A pyramid scheme has some similarities, and some very important differences. First off the basic corporate business model in America is different from a pyramid scheme because it is legal and pyramid schemes are not. The reason for this is because when we do business money is exchanged for goods and services. In a pyramid scheme money is generally exchanged for money. You are told that money is being invested, but not how and the only way you can get back your investment is to get more people to invest. It goes something like this.
Like the corporate business model there is one guy at the top. Then each level below him usually has a specific number of people in it before dropping down to the next level. Sometimes its an order of magnitude, sometimes its a doubling or tripling. For convenience sake we'll use the order of magnitude example.
So the first level has one guy. He puts in a certain amount of money to get things rolling. Then he gets ten people under him who have to pay the same amount of money to become part of the club. Once that happens he breaks even. After that, new people that join, just put money in his pocket. Then each of those ten people have to get their own ten people so that they can break even. Then each of those one hundred have to get ten so that they can break even. Then each of those thousand have to get their own ten. In another few iterations it ends up taking more people than entire population of the earth in order for the guy at the bottom to break even.
What makes a pyramid scheme illegal is that it is a non-sustainable business model. The money to pay people for their "investment" comes directly from the people that they get to join afterwards and nothing of value is being created or shared anywhere down the line as a result.
If people stop joining the whole thing collapses. Eventually, the guys at the bottom stop paying their monthly fee because they aren't getting anything of value in return. Then one by one each level evaporates, leaving the next one up suffering from the same malady as the previous.
But on the other hand if a business were to offer a discount on your bill as an incentive to get new people to join, like say ten percent per person, there is value all over the place. There is value for you, first because the company is providing you something that you want or need every month and second because you can get that thing for even less by sharing it with others. Even if nobody new ever joins, you still benefit from having the product or service. There is value for the company because they are keeping a current customer and getting new ones all the time from the discounts they offer. And there is value for new customers because of the product or service that is being offered even if they never intend to take advantage of the potential for discounts.
A lot of network marketing companies and "normal" businesses" use this discount feature. They use different words to describe it. Some call it sales commission. Others call it a "friends and families" discount. But it all boils down to the same thing, you bring them business they pay you. Whether it is car insurance, cell service, groceries, or some other bill that you have to pay month after month, year in and year out why not get paid for sharing something good with others?
One of the main differences between network marketing and many of the "normal" corporate America type businesses is advertising. Most network marking companies don't spend the billions of dollars a year that other companies do on advertising. They give that money to their members as rewards for word of mouth advertising. Where would you rather see that money go? To an advertising executive or into your pocket?
Given those two choices, I'll choose my pocket every time. Check it out for yourself here
Besides all that, a lot of traditional corporations are either starting network marketing branches or originally started out as network marketing companies. If you are going to just lump everything that shares something in common with a pyramid scheme together due to generalities, then be prepared to look at all businesses as illegal scams and pyramid schemes.
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