How to answer the Pyramid Scheme question
In the early 1920s, Charles Ponzi, an Italian immigrant, invented the pyramid scheme. Back in those days, postage reply coupons were exchanged in foreign countries for stamps. And since some areas of the world had a struggling economy, a postal reply coupon had a varying exchange rate.
Ponzi found that if he purchased these postal coupons in poor economies, and exchanged them in America, he double, tripled, or quadrupled his money! He liked to brag, so soon friends and acquaintances wanted in on the deal.
Ponzi promised a 90 day 100% return on investment, meaning that whatever amount of money you invested in these coupons would be doubled in three months. Word spread. Those first few investors in the Ponzi game were making money hand over fist! Soon the whole country wanted in.
Ponzi was taking in over a MILLION DOLLARS A WEEK...in 1920! Business was booming. Ponzi was becoming a very wealthy man, and so were his investors. Everything would have been fine, except...
...he never really bought the postal reply coupons. You see, buying the coupons, exchanging the money, and sifting through bureaucratic red-tape was time consuming. Ponzi promised a quick ROI (Return on Investment). He didn't have time to actually buy the coupons.
So, he paid his investors with notes due from the pool of funds of the new investors. Eventually, a guy Ponzi hired to take care of public relations caught onto the scam, and exposed the scheme. In the end, 40,000 people were out $15,000,000...again, in 1920.
He was sentenced to jail, spent a couple years there, got out, tried a few more swindles, got caught, and so on. But he will go down in history as the inventor of the Ponzi Scheme aka Pyramid Scheme.
What is a Pyramid Scheme?
A pyramid scheme is robbing Peter to pay Paul. It's an organization that profits not off a product or service, but off of the new addition of money/recruits to the group. Money flows up the pyramid, but nothing flows down.
Eventually, the money stops flowing up the pyramid. Either those at the bottom do not continue to bring more victims into the scheme, or the scheme is exposed as the illegal pyramid that it is. Either way, only the guys at the top made any money.
Companies that promote a product or service, are not pyramid. In MLM, money flows up the chain, and value (or product) flows down. Each participant receives a valuable, quality product in of itself. He/she would likely be purchasing the product, for the same amount of money, even if a business opportunity did not exist.
So why is MLM confused with a known illegal activity? People commonly mistake a legitimate direct sales opportunity with a pyramid scheme, because they are both shaped like a pyramid!
Now, before you smell a rat, realize that all companies are shaped like pyramids. You have the owner, or company president, at the top. He/she oversees a small, select group of CEOs or managers, who then oversee a larger group. At the bottom of the structure are the employees, who are the selling force to the customers.
WalMart is structured this way, Microsoft is structured this way, heck, even the US Government is structured this way! The shape of the direct sales company is the same.
At the top, is the company, who started off with a handful of distributors, who each enrolled a handful of distributors. It flows out, like a pyramid or fan, as it goes. But here is where a MLM company differs from typical corporate America and from its illegal counterpart: Each newly sponsored recruit is the tip of his own pyramid.
What does that mean? Unlike Walmart, a Network Marketing participant has the opportunity to earn the same amount of money, or more, than the person who sponsored him. Each and every distributor in a direct sales company has the same resources, the same pay structure, and the same incentives.
Everyone Has the Ability to Succeed
Hopefully this will help you explain to a potential recruit why your opportunity is not a scam. If you haven't encountered this question yet, it's just a matter of time!
Later this week I'm going to give you ways to market your business online. See you then! Remember, my goal is YOUR success.