Tag Archives: What am I paying for?

What is a Ponzi Scheme?

If you’re considering or are already operating a home business venture, you’ve probably asked this question or had someone ask it of you: Is this one of those pyramid scams or Ponzi schemes?

If someone has to ask this, then they actually don’t know what a Ponzi scheme (commonly called a pyramid) actually is. Because if they did know what it is, there are some certain questions to ask (either themselves or the person trying to “sell them”) that would answer this question definitively.

So, what IS a Ponzi Scheme?

A pretty clear definition provided at FirstClassMLM.com is:

A Ponzi scheme is an illegal investment scheme that involves paying returns to investors out of the money paid in by later investors, rather than from net revenues generated by any real business. According to the FTC (Federal Trade Commission), “…there is an expression that nicely summarizes this scheme: It’s called “stealing from Peter to pay Paul.”

(By they way, FirstClassMLM is a great site to help you answer all kinds of questions about the industry.)

What questions can you ask to make sure what you’re doing is legal?

Based on that definition, then, what questions can you ask yourself or Mr. Salesman to help you know whether or not what you’re looking at is a legal venture?

  1. What am I paying for? Am I getting anything in return for my money? Is there a real product or service of equal or greater value that I receive in exchange for my money? If so, would I consider it a fair exchange should I never, EVER, receive any other compensation or product or service from this moment on?
  2. If I am doing this so that I receive future compensation (any return on the investment whatsoever) in exchange for my money, then where does that money come from? When I do the math, is there enough money coming into this “system” to pay me and everyone else who expects the same? If it’s not an investment, per se, then how are funds being generated to re-compensate me for my money?
  3. Those two question threads would help you determine if what you’re doing is legal in the eyes of the FTC, but I propose one last question to determine if it’s ethical: the first 2 questions being satisfied, if there are any funds left as “profit” from my (and everyone else’s) purchase or investment, then where does that money go? Who gets it and what are they using it for? After all, you don’t want to be funding a terrorist group. Helping the homeless or feeding the hungry would be nice, but even if it’s pure profit for a private individual or group, you just want to be sure you’re not funding anything that would cause harm to others.

If you’re not getting anything “up-front” in exchange for your money (in other words, the money you “pay” isn’t for a “purchase” of goods or services), other than an expected future compensation, then you might want to say “no” to this endeavor because the FTC might call it a Ponzi, shut it down and prosecute everyone involved.

That actually depends on whether or not this is an investment program, in which your money is being invested so that it would earn dividends or interest. In this case, you aren’t “purchasing” anything, but investing your money with an expectation of growth, knowing full well that (markets being what they are) you might loose your money instead. Most of us call that gambling, but the FTC calls it trading stocks and bonds. ;)

In the end, only you can determine if what you’re doing feels good in your gut. Don’t let claims of big money turn your head. Always be aware that it’s quite possible that you’ll never get your money back. So you need to know that if that should happen, you’re happy with what you’re getting in return for your money. AND you’re satisfied that anyone else participating in it would feel the same.

What to do if you discover it’s not legal?

If you ponder and ponder and ponder and are finally able to put your finger on what bugs you about something, then don’t keep it to yourself. Talk to the person who’s trying to convince you to follow them. It’s been my experience that sometimes people just overlook something. They are human after all, and appreciate another perspective on the matter.

Ponzi King, Bernie Madoff

Ponzi King, Bernie Madoff

How did Bernie Madoff get away with it for so long?

Ok, so Bernie was the “investment king” for a while. People were confident that he knew what he was doing and could help them. Unfortunately, he was a big fat liar. While everyone understood that he was investing their money for them, in socks, bonds, and business investments so that they’d earn dividends and interest, he was really keeping the money for himself. Every once in a while he’d take some money from new “investors” to give to the older investors as if that was their profits from the investments. Stealing from Peter to pay Paul – quite literally.

Is Network Marketing a Ponzi?

While some network marketing programs have been shut down because they were ruled by the authorities to be a Ponzi or pyramid scam, most are not. That’s because they are backed by companies that offer real products and/or services to real people who really want them. Therefore, the two questions to consider per the FTC’s definition are perfectly satisfied. The best test being that there are some “customers” who are perfectly happy with the products/services they received in exchange for the money paid.

If you’re looking for a legal company to get work with to either supplement or replace your income, visit http://freedom.danniellewood.com and either fill out the form on that page or contact me via either of the methods at the bottom of the page. I’ll help you get the info you need, 3-way you to our team, and answer your questions, so you can gauge our integrity, and decide if you want to work with us to change your life. Beginning right now.

Evaluating A Home Business – What am I Paying for?

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:

  1. What am I paying for?
  2. How do I get paid?
  3. How does the company make money?
In the interest of space, though, let me talk about each question in separate posts, then come back to the big concept to wrap them up all together… lead you down the trail of bread crumbs, so to speak.

“What am I paying for” asks you to consider several things:

  • Is it legal?
  • Is it a good value?
  • Would I share it?

Is it Legal?Is it legal?

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.

Would I share it?Would You Share?

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?