Pyramid scheme warning !!

I received an e mail today with a video touting a pyramid scheme.

Red Flags: 

1) The man in the video claimed to live in the mountains of Costa Rica.

2) Was he forced to Costa Rica because of the business illegalities?

3) Or was he trying to impress me? All that was shown was a leafy backdrop. He could have been in Kunkle for all I know.

4) He NEVER stated what he was selling... just that I should be motivated. This was the dead give-away that it was a pyramid scheme.  Examples:  Amway, Quixtar, Nikken, Nu Skin, Herbalife

10 MYTHS about MLM (from author who just published 300 page book)

Myth #1: MLM is a business offering better opportunities for making large sums of money than all other conventional business and professional models.

Truth: For almost everyone who invests MLM turns out to be a losing financial

proposition. This is not an opinion, but a historical fact. Consider some notable examples

from among the largest MLMs.

In the largest of all MLMs, Amway, only 1/2 of one percent of all distributors make it to the

basic level of "direct" distributor, and the average income of all Amway distributors is

about $40 a month. That is gross income before taxes and expenses. When costs are

factored, it is obvious that nearly all suffer a loss. Making it to "direct", however, is not a

ticket to profitability, but to greater losses. When the Wisconsin Attorney General filed

charges against Amway, tax returns from all distributors in the state revealed an average

net loss of $918 for that state's "direct" distributors.

Myth #2: Network marketing is the most popular and effective new way to bring products to market. Consumers like to buy products on a one-to-one basis in the MLM model.

Truth: If you strip MLM of its hallmark activity of continuously reselling distributorships and examine its foundation, the one-to-one retailing of products to customers, you encounter an unproductive and impractical system of sales upon which the entire structure is supposed to rest. Personal retailing is a thing of the past, not the wave of the future.

Retailing directly to friends on a one-to-one basis requires people to drastically change

their buying habits. They must restrict their choices, often pay more for goods, buy

inconveniently, and awkwardly engage in business transactions with close friends and

relatives. The unfeasibility of door-to-door retailing is why MLM is, in reality, a business that just keeps reselling the opportunity to sign up more distributors.

Myth #3: Eventually all products will be sold by MLM, a new form of marketing. Retail stores, shopping malls, catalogues and most forms of advertising will soon be rendered obsolete by MLM.

Truth: MLM is not new. It has been around since the late 1960's. Yet, today it still

represents about 1/3rd of one percent of annual retail sales... and most

of this sales volume is accounted for by the purchases of hopeful new distributors who are actually paying the price of admission to a business they will soon abandon.

Myth #4: MLM is a new way of life that offers happiness and fulfillment. It is a means to attain all the good things in life.

Truth: The most prominent motivating appeal of the MLM industry as shown in industry

literature and presented at recruitment meetings is the crassest form of materialism.

Fortune 100 companies would blush at the excess of promises of wealth and luxury put

forth by MLM solicitors.

Myth #5: MLM is a spiritual movement.

Truth: The use of spiritual concepts like prosperity consciousness and creative

visualization to promote MLM enrollment, the use of words like 'communion' to describe a

sales organization, and claims that MLM is a fulfillment of Christian principles or Scriptural prophecies are great distortions of these spiritual practices. Those who focus their hopes and dreams upon wealth as the answer to their prayers lose sight of genuine spirituality as taught by all the great religions and faiths of humankind. The misuse of these spiritual principles should be a signal that the investment opportunity is deceptive. When a product is wrapped in the flag or in religion, Buyer beware!

Myth #6: Success in MLM is easy. Friends and relatives are the natural prospects. Those who love and support you will become your lifetime customers.

Truth: The commercialization of family and friendship relations or the use of 'warm leads',

which is required in the MLM marketing program, is a destructive element in the

community and very unhealthy for individuals involved. Capitalizing upon family ties and

loyalties of friendships in order to build a business can destroy ones social foundation.

Myth #7:  You can do MLM in your spare time. As a business, it offers the greatest flexibility and personal freedom of time. A few hours a week can earn a significant supplemental income and may grow to a very large income making other work unnecessary.

Truth: Decades of experience involving millions of people have proven that making

money in MLM requires extraordinary time commitment as well as considerable personal willingness, persistence and deception. Beyond the sheer hard work and special aptitude required, the business model inherently consumes more areas of one’s life and greater segments of time.

   In MLM, everyone is a prospect. Every waking moment is a potential time for marketing. There are no off-limit places, people or times for selling. Consequently, there is no free space or free time once a person enrolls in MLM system. Under the guise of creating money independently and in your free time, the system gains control and dominance over people's entire lives and requires rigid conformity to the program.

Myth #8:  MLM is a positive, supportive new business that affirms the human spirit and personal freedom.

Truth:  MLM marketing materials reveal that much of the message is fear-driven and

based upon outright deception about income potential. Solicitations frequently include dire predictions about the impending collapse of other forms of distribution, the disintegration or insensitivity of corporate America, and the lack of opportunity in other professions or services. Conventional professions, trades and business are routinely demeaned and ridiculed for not offering 'unlimited income.'

    Employment is cast as wage enslavement for 'losers.' MLM is presented as the last best hope for many people. This approach, in addition to being deceptive, frequently has a discouraging effect on people who otherwisewould pursue their own unique visions of success and happiness. A sound business opportunity does not have to base its worth on negative predictions and warnings.

Myth #9:  MLM is the best option for owning your own business and attaining real economic independence.

Truth: MLM is not self-employment. 'Owning' an MLM distributorship is an illusion. Some MLM companies forbid distributors from carrying additional lines. Most MLM contracts make termination of the distributorship easy and immediate for the company. Short of termination, downlines can be taken away with a variety of means. Participation requires rigid adherence to the 'duplication' model, not independence and individuality. MLMdistributors are not entrepreneurs but joiners in a complex hierarchical system over which they have little control.  

Myth #10: MLM is not a pyramid scheme because products are sold.

Truth: The sale of products is in no way a protection from anti-pyramid scheme statutes or unfair trade practices set forth in federal and state law. MLMs that sell useful, quality

products have been successfully prosecuted under anti-pyramid scheme laws by state and federal officials. MLM is a legal form of business only under certain rigid conditions set forth by the FTC and state Attorneys General. Many MLMs are currently in gross violation of these guidelines and operate only because they have not been prosecuted.

     Federal regulators have used a 70% rule to determine an MLM's legality. At least 70% of all goods sold by the MLM company must be purchased by non-distributors. This standard would place most MLM companies outside the law. The largest of all MLMs acknowledges that only 18% of its sales are made to non-distributors.