Pyramid Scheme. Something along the lines of “Give us money and we’ll give you more money by moving money around in circles and generally confusing the hell out of everybody!”
More of the we will sell you books, you sell those books to people to sell books, so they can sell books to people. Basicly everyone gets a cut of the money from the books being sold but only the people on top makes any profit as they are getting money from everyone in the Pyrimid. Most states make it illigel to run this type of scam.
Wow… okay, no. Time to put on my Financial Advisor’s hat, I think. You folks have some misconceptions. Common ones, but this is what I clear up for a living.
Knighttrap described Multi-Level-Marketing (MLM). It is not illegal, and is a legitimate business model (despite that many of the people engaged in it can be rather shady.) Someone has come up with specialty product, let’s say a new type of toothpaste. Rather than sell it to stores who will take most of the profits, MLM sales people proactively go find customers by going door to door, or cold-calling you at home. They give their sales pitch and try to convince you that this toothpaste is so special it’s worth five times the price of a regular toothpaste (and it may really be, for all we know, that isn’t the point). You CAN make a lot of money in an MLM business, but you have to be a very good salesperson to do so. This brings us the the multi-level part. Easier than selling 100 tubes of very expensive toothpaste to 100 customers, is finding one person who you can convince that they could make a lot of money selling this amazing toothpaste for a living. You sell that person all your inventory at once, and (hopefully) train them a bit in how to make sales. As the person who hired them, you keep a % of their profit, though the point where you made it was when you sold them your inventory to get them started. It is easier and faster to sell large volumes of product to a few people who want to be salespeople and run around door-to-door, or making hundreds of phone calls a day, than it is to do the running and phoning yourself. The trade-off is that you are supposed to train, mentor, and coach these salespeople you hired. If you’re a selfish and shady sort of person, you may just promise to train them for their whole careers, cash their check for the inventory you sold them, and change your mobile phone number and disappear. That’s how MLM get’s such a terrible reputation; people promise to train new sales reps, dump the inventory on them, and vanish. Then the new sales rep has a garage full of boxes they have no idea how to sell off, is out maybe a couple grand for the inventory they bought, and their trainor has vanished on them. They feel rightfully cheated, but it’s the individual who took off with their money who is scamming people, not the business system itself.
That got a bit long, let me try and keep the Pyramid scheme explanation shorter.
Pyramid schemes are entirely illegal in North America; they are not a valid business model. Here would be a sample pitch to get involved in a pyramid scheme: “Join our Elite Membership Club! Just $100 to register! However, if you get your friends to sign up, we’ll pay you $50 for each person you get to join! Get two friends to join, and you’ve gotten your own membership for FREE! But wait, it get’s better! Get 10 friends to join, and you’ve netted yourself $400, just for joining our special club! And there’s no need to stop there! Keep making new friends and bringing them to us, and we’ll keep paying you finder’s fees for as long as you stay a member!”
Pay attention to what’s happening in this pitch: There is no product or service being sold or offered. money is changing hands, but NOT in return for anything. That’s what makes it a pyramid scheme, and what makes it illegal and not a valid business.
Pyramid schemes made the news a few times in the 80s. Everyone’s heard of them and knows they’re bad, but almost no one knows how they work or how to identify one. To be honest, I haven’t heard of anyone honestly trying to scam people with a real pyramid scheme in almost two decades. It fooled people for a while because it was a new idea that people could fall for. No one would buy into something this obviously shady now; we are all far too suspicious. So no criminal sorts have bothered trying to pull it off in many long years. You can
There are some perfectly legitimate and prosperous businesses where you can be hired, then recruit and hire people underneath you, recruit and hire people underneath them, and so promote yourself higher and higher by building a team underneath you. Eventually your team’s organizational chart looks vaguely pyramid-shaped. that does not make it a pyramid scheme; that makes it a BUSINESS! ALL businesses are organised that way, with a few people at the top making more money by overriding the work of the people on the bottom.
A MacDonald’s will have an Store manager, three Shift Managers under him or her, each of which will have 3 Station Supervisors under him or her, under each of which will be 3 or so generic employees. Pyramid shaped staff chart, yes? People at the top who have earned promotions making some more money than the minimum-wage folks at the bottom? Of course there are. That’s how all businesses work. As long as that business is still selling a product or service, it’s a valid and legal business (assuming no crimes are being committed in the process, of course).
I realize that was pretty long, but I have a professional interest in not letting misinformation spread, and educating people about how money works.
One final piece of advice:
If you’re thinking of joining a business, but not sure if the business is legitimate, don’t ask frigging Google for the personal opinions of 10,000 people with no idea what they’re talking about! Go to the Better Business Bureau and see if they’ve already investigated the company professionally. They’re accountable, unlike some anonymous boob with a blog somewhere. There are real business opportunities out there, where you can carve a bright future for yourself. You just have to find them amid all the bombardment of Internet smear and negativity.
For that matter, I wouldn’t (in principle) recommend you take the viewpoint of someone like ME, typing away in a comment section, at lest not without verifying the things I’ve said through a more accountable qualified 3rd party. 😛
Hey Hinoron, thanks for the post on the difference between MLM and Pyramid schemes. It was not very long and really set out the differences quite well.
what? I don’t get it?
Pyramid Scheme. Something along the lines of “Give us money and we’ll give you more money by moving money around in circles and generally confusing the hell out of everybody!”
Or something like that.
More of the we will sell you books, you sell those books to people to sell books, so they can sell books to people. Basicly everyone gets a cut of the money from the books being sold but only the people on top makes any profit as they are getting money from everyone in the Pyrimid. Most states make it illigel to run this type of scam.
Also it is explained later that Shelly has a phobia of Egyptian things.
kidding….
Unless Paul Retcons it, then I win! w00t!
Shelly IS an egyptian thing… or at least a thing widely regarded as egyptian
Wow… okay, no. Time to put on my Financial Advisor’s hat, I think. You folks have some misconceptions. Common ones, but this is what I clear up for a living.
Knighttrap described Multi-Level-Marketing (MLM). It is not illegal, and is a legitimate business model (despite that many of the people engaged in it can be rather shady.) Someone has come up with specialty product, let’s say a new type of toothpaste. Rather than sell it to stores who will take most of the profits, MLM sales people proactively go find customers by going door to door, or cold-calling you at home. They give their sales pitch and try to convince you that this toothpaste is so special it’s worth five times the price of a regular toothpaste (and it may really be, for all we know, that isn’t the point). You CAN make a lot of money in an MLM business, but you have to be a very good salesperson to do so. This brings us the the multi-level part. Easier than selling 100 tubes of very expensive toothpaste to 100 customers, is finding one person who you can convince that they could make a lot of money selling this amazing toothpaste for a living. You sell that person all your inventory at once, and (hopefully) train them a bit in how to make sales. As the person who hired them, you keep a % of their profit, though the point where you made it was when you sold them your inventory to get them started. It is easier and faster to sell large volumes of product to a few people who want to be salespeople and run around door-to-door, or making hundreds of phone calls a day, than it is to do the running and phoning yourself. The trade-off is that you are supposed to train, mentor, and coach these salespeople you hired. If you’re a selfish and shady sort of person, you may just promise to train them for their whole careers, cash their check for the inventory you sold them, and change your mobile phone number and disappear. That’s how MLM get’s such a terrible reputation; people promise to train new sales reps, dump the inventory on them, and vanish. Then the new sales rep has a garage full of boxes they have no idea how to sell off, is out maybe a couple grand for the inventory they bought, and their trainor has vanished on them. They feel rightfully cheated, but it’s the individual who took off with their money who is scamming people, not the business system itself.
That got a bit long, let me try and keep the Pyramid scheme explanation shorter.
Pyramid schemes are entirely illegal in North America; they are not a valid business model. Here would be a sample pitch to get involved in a pyramid scheme: “Join our Elite Membership Club! Just $100 to register! However, if you get your friends to sign up, we’ll pay you $50 for each person you get to join! Get two friends to join, and you’ve gotten your own membership for FREE! But wait, it get’s better! Get 10 friends to join, and you’ve netted yourself $400, just for joining our special club! And there’s no need to stop there! Keep making new friends and bringing them to us, and we’ll keep paying you finder’s fees for as long as you stay a member!”
Pay attention to what’s happening in this pitch: There is no product or service being sold or offered. money is changing hands, but NOT in return for anything. That’s what makes it a pyramid scheme, and what makes it illegal and not a valid business.
Pyramid schemes made the news a few times in the 80s. Everyone’s heard of them and knows they’re bad, but almost no one knows how they work or how to identify one. To be honest, I haven’t heard of anyone honestly trying to scam people with a real pyramid scheme in almost two decades. It fooled people for a while because it was a new idea that people could fall for. No one would buy into something this obviously shady now; we are all far too suspicious. So no criminal sorts have bothered trying to pull it off in many long years. You can
There are some perfectly legitimate and prosperous businesses where you can be hired, then recruit and hire people underneath you, recruit and hire people underneath them, and so promote yourself higher and higher by building a team underneath you. Eventually your team’s organizational chart looks vaguely pyramid-shaped. that does not make it a pyramid scheme; that makes it a BUSINESS! ALL businesses are organised that way, with a few people at the top making more money by overriding the work of the people on the bottom.
A MacDonald’s will have an Store manager, three Shift Managers under him or her, each of which will have 3 Station Supervisors under him or her, under each of which will be 3 or so generic employees. Pyramid shaped staff chart, yes? People at the top who have earned promotions making some more money than the minimum-wage folks at the bottom? Of course there are. That’s how all businesses work. As long as that business is still selling a product or service, it’s a valid and legal business (assuming no crimes are being committed in the process, of course).
I realize that was pretty long, but I have a professional interest in not letting misinformation spread, and educating people about how money works.
One final piece of advice:
If you’re thinking of joining a business, but not sure if the business is legitimate, don’t ask frigging Google for the personal opinions of 10,000 people with no idea what they’re talking about! Go to the Better Business Bureau and see if they’ve already investigated the company professionally. They’re accountable, unlike some anonymous boob with a blog somewhere. There are real business opportunities out there, where you can carve a bright future for yourself. You just have to find them amid all the bombardment of Internet smear and negativity.
For that matter, I wouldn’t (in principle) recommend you take the viewpoint of someone like ME, typing away in a comment section, at lest not without verifying the things I’ve said through a more accountable qualified 3rd party. 😛
Hey Hinoron, thanks for the post on the difference between MLM and Pyramid schemes. It was not very long and really set out the differences quite well.
Well put!
I love all the stuff I learn about reading the comments.