Amidst the heavy media coverage around the Federal Trade Commission’s action on the company VEMMA there are many great lessons that if understood fully they can save you, your company and the network marketing industry.
By the time you’re done with this blog post you will be very clear about what is a pyramid scheme and what is not.
The above image is a NO PRODUCT pyramid scheme named The Airplane Game whereby the Pilot invests $1,500 dollars, gets 2 people (Co-pilot) who also invests $1,500. Each of the two Co-pilots get two people (Crew) to invest $1,500 and each of the four Crew get two passengers each to invest $1,500. When all this is completed the Pilot receives a $10,000 commission for his initial “investment” of $1,500. This type of pyramid can fall under different names such as Airplane Game (image above), Investment Club, Investment Circle, Investment Party, etc.
The image above is an illegal pyramid not because its shape, but because there is no product.
Knowing this is an illegal pyramid, unethical people “STICK” a product into the same building strategy and call it Network Marketing, MLM (Multi-Level-Marketing), Affiliate Marketing, etc. This doesn’t mean that all Network Marketing, MLM and Affiliate Marketing companies are pyramids. It is the ACTIONS and what is COMMUNICATED that determines if it is a pyramid or not.
The fundamental question that must be asked is: FOR WHAT PURPOSE IS THE PRODUCT BEING PURCHASED?
If the purpose (of buying the product) is to earn a commission (on the production of others) – that’s looking like a pyramid.
If the purpose is to USE the product – that’s looking like a legitimate Network Marketing, MLM or Affiliate company.
If the purpose is it to sell the product to a customer – that’s looking like a legitimate Network Marketing company.
If the purpose is to try the product to determine if you want to build a business with that product – that’s looking like a legitimate Network Marketing business.
What has gotten many companies (VEMMA, Fortune High Tech Marketing, etc.) in trouble is how distributors COMMUNICATE the ACTIONS of how a person builds their business. If the communication goes something like this,
“You buy a kit of products and get 3 others to get kits – you will make $300 dollars.”
Do you see the similarity between the ACTIONS of that communication and that of the Airplane Game above? The ACTION in the Airplane Games is to invest in a kit. The action in the COMMUNICATION is that money is made by getting others to invest in a kit (whether it is a legitimate product or no product at all)!
Let’s take the same shape and structure and make it a legitimate Network Marketing company:
Those red circles represent customers – green circles represent distributors (also called representatives, affiliates, etc.). The distributor at the top gets four customers. He then gets two distributors who each are using the products and getting customers.
His communication sounds something like this: I help people lose weight. Would you like to help people lose weight? A product kit (so the distributor can try the products) is $400 dollars. When you help four people lose weight you’ll make $150. [do not miss that communication and action!]
Do you see how different that ACTION and COMMUNICATION is? The action is get customers and help them lose weight. The communication is that you can make money by helping people lose weight… NOT BY GETTING OTHER PEOPLE TO INVEST.
The image above is a typical sales manager and sales rep relationship that exists in any company (MLM or not). Its shape is that of a triangle. The government is this shape, the military is this shape and so is every organizational structure. This shape represents the management of people. So the triangle shape does not constitute a pyramid. The Sales Manager manages the sales reps she is responsible for, trains them, helps sales reps close customers when needed and ensures the sales reps are meeting sales quotas. Sales quotas are minimum levels of production.
If an MLM company states that the minimum sales quota for a sales rep is $100 dollars a month; that doesn’t mean it’s a pyramid.
In conclusion, it is the ACTIONS and COMMUNICATIONS that are the determining factors of whether the company (or your organization) is functioning like a pyramid or not. If you’re in MLM – get customers, get results for those customers, teach people who want to make money how to get and service customers and not only will you feel awesome for helping people you will also build a stable business.