Is Life Coaching a Pyramid Scheme?

If you’re a new coach, or even if you’re in an entirely different kind of business, I am sure that you have heard people criticize life coaching for being a pyramid scheme. It’s one of the biggest criticisms I hear about the industry from folks who are uneducated about what coaching actually is and how it works. (For reference – our Uncage Your Business program primarily serves coaches (life, health, career, etc) – so we work with and have heard from a LOT of coaches over the 12+ years I have been in business!)

I get it — it’s easy to hate on life coaching. I can understand why it has a bad rap when people only see the hokey side of it through social media, and don’t actually understand what it is or see what amazing results GOOD coaching can have. To be clear – I am not a life coach. I DID train as one back in the day, but I never really coached – I was always more interested in the business side of coaching, and that’s what I do now (and just happen to work with a lot of life coaches because they tend to suck at marketing themselves!)

I think the reason we hear this thing about it being a pyramid scheme a lot is because people will say that the only way to make money as a life coach is to coach other coaches. More on that later in this post – I have a LOT to say about this!

But first let’s dive into some basics you need to understand to answer this question.

 

What is a pyramid scheme?

A pyramid scheme is a fraudulent investment scheme in which money made by newer members is used to pay earlier members. This results in a pyramid-like structure, with the few individuals at the top receiving the majority of the profits. Pyramid schemes are illegal in many countries!

Think of a pyramid scheme like a big game of “Telephone” that never ends. Person A convinces Person B to give them money, and then Person B convinces Person C, and so on and so forth.

The only way to make money is by recruiting more people into the scheme. The problem is, these schemes eventually crumble because there aren’t enough people left to convince, and only the people at the top of the pyramid make any real money.

Pyramid scheme-like qualities exist in MLM (Multi-level marketing) businesses – you know the ones that hawk beauty products or nutritional shakes or leggings, the ones that have your old acquaintances suddenly messaging you on Facebook “wanting to catch up!”. You can smell it a mile away – a pitch is coming. The only difference between MLMs and a true (illegal) pyramid scheme is that members are also selling products. 

MLMs are majorly problematic. There is a great podcast about them called The Dream that I recommend you listen to.

But, let’s talk about life coaching.

Life coaching is all about helping people achieve their personal and professional goals. Coaches use a variety of techniques to help their clients look at beliefs and thought patterns that are limiting them, identify their strengths and values, set goals and find the motivation to make positive changes in their lives. It’s so much more than that, but that’s a simplified version.

Let’s look more closely at whether coaching is the same as a pyramid scheme:

  1. Purpose: Life coaching is about helping people improve their lives, while a pyramid scheme is all about making money through recruitment. Coaching does not involve a recruitment process of any kind (more on this point below).
  2. Skills and Training: Life coaches need to have a certain set of skills to help their clients. YES it can be argued that many coaches don’t invest enough in skills and end up being crappy coaches, but there is generally the expectation that they have specific skills to help move their clients through stuck points to help them make change.  Participants in a pyramid scheme don’t need any special skills or training, just a willingness to convince others to join in.
  3. Revenue Generation: Life coaches make money by selling a SERVICE that they then deliver.  Pyramid scheme participants make money by enrolling others into the scheme.
  4. Client Satisfaction: Life coaching success is measured by the satisfaction of their clients and the results they help them get. A pyramid scheme is only concerned with recruitment and the enrichment of the top participants.
  5. Initial investment: In an MLM business, participants are often required to make significant financial investments in order to participate – they usually need to buy a certain amount of products to then sell. While many life coaches may choose to invest in a coaching program that teaches them coaching skills, they are not required to invest further in order to become a coach and take on clients.

So we can see right away that there are some major differences between life coaching as a service business, and an MLM or pyramid scheme.

 

But what about coaches coaching coaches?

Ah right – the elephant in the room. The myth that you need to coach other coaches in order to make money as a life coach.

This is where I can see how the industry can be seen as a little pyramid-y. If the ONLY way to make money as a coach was to enroll other coaches, and teach them how to enroll other coaches with the promise that they will show them how to make money as a coach, and then those coaches learn the same strategy and they enroll other coaches….. Then sure, I’d be on board with coaching as a pyramid scheme.

HOWEVER – that is a gross misrepresentation of how MOST of the coaching industry works.

There are for sure a few sketchy coaches out there who operate on that model. But after working with 1000s of coaches in all different niches, I can say that type of coaching is certainly NOT the norm.

I have seen coaches in ALL different niches making upwards of 6 figures, sometimes even 7-figures, in their businesses. 

There are a few reasons why most people don’t see this:

  1. When you are a new coach yourself and you are looking for help with your business, ALL you see are business coaches (because that is literally what you are searching for). So you get inundated with coaches coaching coaches on their businesses, and you take that to mean that is the ONLY profitable and successful niche.
  2. The other coaching niches might not even register to you as “life coaches” because they are so specific in their niches and they might not even call themselves life coaches. For example, a coach who helps women who are in a new job or a new role overcome their confidence issues might call herself a Leadership coach;  or a coach who helps college students figure out what they want to do with their lives might look more like a Career Coach. The life coaches who didn’t niche in – it’s likely no wonder you don’t see a lot of them, because general coaching is very hard to sell, and niching is where it’s at in order to create a profitable business.

There are LOTS of coaching niches that are killing it who are still technically trained as life coaches, but who are describing their work much differently than the typical generic coaching language (hot tip: this is your key to success as a coach! Work with us in Uncage Your Business to learn exactly how to do this).

Need proof? Ok, here you go. Here are some coaches who are killing it who DON’T coach other coaches

This is a very very small sample of the coaching businesses that are rocking it. Want more? Check out this thread in our Uncaged Facebook group  that has a long list of examples (note: you will need to request to join the group to see the post).

 

But let’s talk about coaching other coaches for a sec. WHY IS THIS BAD?

It’s not.

There is a niche and a market for this. Many coaches seek their own coaches for lots of things – some for ongoing personal development, some for business, some for other random things.

Just because someone coaches other coaches does NOT make them a pyramid scheme coach or a bad person. As long, of course, as they aren’t teaching these coaches a generic template for how to coach other coaches and then teach them to coach other coaches etc.

But JUST coaching coaches — yeah, that’s fine. It’s good, actually.

For example, I teach coaches how to market their businesses. The coaches I work with are in a large variety of niches. In my program we have worked with relationship coaches, divorce coaches, career coaches, coaches that use horses to help people process emotions, emotional eating coaches, weight loss coaches, enneagram coaches, coaches who focus on helping moms with overwhelm… you name it, we have probably worked with a coach with that niche.

We help them with their marketing. We do NOT teach them how they can scrap their niche and make more money by becoming a coach for coaches. Gross.

 

What about affiliates – isn’t that kind of pyramid-y?

Affiliate marketing is a system where if someone has a course that I think would be a good fit for my clients, I can get a special link to share with them, and if anyone buys the course through my link, I make money. Like a referral fee.

This is not a pyramid. I can’t enroll people under me to sell the course and then take a cut of whatever they sell. It’s a simple referral relationship and a nice way to say thank you for when someone sends you business. 

Bottom line – coaching is an unregulated profession right now that is a bit of the wild west. So you are going to get some sketchy coaches just trying to capitalize on a booming industry, and you are going to get some incredible coaches who literally change lives.

At the end of the day, if you are looking for a coach, you need to do your homework – read their website, listen to any interviews they have done, look for case studies and testimonials – figure out if you jive with what they are saying, what their approach is, and whether you can get behind what they are doing. It doesn’t take long to listen to a few interviews with a coach to figure out whether they have strategies that you feel could help you, or whether they are utter BS. 

This is why the work we do in Uncage Your Business is SO crucial.

We help you develop an ability to talk about your approach and how you help people (and why it differs from what else is out there), so that your prospective clients can decide whether that approach works for them. It’s a unique way to differentiate yourself and is one of the most powerful tools you can use in your marketing.

Click here to learn more about the program if you are interested in seeing how it could help your business.

If anyone in your life is razzing you about being a life coach and say you’re joining a pyramid scheme, feel free to send them this post. And then get out there and crush it in your business so you can rub it in their face later.

Posted in Marketing, Mindset