9 Signs You’re Involved in a Pyramid Scheme

By virtue of owning a website created to help small companies, people trying to launch their own businesses are regular visitors here.  Many of these soon-to-be entrepreneurs have the drive, the knowledge and the plans required to become a great success someday, which makes running this website one of the more fun and rewarding things I do with my time.  But over the last few months, an alarming trend has emerged.  As the economy continues to falter and unemployment claims rise, many people are being forced to get creative with how they make ends meet.  And pyramid schemes (a.k.a. Network Marketing Opportunities or Multi-Level Marketing Businesses) are providing just the right amount of false hope for hundreds of thousands of people across the country.

Regardless of what their websites say or how they say it, the white-collar criminals who run Network Marketing / MLM companies are taking advantage of an economic opportunity; preying on the insecurities of desperate people in uncertain times.  I often fall asleep at night smiling, because I know there is a special place in hell reserved for every single one of them.  But sometimes I lie awake frustrated, wishing there was more I could do to prevent these modern-day grifters from ripping off another friend, relative or acquaintance whose only crime is needing something positive to hold onto.  Hence this posting.

If you believe you (or a loved one) might be getting taken for a ride by one of these Network Marketing or MLM business opportunities, I encourage you to spend a few minutes reviewing this list of “Signs You’re Involved in a Pyramid Scheme.”  And if you need someone to talk to after reading it, feel free to reply to this post or send an email directly to eric@thesmallcompanyblog.com.  Also, for MUCH more information on ths topic than I could ever hope to provide, please visit Dr. John M. Taylor’s website MLM-The Truth!.

9 Signs You’re Involved in a Pyramid Scheme

Sign #1: You Receive No Salary AND No Benefits.
There are obviously many sales people in this world who work on 100% commission.  But real companies care enough about their employees to at least protect them with things like health insurance and retirement plans.  Offering an allegedly valuable person like yourself no salary AND no benefits is pyramid scheme code for “We really don’t give a crap about you.”

Sign #2: You Are Asked to Sell Things Which Are Readily Available at Any Discount Store.
Vitamins, makeup, cleaning supplies, dietary supplements and food additives can ALL be purchased at any Wal Mart or Target.  Even if the ones you sell are ‘higher quality’ than the discount store brands (which is highly unlikely) do you really think you can compete with these places and their billion dollar marketing budgets?  The truth is, the people who run your Network Marketing business aren’t really expecting you to sell much of this stuff to anyone—except yourself.

Sign #3: You Pay for Your Own Training.
Real businesses invest in their employees by paying for courses and continuing development opportunities.  Pyramid schemes use training as a profit center, and charge their consultants hundreds of dollars to attend the same ‘training’ sessions over and over again.

Sign #4: The Company Spends Time Explaining Why it is NOT a Pyramid Scheme.
People who run pyramid schemes know they’re illegal.  To convince potential victims like you to participate, they have no choice but to present a semi-convincing list of reasons why their business is legitimate.  My personal favorite is the one used by the Seriesse people, who claim that almost every business in the world is a pyramid scheme, simply because most organizational charts are shaped like a triangle.  I’m not sure the Federal Government agrees.

Sign #5: Meetings are Littered with Statements that Can’t Be Verified.
It startles me how effective Network Marketing shills are at convincing people of outrageous things with absolutely no supporting documentation—and how willing people are to believe them.  It’s motivating to think another consultant in your group lost everything, lived in her car, and turned her life around by making over a million dollars per year in network marketing.  But if she was lying, how would you know it?  You wouldn’t.

Sign #6: The Business is Endorsed by a Celebrity Who Never Shows Up at the Conferences.
Pyramid scheme operators love to lock in interested parties by name-dropping. “Did you know Donald Trump has a stake in this company?  Do you realize the man on stage is Sylvester Stallone’s wife’s brother?”  People who are easily star-struck find it almost impossible to think objectively about something when there is a celebrity involved . . . and operators are quick to take advantage of their instant boost in credibility.

Sign #7: You Receive More Compliments and Praise from People in the Network Than You Do from Your Family and Friends.
People who run pyramid schemes all have one thing in common: they actively recruit impressionable people with low self-esteem.  But the compliments and praise will only last as long as you continue to produce in the form of either new sales or new recruits.  Unless, of course, you keep paying for the training sessions.

Sign #8: The Group Alienates You from Your Support System.
Step 1 in the Setting up a Pyramid Scheme Handbook is to create an “us against them” attitude among new recruits.  Pyramid scheme operators know full well that at some point, a friend or family member of yours will express concern about what you are doing.  Therefore, much of your early ‘training’ will focus not on the products or the business itself, but on how relatives and friends are going to hold you back by being ”closed-minded” and “negative” about your new business.  If you find yourself in heated arguments with friends and family over your business decision, chances are you took the bait.

Sign #9: They Spend More Time Training You How to Recruit Than How to Sell Products.
Contrary to the Network Marketing-based claim that “all businesses are pyramid schemes,” there isn’t one legitimate company that requires new employees to immediately begin searching for five replacements for themselves.  But this is exactly what MLM companies do.  MLM owners know that the shelf life of a single recruit is less than a year, so the focus becomes building the network first, and selling the products later.  Worst-case, you and the people you recruit make the minimum investment in ’starter products,’ and the pyramid pulls in thousands of dollars without you ever making a legitimate sale.

Closing Thoughts

The fact is, if you’re serious about working for yourself, you do NOT  need these con artists to help you get started.  If selling things like makeup, cleaning supplies and dietary supplements is truly your passion, you can become a manufacturer’s representative for any number of an up-and-coming companies—with real training, interested customers, and no requirement to recruit others.  Here is an article that explains how to become a manufacturer’s representative.  And if you enjoy the job, you can even become a certified manufacturer’s rep and make a career of it.

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