What is a pyramid scheme? pt2

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.

What is a pyramid scheme? pt1

None of us want to be scammed. We work hard for whatever money we do actually make and we want to be able to enjoy the fruits of our labor. When we hear about a company that uses shady or illegal practices we want to stay as far away from that company as possible. But, sometimes our fear of the unknown prevents us from taking advantage of things that might otherwise actually be good for us.

The other day I was talking about a company that I believe in, one that I am working with. Before joining up I did my homework to see how they compared with other companies in the same field. I checked them out to see if they were honest and dealt fairly with their members. All of the data that I received in return showed that things were on the up and up. There was no bait and switching going on and they delivered on the promises that they made.

There were two other major factors that went into my decision. First, this company ran off of the T-mobile network. I already had T-mobile as my cell service provider. So when I switched my service to their plan, on a technology level nothing was really changing. The only real change was which company got the money for my bill. And secondly, and in my opinion more importantly, this new company provided me the same service I was getting from T-mobile for less than half of what I was paying T-mobile.

These two things alone were enough to finish selling me on the newer company. Then I found out that for each person that I share this great, cheaper cell service provider with, I can get a break on my monthly bill, reducing and eventually eliminating my cost for cell service altogether. This last part was the icing on the cake. Would I have made the decision to switch my cell service for this one thing alone? No, probably not. But they were already offering the same great service I was used to at an even lower price than I was used to. And then, on top of that, I can eliminate my bill altogether by sharing the awsomeness with others? I'd have to be stupid to turn it down.

So, I was relating all this information to some friends of mine the other day. There were about six of us. One of the guys was pretty much lukewarm on the whole topic until he heard about the incentive to share the service with others. Then he makes some crack like "oh so it's a pyramid scheme"

And that pretty much ended any useful conversation on the benefits of this relatively new company and its ability to help us keep more money in our pockets every month. I don't even think my friend knows what a pyramid scheme actually is.

Here is what many people think a pyramid scheme is. There's a guy at the top. He is the one that starts things out. He invests his time money and energy into getting people under him. Now this guy works his tail off until he has enough people under him, investing their time and energy getting even more people to work under them, until he can relax and enjoy the fruits of their labor. With each level of new people at the bottom there's more and more people investing their time and energy and each lower level gets less and less than the people above them do. The people at the top, especially the guy at the very top, do less and less and get paid more and more.

If that's what you think a pyramid scheme is prepare to  be wrong. What I have just finished describing is corporate America. It is the way our country runs. The guy or guys at the top get to party and all the little people get screwed. Remember the other day when I said generalities can make our lives better and they can hurt us? Well, this is an example of them doing the latter. So called normal businesses, network marketing(also called mlm) and pyramid schemes all share similarities, but that doesn't make them the same.