can actually make money is by replicating the sales strategy used on you.
And indeed, some are even upfront about this. One friend signed up to the (very expensive) signature programme of a coach, and was told she had to replicate this coach’s strategy exactly – even using her recommended freelance team to implement it.
A year on my friend had turned over a significant amount of money, but she admitted that the marketing approach she was forced to use by this coach was so expensive that she didn’t make much money.
The following year she returned to her old style of working. Yes, she turned over less money, but it was less stressful and she made a bigger profit. It seemed that, for all the promises, the coach hadn’t taught her any practical business or marketing skills… only to copy the sales tactic the coach had used on her.
3) Business coaches use emotional manipulation and bullying
One common theme of MLMs we hear from people who have left, is the emotional manipulation that takes place – and we have seen the same strategy used in business coaching.
As you are being recruited, and all the time you are tell the coach what they want to hear, you are love bombed. It feels like your coach really gets and cares about you. But if you dare to voice any dissent; perhaps to question the quality of the training, or even to venture to suggest you haven’t received what you were promised, that friendly mask will quickly slip.
And when that happens you’ll be discredited, shamed and bullied. This is a tactic that, sadly we have heard about far too often from victims. One woman, who paid a well known coach over £16,000 was warned “I will destroy you if you speak out against me” by this coach when she questioned the value of the training she had received.
Another was publicly named and shamed for daring to ask whether the training she’d bought actually covered what she was promised in a sales call, after weeks of not learning anything she’d been led to believe was on the course. She also received abusive emails from the coach who threatened legal action if this woman spoke out.
This woman contacted me privately a year later and was so destroyed by this experience that she had closed down her formerly successful small business.
The motivation for this behaviour is identical to that of an MLM: to silence and isolate victims, and ensure that the truth does not get out. Because, like an MLM knows their products don’t really sell, and therefore the promised business model doesn’t exist, the coaches who use this tactic know that their offering doesn’t match up to their marketing promises.
They can’t afford the truth getting out, because others will look more critically at their offering too, and may demand a refund, or not sign up for future programmes. So they gaslight, bully, threaten and isolate you if you challenge them.
They’ll turn the group against you in such an effective way that, not only are you discredited and silenced, but they actually increase the loyalty of their followers. This strategy even has a name: virtuous victim signalling.
4) They sell smoke and mirrors
In an MLM, people higher up the pyramid use the people underneath them to sell the business to friends and family, and financially benefit from their recruitment. And these people will usually say anything to get people to join, as they too will make money if they do.
And business coaches have used this strategy to clever effect too. We’ve seen some business coaches get people who have competed their courses to do sales calls with potential recruits. Ostensibly this makes sense – you get to speak to someone who knows what the course is like, and what results you can get from it.
However, there’s one truth you don’t know that means these sales calls are not ‘honest’ – the person you speak to earns a large commission (on a big programme this will be several hundred pounds) if you sign up.
So they have no financial incentive to be honest. If they think you aren’t a good fit for the programme, or know it won’t deliver the results you are looking for, they may not tell you. Instead, they’ll wax lyrical about the programme and the business coach, promise you’ll love it… and bank their commission.
Much like an MLM rep will never honestly tell you that you will struggle to sell the products, or that you don’t have the right personality for the kind of work the opportunity involves. They may not even tell you that the opportunity hasn’t worked for them. All they want is their money; they don’t really care about you.
For some people this may be the only way they can recoup the money they themselves have lost signing up for a programme that hasn’t worked.
5) Only a few people at the top get rich
According to research published on the Federal Trade Commission (FTC) website, on average 99.6% of people who join an MLM will lose money once business expenses are taken into account. And our own research over the past few years shows this to be the case.
The business coaching model we talk about in this article, especially in the ‘coaches training coaches’ world probably has a similar failure rate.
As we’ve already mentioned, many business coaches don’t teach you what we would call ‘proper’ business skills. Instead they train you to use the same recruitment tactics they used to sell to you. And the only way you can make money is to use those same tactics to recruit.
The problem here is that, like in an MLM, the business coach at the top of the pyramid scheme has a few things you don’t. Firstly they got there before you. But more importantly, they are often highly charismatic and lacking in the empathy and morals that stops people from lying – ‘qualities’ most people don’t possess.
Here’s a mini version of the business coaching pyramid we’ve observed. One of the charismatic, early-adopter business coaches, who probably trained with a top guru in the USA, launches a signature programme (often called a mastermind) that costs several tens of thousands of pounds, to work directly with them in a small group.
This mastermind will inevitably involve a retreat in an exotic location, as a tactic to sell future masterminds to people who have FOMO, and give people on the retreat fodder for their own attraction marketing.
The people on these masterminds are then trained to start their own masterminds, or some kind of similar ‘high ticket’ offering, with a ready-made template to adopt. Which they do, with varying levels of success.
In some of these masterminds will lurk someone with the right levels of charisma, ruthlessness and (lack of) morals to genuinely replicate this and equal, if not surpass, the initial coach’s success.
Most though, do not possess the right character traits to do so, and instead achieve a slightly lower level of success. But that doesn’t stop them, too, replicating the model to create their own programmes.
At each stage down in this pyramid, most people won’t achieve the level of success as their coach. Indeed, some will fail to even make their investment in the programme. And the further you are down the pyramid – and the further from that initial mastermind – the less likely you are to succeed.
Why? Simply because, just like in an MLM, you are recruiting in competition with all the people in the pyramid with you. And the people higher up than you are more likely to secure the better prospects, as they are better placed, have better resources, and are more likely to have that ‘magical’ combination of personal characteristics required to succeed.
Now this isn’t to suggest that everyone who signs up for a course or mastermind will automatically succeed. There will always be people who, for many different reasons, don’t achieve the results they hoped for. And who maybe don’t recoup their investment.
But the very structure of the ‘coaches coaching coaches’ business model means that there is usually decreasing success the further down the pyramid someone is… just like an MLM. That envious level of wealth that you were seduced in by was never yours for the taking – that is reserved only for the people right at the top. Or the 0.4% of people with the ruthlessness to climb up there.
Why you need to avoid these business coaches
There are plenty of excellent business coaches and mentors who will genuinely help you transform your business, feel more confident and make money.
But, if you can, we recommend avoiding joining programmes and paying people who use the tactics we share above, or this kind of messaging.
Some may be using them in innocence, having seen coaches they perceive as successful use them, and assume that they need to be marketing themselves in this way. But others will be using these tactics because they are following a business and recruitment model similar to MLMs.
And either way, do you really want to learn business strategy from someone who needs to rely on these kind of tactics? Because there is a risk that the only thing they can teach you is how to do the same.
How to spot the red flags to avoid
So how can you make sure you don’t fall for a business coach using a pyramid-scheme-style business model? We share five red flags to watch out for here.
In this article we also explain what to look for before handing over any money or signing a contract, and what you can do if you aren’t happy with a course, programme or service from a business coach.
Photo by Marylou Fortier