MLM - Pyramid scheme or SCAM?

When I look at this picture I like to imagine the man on the first camel talking to the man on the second camel about this “amazing new business opportunity.”

When he starts to explain the compensation plan he is quickly interrupted by the man on the third camel who exclaims, “That’s a Pyramid Scheme!”

Okay, I know. That’s a little corny (or maybe a lot). Chances are pretty high though that if you have been in the MLM industry for very long you have heard this claim directed towards you.

The Pyramid Scheme

So what is this scheme that has maligned the name of the great structures built by the ancient Egyptians? Wikipedia states that …
"A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered."

The only way to recoup your investment in a pyramid scheme is to recruit other investors. There is either no product sold or the product has no real market value outside of the pyramid scheme – the product is only meant to be sold to its members but never really used. Your initial investment earns you the right to receive commissions on all the investments from people you recruit and all the people they recruit and so on.

The Pyramid Problem

Let’s say, for example, that for an investment of $1,000 you are required to recuit six other investors for which you receive $200 each plus $100 dollars for each investor they recruit and so on. You can get your original investment back quickly and make a ton of money. At just four levels below you there are already 1,296 people which means you have recouped your original investment of $1,000 plus $129,200!

Sounds like a great plan, huh? Well it depends on when you get in. The problem is that as more and more investors are added the possibility that those investors will be able to recoup their money quickly becomes zero.

Why? The math shows us that you would need an infinite number of investors flowing into the plan for the last investor in to be able to recoup their investment. In fact, you very quickly run through the world’s population!

"At only eleven levels below the top person in the scheme it requires more investors than the U.S. population and at thirteen levels below the top person it requires more investors than the population of the entire world."

Inevitably, these plans collapse well before this point as new investors cannot be recruited. Only the first few levels of the pyramid scheme have a realistic chance of recouping their original investment and making money. This is why pyramid schemes are illegal.
Multi-Level Marketing

When it comes to MLM plans people tend to judge the book by the cover – if it walks like a duck and talks like a duck then it must be a duck (or maybe in our case a pyramid building Egyptian!). MLM plans do have a pyramid shaped structure (as does almost every company, school, or organization). In fact, many aspects of a MLM company’s compensation plan are almost identical to the pyramid scheme. If the MLM company only focuses on bringing in new distributors then it has the same problem – there just aren’t enough people to make it work.

So what should you look for when thinking about joining a MLM company?

First, look at the product or service sold by the MLM company.

It should be of high quality, fairly priced, proprietary to the MLM company, and there should be a strong demand in the real world marketplace.

Second, look at how you earn money.

You should be compensated primarily on actual sales that you make plus the sales that your distributors below you make. A bonus may be paid on new distributors you recruit but the focus should be on sales to end users.

Third, you should not be required to purchase more inventory than you can reasonably be expected to use or sale.

Most MLM companies today have online ordering systems that will drop ship directly to the end user. You should not have a garage full of inventory!

If these three cursory observations do not hold true for the MLM company, RUN, don’t walk to the nearest exit.

Ultimately, ask this question, “Can I recoup my investment and make money solely by selling the product without ever recruiting anyone to become a distributor?” The answer to this question must always be yes! If not, it is most likely a pyramid scheme.

The Four Greatest Fears of Starting Your Own Business (Part 3 end)

To read Part 1 of this article, please click Here
To read Part 2 of this article, please click Here

Imagine buying a McDonald’s franchise for the modest sum of
one million dollars. The business fails. You call up McDonald’s
corporate headquarters and ask for a “Return Authorization
Number” so you can get your franchise fee back along with a
reimbursement check for your unsold supplies and stock.

(While imagining this scene, also imagine the sound of sirens
wailing in the background. That would either be the paramedics
coming to assist the poor corporate officer who you’ve just
induced into a fit of hysterics, or an ambulance coming to take
you to a really nice, soft, baby-blue colored room.)

In network marketing, not only is this not
an absurd scenario, it’s the law!

One of the aspects of a legitimate, legal network marketing
company is the ability of a failed distributor to get a full refund
(usually less a 10 percent restocking and processing fee) on all
product and marketing material that is in resalable condition.

So, if pursued conservatively and intelligently, there is a monumental
reduction in risk relative to conventional business startups,
yet with a comparable or even greater profit opportunity.

Those of you who are already actively involved in network
marketing, be aware that the vast majority of your “outer
circle” prospects (those who’ve never been involved in network
marketing) do have at least the desire to own their own
business, as opposed to working for someone else. You don’t
have to talk them into the benefits of something they’re already
dreaming about.

But they also have some very powerful, legitimate fears about
starting their own business.

You’ve first got to open their minds to
the idea that there is still a realistic way
to achieve that dream and then define, or
perhaps defend, the concept of network
marketing.

Only then should you introduce the benefits of your particular
network marketing program.

Think of it like this: Before you can pour fresh, hot coffee into a
thermos, you must first open it up and pour the old, stale coffee
out, right? So, think of your business-phobic prospect as a
sealed mind full of cold, stale ideas. First open it up (to the
concept of starting a business), dump the old information out
(about MLM, if necessary, and for sure about what’s involved in
starting a new business), and then pour the new, hot, fresh
information in (about your specific opportunity).

If you are considering starting your own business, or you want
to, but have always been apprehensive, open your own mind to
network marketing.

Think it’s too good to be true? I challenge
you: Find the catch!

If you’ve never pursued a network marketing venture, it must be
for one of two reasons: You just didn’t know about it, or you
have a prejudice against it.

And that’s exactly what it is, a prejudice. You have prejudged
this business based on what someone else has told you about it
(usually someone who has failed at it or who has also never
been involved themselves).

In other words, you’ve chosen to adopt someone else’s opinion
of this business. Don’t let other people do your thinking for
you. Make your own decision based on your own evaluation.

Check this business out. Really, do your due diligence.
And when you are done, I would defy anyone, even the most
devout skeptic, to not experience a significant, positive
paradigm shift.

I dare you to honestly and openly look at network marketing
and not be impressed and intrigued!

Leonard Clements is a speaker, trainer, and author who has concentrated his full-time efforts on researching and analyzing all aspects of network marketing since October of 1990. He conducts “Inside Network Marketing” seminars throughout the world. Len is the author of the controversial book Inside Network Marketing (Random House) and the best-selling audios Case Closed! The Whole Truth About Network Marketing and The Coming Network Marketing Boom. He is also a court certified expert in the field of network marketing and the co-owner of a successful network marketing company.

The Four Greatest Fears of Starting Your Own Business (Part 2)

To read Part 1 of this article, please click Here

Not only is there no catch, I didn’t even
hype the pitch by one iota. These are
exactly the conditions in which tens of
thousands of successful network
marketing ventures have begun.

Sure, some overly zealous networkers may tell you how rich
you’re going to get, how easy it is, and how fast it will happen.
Please note, I didn’t say any of that!

Network marketing is a serious business,
no less so than any other way you might
consider earning your living for the rest
of your life.

The reality is that network marketing is hard work, it takes time,
and you’ll probably lose some money in the beginning.

The difference is that most of the hardest work is done by
someone else, your work is done when you choose to do it, it
typically takes a few months to turn a profit (some accomplish
this in the first month) rather than a few years, and whatever
amount you might lose at first has one, two, or maybe even
three fewer digits compared to the start-up losses of most conventional
businesses.

Yet you can still reap the tax benefits of operating your own
business, and you can have just as much, if not more, income
potential as most conventional businesses!

Imagine becoming financially independent in one to three
years...

Without having to spend thousands of
dollars each month...

Without having to work long hours seven
days a week...

Without even having to quit your job
during the development stage and...

Without having to get a business degree
or hire someone who has one...

If you are considering starting your own business, and you’ve
got access to, let’s say, $50,000 in startup funds (a very modest
assumption), imagine how profitable you could be, and how
quickly, if you didn’t have to hire employees, you didn’t have to
lease an office... and/or storefront... and/or warehouse, you
didn’t have to pay sales or payroll taxes, you didn’t have to
spend one penny on R&D, graphic design, or the development
of promotional material, and you didn’t have to hire an
accountant, lawyer, or business consultant.

And imagine how much more money might go into your pocket
if you didn’t need business partners to help you finance and run
the business. Think about it—and try not to become giddy.

Now for the really fun part…

To be continue..

The Four Greatest Fears of Starting Your Own Business (Part 1)

The Four Greatest Fears of Starting Your Own Business - Leonard Clements

... and how network marketing blows them all away with the force of a 20-megaton thermal nuclear explosion! I dare you to honestly and openly look at network marketing and not be impressed and intrigued!

Way back in the last century (1991), a survey was conducted by my research firm, MarketWave, Inc., of almost 7,000 people who were not, nor had ever been, business owners of any kind. The question was a simple one:

If all obstacles were removed, would you like to own your own business?

In other words, if whatever was stopping you from starting a business didn’t exist, would you at least attempt it? Would you prefer to be an entrepreneur, or an employee?

Eighty five percent said Yes, they’d prefer to work for themselves. Which means that 15 percent misunderstood the question on the survey. After all, if whatever concerned you enough to not attempt a business venture didn’t exist, then you’d have no fear of doing so.

I mean, who wouldn’t want to be in control of their own life? To have the freedom to make their own decisions, work their own hours, and write their own paycheck? Even using the conservative 85 percent figure, that meant about

200 million Americans wanted to start their own business but have never even attempted it! We thought there must be some pretty compelling reasons why, so we set out to find out what they were.

To no one’s surprise, it was never about preferring to work for someone else’s business, but rather the incapacitating fear of starting your own.

And it was the same four fears, every single time.

It takes too much money.

People didn’t have tens of thousands, or hundreds of thousands of dollars to invest in a business (and they didn’t know anyone else who did).

It takes too much time.

People didn’t want to work eighty hours a week for the first year or two to get their business going.

There’s too much risk.

Over 56 percent of all businesses fail in the first two years, and they’d have to quit their job, so there was no safety net.

They didn’t know how.

Most people had never taken any business courses. They had no business experience. They didn’t know anything about taxes, accounting, marketing, and the myriad of other skills a good entrepreneur must possess.

Not all responded with all four objections, although most responded with more than one. Surprisingly, “I don’t know how” was the single most common response. A lot of folks said they wished they had taken the plunge earlier in their lives, but they just weren’t the mavericks they once were. They had a mortgage to pay and a family to feed. They felt it was “too late.”

Now comes the fun part.

Would you ever consider going into business for yourself if: The total start up costs were under $500... the total time investment could be as little as 5-15 hours a week... you could continue to work in your present job until the income from your business was sufficient to earn you at least an equal income, so there would be little risk... and best of all, there were numerous consultants available to you who are experts at running this business, who would train and advise you personally for an unlimited number of hours, for the entire life of your business, absolutely free!

Not only that, but there is another company that will take care of all your research and development, labeling, inventory, shipping, payroll, various taxes, most legal questions, and so on.

And this company will do this for you every month, for the life of your business, for around, oh, $35.00 a year.

Right now, you’re probably remembering the old adage, “If it sounds too good to be true... ” Fine.

But, just hypothetically, would you consider going into business for yourself IF all this were true?

“Well, sure...” you’re probably thinking, “... but there’s got to be a catch.”

...to be continue