For several years I’ve had these thought floating around in my mind about what makes a good business and what are some warning signs to look out for. Because of my experience in this field, I’ve managed to save myself from falling for a few bad ones (if not out right scams) by using some very basic guidelines. You can find some of those guidelines relevant to the MLM industry here: http://www.firstclassmlm.com/2007/12/07/how-to-evaluate-an-mlm-company/
What I really want to write about is a big basic concept that has saved me some heartache several times: Follow the Money. This combines three different concepts:
- What am I paying for?
- How do I get paid?
- How does the company make money?
“What am I paying for” asks you to consider several things:
- Is it legal?
- Is it a good value?
- Would I share it?
When it comes to home businesses, one of the things the Federal Trade Commission (FTC) likes to crack down on is whether or not a product or service is legal to sell. Now this might sound like a no-brainer, but sometimes you have to think for yourself a bit. Maybe even do some abstract analysis needs to come into play.
Now, the FTC is only making sure you’re not selling illegal products or services, or selling legal products or services via illegal means:
- drugs (or pharmaceuticals),
- alcohol (ya know the government has to be involved here!),
- firearms (again, the government has to have their noses in any enterprise of this nature),
- securities (you know… stocks & bonds & stuff),
- money exchanges (dollars for euros, for example),
- operating a Ponzi or pyramid scam,
- gambling (which is pefectly legal in some municipalities),
- anything else you can think of that would be illegal for individuals to sell.
While the FTC is looking at the legality, you still need to be concerned with whether or not it’s ethical. For instance there are some network marketing companies out there that promote products to enhance one’s sex life, and other network marketing companies that promote commodities (such as gold & silver), which is perfectly fine. But there are other “businesses” that prey on the weaknesses of others by practically selling sex, thinly disguised drugs, and gambling scams thinly veiled as something else.
For example, a friend was telling me about a business that was making him some good money. (Isn’t that what they always say?)
1) It was free to join.
2) It was real products that people were “winning.”
Winning? REALLY? How is that a business?
3) You earn a commission when people purchase “bid tickets” AND when they paid what they’d bid on that product.
AH! There it is.
Turns out it was an auction-based business. Nothing wrong with auctions. You can get some excellent products for awesome prices at auctions. But look at what the “customers” were paying for. First they had to pay for their participation by purchasing “bid tickets.” Then the “winner” got the privilege of paying for their item.
How many people were purchasing “bid tickets” and never winning a thing? Isn’t that called gambling? And how many people purchased “bid tickets” that they ended up never using? That’s wasted money.
Needless to say, that company has since been shut down by the FTC. Nope not for the gambling aspect, but because they determined that it was a ponzi because too many of their reps were representing it as an “investment” – which is a violation of the Securities & Exchange Commission (SEC).
Sure there are plenty of people out there that have no qualms running legal gambling sites. But I couldn’t do that with a clean conscience any more than I could run a porn site. If you’re running it like a network marketing businesses, though, it’s only a matter of time before the FTC shuts it down. I’m never looking for a quick buck, but a life-time business with which I can be proud to be associated. And I hope you are, too.
Is it a good value?
Yes, the products available via auction were valuable items in this example. But none were necessities, nor consumables. So, once your customer purchased an item which they won via the auction, you’ve lost a customer. Unless they liked the gambling and came back for more. Or until they had a need for another “toy.” Whenever that might be. And hopefully they’d remember to come back to the auction site. That’s called a fad. Again, not a strong company to consider.
Let’s look at another aspect that you should consider for EVERY business you evaluate. No matter what kind of business anyone is trying to get you into, always ask yourself if the entry fee is reasonable.
Another thing the FTC likes to crack down on is whether a company is making its money by “selling memberships” OR by selling real products or services that real people really want. So if a company asks for any money to join, consider how much it is and what that money is used for.
Is your fee simply to pay for your membership kit? If so, that’s the best situation. The next question to ask is, what’s included in that membership kit, and if the amount requested is reasonable for it.
If your fee is quite a bit more than you would expect to pay for what’s included in the membership kit, then you need to know why. Many companies charge $100 – $500 to join. What they do with that money is pay “enrolling bonuses” to the person who introduced you to the biz. And sometimes, bonuses also go to the “up line” of support that build that team.
If that’s the case, then you need to look closer at how people make money from this business. Be careful if they’re making money by selling memberships instead of by selling real products that real people really want.
Now this last question is only applicable to affiliate or network marketing types of businesses. Because that’s the only time you’re going to be asking others to do what you’re considering doing right now.
In our current economy, is it reasonable to ask people who are struggling to make ends meet, to purchase product(s) or services they’re not already using? If they really need it, they’re already using it.
If they already use these products or services, is it reasonable to ask them to start purchasing from you and/or your business? Why should they?
Even in better economies, or considering people who aren’t struggling financially, is it reasonable to ask them to allocate some of their “extra” funds for your (your company’s) products or services? If you’re selling gold (to use an extreme example), do you feel that it’s reasonable to ask them to have that kind of money to tied up into not-so-easily-liquidated assets should an emergency arise? If that’s not a concern for them, then…
Would you feel confident and proud to be asking others to invest or spend their money as you’re considering doing so right now?
In summary, the question regarding what you’re paying for should have you at ease with the answers to it’s legality, value, whether it suits your personal ethics, and whether you’re comfortable sharing your products or services.
Next time we’re going to consider the question you should ask: How do I get paid?