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MLM Company Leadership-Who is your Business Partner

Part V: Understanding and Avoiding Pyramid Schemes

By Daren C. Falter

What is a Pyramid Really?

A pyramid, or I should say illegal pyramid, is simply a game involving people and money. It usually starts with some ignorant, greedy person who gets the original idea (I’m being sarcastic) that if he or she removes the product or service out of the MLM deal, it would allow the program to replicate faster and he or she wouldn’t have to ship or fulfill anything. Money itself becomes the product. A typical pyramid will have you pay a feeto join, and then you go out and get others to pay this same fee. Then you teach them to go get more people to pay the fee. Once this scenario has replicated several generations, you get a payout. Then you jump back into the pyramid with a bigger investment and start the process again. This time, as you fulfill the requirements for a payout, the prize is even bigger. Once you’ve cycled through this process several times, you could be earning tens of thousands of dollars or more without delivering any kind of real value or merchandise.

While I was in high school, I was exposed to my first pyramid. A friend of mine asked me to meet him in the school library. He proceeded to explain to me that if I could come up with $100, I could join him in what he called an airplane investment. He explained that when you invest the $100, you purchase a seat on the very back of this virtual airplane. As you get others to invest the $100, you get to move up a seat. You move farther and farther up the airplane until you’re eventually the pilot of the airplane. Once you’ve filled the entire airplane with passengers who have invested $100 each, you get a handsome payout. When you’ve filled three airplanes, this payout becomes tens of thousands! It seemed a bit unusual, and certainly too good to be true, so I decided to ask my father about it when I got home from school. I diagramed it out on a piece of paper for him, and without hesitation he said, “Son, this is a pyramid scheme.”

My father graciously volunteered to call my friend with me and explain it to him, which he did. I was impressed with how my dad was able to break it down for my friend without making him feel totally stupid that he’d fallen for a scheme like this. Unfortunately, my friend’s father was one of the ringleaders in the scheme, and so I’m not sure if my dad’s message was taken very seriously. But a few weeks later, the local attorney general did take it seriously and shut down the scheme and exposed all of its founders. I remember feeling so relieved that my dad had prevented me from getting involved. Sure $100 was difficult to lose as a high school student, but more important, I couldn’t imagine how embarrassing it would have been to have to go back to the people I got involved and tell them it turned out to be a scam and they would not be getting their money back. Would you risk your integrity and reputation for a few thousand dollars?

Ponzi Schemes and Why Should I Avoid Them

A Ponzi scheme is simply a type of pyramid investment deal with a little twist to trick people into believing it is legitimate in the beginning. The Ponzi scheme is named after Charles Ponzi, who became famous, or should I say infamous, for his little mathematical game. Back in the 1920s, Charles Ponzi developed an investment program that would allow people to earn a healthy 50 percent return on their money. If someone invested$1000, they would earn back $1500 for a $500 profit. Let’s say Ponzi’s first three victims were Adam, Bill, and Carl. Ponzi would get Adam and Bill to both invest $1000. Ponzi would then take $500 from Bill’s investment and pay Adam back $1500, artificially proving to his future victims that his investment system actually worked. Ponzi would earn money on transaction fees. With $500 remaining from Bill’s investment, Ponzi would then bring on Carl as a $1000 investor, to create a total of $1500, which he usedto pay Bill back. By constantly expanding his investor base, Ponzi was able to accumulate massive profits in transaction fees. However, he could not keep up on this charade forever, and before his death, Ponzi’s scheme came crashing down and many peoplelost their $1000 investment. Any investment scheme that is designed to rob Peter to pay Paul is now referred to as a Ponzi scheme.

So what is the lesson for network marketing companies? The survival of a network marketing company from month to month should not be dependant on sponsorships, but the sale of products of true value. Recruiting can expand a company’s distribution base, but recruiting should not fuel the compensation payouts.

About the Author

Daren C. Falter is the author of the network marketing industry-wide best seller How to Select a Network Marketing Company. Daren has been a consultant to the network marketing industry for over 12 years and a student and participant for over 20 years. Daren has built downline organizations into the tens of thousands of distributors with several different companies. Daren is a popular convention speaker and trainer. You can visit Daren online at his blog at  www.networkmarketingreview.com. You can also order Daren’s best-selling MLM book at www.networkmarketingbook.com.

Daren recently launched a new network marketing company, Yoli, Inc., near Salt Lake City, Utah. Daren and his four partners are excited to introduced the worlds most nutritious beverage using patented BlastCap™ Technology. For more information about Blast Cap Technology, Blast Caps, or Yoli, visit Yoli at  www.prelaunchinsider.com.

Copyright ©2009 DC Falter Marketing, Inc. ALL RIGHTS RESERVED

ATTENTION: Breaking News!

Daren Falter will be launching a new company called Yoli. We will be introducing an incredible new nutritional formula in the form of a delicious functional beverage using Mikel Anderson’s patented Blast Cap Technology. The founders of Yoli are Robby Fender, Daren Falter, Rick Eisele, Corey Citron, and Michael Prichard. To find out more about Yoli Blast Cap Technology, visit www.prelaunchinsider.com

Kingsley Ennis is one of the  few “hand selected” FOUNDING DISTRIBUTORS that are helping to launch this new company … and you can join him and one of the fastest growing teams in all of Yoli at the very beginning of this great network marketing adventure!

With a background in the Seminar Industry and 12 years of Noteworthy Success in Network Marketing Kingsley is the Author of “Split Second Marketing” & “Your Extreme Advantage”. You can listen to them FREE at www.usahomebusinessexperts.com

QUESTIONS ABOUT YOLI?  Email kingsley@goyoli.com or call 717-303-5710.

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