Pyramid Scams: Two Things To Watch Out For (Part 1)
It appears network marketing or multilevel marketing (MLM) is gaining some traction again among Filipinos in search of a way to earn some money. In the past two weeks alone I have received at least four invitations to so called business opportunity meetings.
I used to be involved in MLM. In fact I once took a one year break from my day job to concentrate on network marketing. I never really earned that much from it though. Nevertheless I found the whole experience quite enjoyable and educational.
So what did I learn? Quite a lot actually. But the most important is the idea that MLM is a legitimate business model that presents a very real opportunity for people to achieve financial freedom or to earn some extra cash.
I know that sounded a little too chirpy and somewhat corny like an overused motherhood statement. But seriously, as a business system, MLM shouldn’t be dismissed as easily as its evil twin, the pyramid scam.
To the newbie or casual observer it would appear that the two are one and the same. As a former networker who had the fortunate/unfortunate experience of attending more than enough business presentations by various companies including dubious ones, I am quite familiar with the inner workings of both systems and I can attest to the fact that MLM is a legitimate and ethical system while pyramiding is simply bad.
It’s really quite easy to make the mistake of assuming that they’re the same system. For one thing, networks formed under both systems take on the form of a triangle or pyramid with the one who enrolled first positioned on top and followed by a number of other people referred to us downlines who are also followed by other downlines below them.
I’d like to point out that this pyramid or triangle structure is not the dead giveaway of “scamminess” as many well-meaning but uninformed pundits think. There is nothing inherently wrong with the form. It is not even unique to MLM or pyramiding schemes.
The fact is the pyramid form is found in every imaginable organization. It’s how corporate organizations look like. Even the government follows this structure with the Head of State at the very top followed by other top level officials who are then followed by lower-ranked officials and so on and so forth. It can’t be stressed enough that there is nothing inherently wrong with the pyramid organizational structure.
What’s wrong with pyramid schemes anyway? The standard complaint is that, like the Ponzi scheme, pyramiding involves an unfair movement of money that puts members at the very bottom at a disadvantage. Moreso when there are no real products involved as this would leave those at the bottom with nothing to show for their investment. To illustrate, member A receives money from member B who then receives money from member C who is then left holding the empty bag unless someone else gets in to continue the cycle.
Unfortunately, in legitimate MLM, money moves in a similar fashion. The only difference is that there are products involved.
But then again most present-day pyramid scams also feature products.
(More to come in part two.)
