(First appeared in New Era 18 April 2015)
The heading of today’s column was originally from the title of the essay “Siquila too good to be true” by Thomas Lupton in 1580. The term “too good to be true” expresses the unconvinced view that something that seems fine must have something wrong with it.
The past week I was looking at various options, I came across a number of businesses that promised me various levels of income and most of them indicated that it would be “easy”. I researched different businesses from online selling, private blog networks, Tupperware sales, Herbalife and even looking at becoming a Golden Products agent. Each of these businesses had very low entries into the business and was built on a multi-level marketing strategy (MLM). A Multi-Level Marketing is a marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant's "downline", and can provide multiple levels of compensation.
The selling point for each business was that I would make a lot more money if I recruit people who would also sell the companies products and I would make a percentage commission on their sales. To put it a little broadly, I would make more money if I have more people recruited, and they were doing the actual sales.
As a consumers we always dream of having more money to spend and we need to differentiate between a legitimate business opportunity and a business opportunity that “is too good to be true” and which will lead to you losing your money.
One of the most harmful scams that happens to people is when such a scheme turns out in fact to be a pyramid scheme. For you to be sure you do not get caught – and lose your money – is to learn how to identify a pyramid scheme and which regulatory authority you can contact if you believe you might be involved in such a scheme.
So what is a pyramid scheme? Any multi-level marketing company must have a product or service that they sell to a client. Normally a business that has a product you personally can, and wish to, use makes for an easy product to sell onwards to clients. If a company is selling overpriced and difficult to sell products you should already be wary of the business. As a consumer (and potential entrepreneur) you will have to purchase a minimum amount of product from the company which you in turn must sell for you to make money. Once you purchase enough of the product to qualify for commissions you will start to realise it is difficult to resell the inventory.
At this point you will learn that recruiting others to become agents or distributors is the only way to have a chance of recovering the money you invested. The person or company that recruited you will start to pressure you to increase your sales through getting others to become distributors. This emphasis on “recruiting your downline” is an indicative sign that you are dealing with a pyramid scheme. A pyramid scheme can only survive if there is a constant flow of new consumers to buy in the bottom or entry level.
So, how can you protect your hard money? The following questions should help you to check if the company meets the pyramid profile. Does the opportunity offer a large monthly income for very little work or even simply for working from home? Does it require you to put some of your own money into then business by buying a product or service? Does the company insist you pay a membership fee? Is there a strong emphasis on how much money you will make according to the number of people your recruit? Is the commission structure very complex? Does it sound too good to be true? If so, it probably is.
If you believe that an opportunity might be a pyramid scheme you can contact the Bank of Namibia which is continuously refining the provisions relating to illegal financial schemes also known as pyramid schemes.