Joined: 13 May 2008
Location: Round Rock Texas
|Posted: Fri May 16, 2008 2:33 am Subject: A pyramid business
|A pyramid business is legal.
A pyramid business is often described as, "one of those businesses where everything goes to the person on top". That description is mostly correct. It is correct, mostly, of mainstream traditional business corporations, too. A comparison of traditional and network marketing business models shows how they are hierarchical, but significantly different.
Hierarchical traditional businesses (their structure is top to bottom) earn their profits through the labor contributions of their employees. However much the employee might be compensated his pay represents a small portion of the gross profit earned by the business. That's our free enterprise, American capitalist system. Nothing wrong with it. After the employee has been paid where does the excess profit go? It goes to, "the person on top", not to the employee's friends he might have brought to the company.
Management determines the employee's promotion. It is not the practice of company managers to offer assistance to an employee wanting to overpass them on their way up the ladder. An employee who moves into his manager's position is likely because the manager has moved up or left the company.
Hiearchical network marketing businesses (their structure is top to bottom, too) enable the individual networker to determine how big, how fast and how much profit their organization earns them. A zealous newcomer who proclaims to his sponsor, "I'm going to pass you up" would likely be greeted with, "Let me help you". It is in the interest of the sponsor that the newcomer succeed because the success of one is the success of the other. Typically, network marketing businesses, also known as multi-level marketing (MLM), network marketing, franchising, and private franchising) offer three-fold compensation:
1) What the individual produces in terms of service or product sold,
2) A pre-determined percentage the company pays out (called, "residual income") of the profits it receives from members sponsored by the individual, and
3) Scheduled bonuses paid to the individual by the company on the basis of revenues earned by the company through the networker's entire organization. This extended organization includes people sponsored into the business by people he has sponsored. Once these bonuses begin they continue to increase incrementally month after month, because the organization continues to grow, too. This marks the significant difference between traditional and network marketing businesses. What makes the hierachical network marketing business model different is the horizontal compensation of others, not by the individual, but by the company; "The person on top". This, too, is free enterprise, American capitalism and there's nothing wrong with it.
Some pryamid businesses are found to be illegal, not because they are a pyramid, but because, and this is the acid test: They offer neither service nor product to the general public. That is what is described by law as a, "pyramid scheme". Of course, some cons have tried to get around this by offering a "product" to the general public, for example, of a brochure on, "How to make a million dollars a week on the Internet". Were you to look at the brochure, for which you paid a ridiculous $1.00, you would probably see it's a lot of links to businesses about. . ."How to make a million dollars a week on the Internet". They are counting on a, "Why not?" attitude from just maybe a million curious, or gullible, people to send their one dollar. The FTC has ruled the product or service must offer real value. Another major stumbling point of pyramid schemes is offering compensation for recruitment of new members. It is illegal.
Finally, most network marketing business are by legal definition not considered, "businesses opportunities". One of the legal thresholds by which a venture is deemed a "business opportunity" is the initial financial investment required to join. That amount varies from state to state, but it's around $499 which explains why many memberships do not exceed that amount. The use of the term, "business opportunity", although a venture may not be considered such, legally, is not a problem with authorities as long as the money limitations comply with regulations.
Check out your State Attorney General's site. Examine the "deceptive practices" page. It will likely explain in detail what I have covered. Similarly, check out the Federal Trade Commission site for deceptive practices.