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October 19, 2013

I’m not making this stuff up: More on the “Evaluating Internet Business Opportunities - Infographic”

Category: Internet Marketing — Answers 2000 @ 10:44 am

A while ago, I posted an infographic and a blog post about how to evaluate internet business opportunities… at least the kind of criteria that I would use myself.

I received some negative comments on Facebook and elsewhere suggesting the infographic was biased against MLMs. I’m not biased against MLMs in general - while I have no interest in participating in them - if other people find legitimate MLMs to be a good model (and some apparently do), that is fine with me. My concern however is with illegitimate MLMs - that is MLMs which are disguised pyramid or Ponzi schemes:

  • A pyramid scheme is one which pays participants based on recruiting more participants into the scheme - rather than based on legitimate sales of products to non-participants in the scheme (retail customers).
  • A Ponzi scheme is an fraudulent investment scheme, based on paying returns to earlier investors, using money taken from later investors.

The question is how do you spot these schemes? Here are the criteria that I would use:

  1. Is there a product? If there is not, this is likely indicative of a fraudulent scheme. If there is a product, you should of course do further investigation - having a product by itself is not enough to prove an opportunity is legitimate.
  2. Are the majority of product sales to people outside the business opportunity (retail sales)? If not, this suggests the opportunity may simply be a disguised pyramid scheme.
  3. Are you being offered investments returns (being given a return for simply depositing money, and then taking little or no action of your own)? If yes, the opportunity should be registered with the relevant authorities (like the SEC in the United States) - and if not registered, maybe a unregistered security and/or Ponzi scheme.

I’m not a lawyer, nor an expert on this stuff, but neither am I making this stuff up!

Here’s what the FTC says: "Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money."

Here’s what the SEC says: "some MLM programs are actually pyramid schemes — a type of fraud in which participants profit almost exclusively through recruiting other people to participate in the program." … "beware of these hallmarks of a pyramid scheme:" … "No demonstrated revenue from retail sales. Ask to see documents, such as financial statements audited by a certified public accountant (CPA), showing that the MLM company generates revenue from selling its products or services to people outside the program."


   

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