9 signs Multi-Level Marketing MLM Opportunity is actually a 2x2 2x3 pyramid scheme / matrix / board / scam
Multi-level Marketing (MLM) is hardly new, but it is one of the least-regulated type of business, as it is one of the youngest. Basically, instead of just selling, there is a bit of recruiting as well, and your pay will depend on your recruit's performance. However, there are a LOT of scammers out there disguising their scam as a pseudo-MLM. In fact, most of the MLMs out there are controversial and scam-y. Here are some signs that you need to watch for, to make sure that MLM opportunity you may be thinking about joining is not actually a pseudo-MLM scam designed to take your money.
Please keep in mind though, even if your MLM opportunity is NOT a pseudo-MLM scam, it is still 99.5% likely (virtually certain) that you will lose money while participating in it. This is due to its various fatal flaws. Thus, my recommendation is to avoid MLM altogether. Read on and find out why.
What is a matrix?
A "matrix", also known as a "forced matrix", is just a fancy name for a pyramid. For example, a 2 x 3 matrix is same as a 1-2-4-8 pyramid, because there are 2 child nodes per parent node, and there are 3 levels below the root node, thus 2 x 3. A 1-2-4 pyramid is known as a 2 x 2 matrix.
The 8-ball version of a pyramid scheme, which is a 1-2-4-8 pyramid, is the same as a 2x3 'forced matrix'.
GET MONEY FOR JUST RECRUITING = SCAM
The American Federal Trade Commission, or the FTC, states very clearly that if there are more reward based on recruiting than reward based on selling, then there is a HIGH suspicion of a pyramid scheme. The reason is simple: where is the money coming from, if not from sales? The only other source of income is from the membership fees, and that makes this a Ponzi or Pyramid scheme/scam. The American Federal Bureau of Investigations, or FBI, defines a pyramid scheme as an operation where you have to recruit two or more people into the system to get paid.
The "recruiting" angle can be very well disguised through a lot of weasel words like "forced matrix" or "cycling the matrix". In reality, a "matrix" is just a fancy name for "pyramid". The typical 8-ball scam or airplane game is also known as the "2 x 3 matrix" (or "2 x 3 forced matrix"). If there's verbiage like "cycling out of the matrix", be VERY VERY suspicious, because the only way you "cycle out" is by filling the matrix with recruits, esp. when there's a large bonus paid for "filling the matrix". That's basically doubletalk for "get paid by recruiting a lot of people".
Some scammers insist that if you only recruit two people, and teach those two people to recruit two more people each, it's NOT a scam. It's almost laughable as this flies in the face of reality.
Another way to disguise recruiting is by "selling" the opportunity's "joining gift", and not mention the membership at all. For example, let's say you get "item x" when you join. Instead of just selling you this "item X", the recruiter will let you think you're buying this item X, when in fact, you actually paid for the membership, which gets you item X. They surely wouldn't tell you about the problems you may run into redeeming that sign-up bonus, or that they need recruits to "cycle out" the matrix.
Yet another way is to disguise the recruiting by making the compensation for sales very vague, but how you get the big payout, by recruiting a lot of people, is crystal clear.
EXAMPLE: One company, which shall remain unnamed, offers $10000 payout, for joining fee of $250, if you can "cycle out" of two matrices, both of which are 2x3.
SUPER-EXTRAORDINARY CLAIMS = SUSPICION
The old adage "there is no free lunch" or "it is too good to be true" may be old, but they still apply today. If an opportunity tell you that you can make $10000 in mere weeks, by doing very simple things, you should be VERY suspicious.
* How manys sales you have to do to make that sort of money?
* Is there such a market in your area for whatever you're selling, and how big is it?
* How much you have to spend to a) get the client, and developed the market, and b) cost to actually sell all that stuff (labor, location, etc.) Remember, any "testimonial" are a) read by shills, or b) "results not typical" or c) incomplete truth, or d) all of the above
Most people can't calculate or don't calculate the cost of "market acquisition / development". As a result, the actual "cost" of running the business is vastly underestimated. And often, the market size itself is way overestimated. Remember, the customers don't find you. YOU have to go find the customers. THAT cost $$$. And obviously, if there are no sales, just recruiting, then that's definitely a pyramid / Ponzi scam.
Beware of fake endorsements. Scammers often "borrow" credibility from others by citing "testimonials" from famous people in somewhat related fields, and intentionally misquote them to make them sound as if they are endorsing the company when they are not.
IF YOU WOULDN'T BUY IT, IT IS NOT FOR YOU
If you don't want to buy it, you'd have a hard time selling it, as you will come across as insincere! People can tell when the salesperson don't really believe in the product s/he is pushing.
And please don't sell the "opportunity" itself. That's recruiting. If you can't tell the difference between recruiting and selling, you're probably in a scam.
Another thing to look for... can you sell that item to the same person more than once? Or in other words, it is an item that people use, or actually "use up"? Companies that sell consumables, like nutritional supplements, cosmetics, and so on are successful because those are things people actually USE UP, and always need more. Things that do NOT get used up, like personal alarms, cell phones and phone service, and so on are much harder to sell, because each person only needs one, and no repeat sales are possible. If you get in a BIG order, that's fine, but most orders are small to tiny, and if you cannot make repeat sales, your market acquisition costs is VASTLY underestimated, and your business potential is then vastly overestimated.
WHAT DOES MEMBERSHIP FEE BUY YOU?
You have to receive some physical or virtual products to sell, or any equipment and such to sell the "service", or some tangible training for your membership fee. If all the fee does is "qualify" you to get paid by recruiting, you are definitely a victim of a pyramid scheme.
If you just receive a bunch of links to video lessons of dubious value, or an e-mail, or a catalog, you are probably looking, best case scenario, at a misrepresentation of the real situation. Worst case: you're looking at a scam.
Also, keep in mind that the equipment can be the real moneymaker for the seller, instead of the opportunity itself. By vastly exaggerating the profit potential, and include equipment of dubious value (such as an obsolete computer and printer), you can be tricked into buying something that's practically worthless. You can be sold a "custom greeting card business" when all you got is an obsolete computer, a printer, and a greeting card printing program that you can buy for $4.99. And what you print is worse looking than the stuff you can get at your local Hallmark store. (That's just a possible scenario)
If you do get a worthwhile bonus, such as free vacation, check to see how you actually "use" or redeem the vacation. There have been horror reports that the vacation was actually to some corner of the earth that few would go, and the wait for the redemption was over a year, as the company keep blaming "explosive demand overwhelmed our system". Don't let that "bonus" be main reason to join, instead of the real business opportunity.
NO REAL MONEY = SCAM
There are some bogus opportunities that pay you NOT in cash, or check, but in some "eWallet", which is just a number somewhere in the Internet. To convert that into "real dollars" you have to pay all sorts of crazy fees, like wire transfer fee, debit card fee, transaction fee, conversion fee, and so on and so forth, and wait weeks or months. That is a SURE sign of a scam.
If the opportunity doesn't TELL you how your commission is paid, run away! A "real" business would just send you a check, or even direct deposit, even International businesses.
This can be further disguised by the company paying you "vouchers" which you sell to other recruits, so you are basically getting paid by new recruits. And that is DEFINITE sign of pyramid scheme. What's worse, that actually makes YOU a part of the scam, as you benefited from it. It is basically a money transfer scheme.
And finally, watch out when the business is operated offshore and only accepts "payment processors" who will take your money for "conversion" and send it off. This basically means once you've transferred the money, you cannot rescind the transfer, EVEN IF YOU PAID BY CREDIT CARD. The payment processors, such as AlertPay, Solid Trust Pay, Liberty Reserve, and so on, are in a sense, like banks. You pay the processors money to open a temporary account, and you pay someone else from that temporary account. Once the money is gone from the temporary account it cannot be rescinded, even if you have a complaint. By adding that extra layer, the offshore company can be sure that even if you had second thoughts you will have a hard time getting your money back.
NO MANAGEMENT INFO = SCAM
If the opportunity is run by an unknown, with no background for you to check, or there are no name anywhere attached to this "opportunity", you should run away, just as you don't loan money to total strangers and expect it to be returned (unless you're a charity, but that's a different purpose altogether).
The American FTC REQUIRES any sort of franchiser / business opportunity provider to give this information, and 10 days for you to examine it before you join. If they don't, they are probably NOT operating legally in the US!
There's a website out that claims to sell "online travel franchise opportunity" for $250 initial sign up only, no monthly fees, and earn commission forever. Any sort of communication is just signed "Management Team". There is not a single name from the corp to be found on the website, nor any pictures, nor any background. Furthermore, not a SINGLE newspaper or media source in the world covered this company in the over 17 months it has been in existence, except multiple documented reports in Asia, Europe, and now in Australia that it is a suspected fraud.
Would YOU give your money to complete strangers who won't even tell you their names, and expect it to be returned several times over, without even a contract and a credit check?
BUYING OPPORTUNITY FROM UPLINE = SCAM
One of the most insidious tricks used by pseudo-MLM scammers to encourage recruiting is letting the upline sell the opportunity itself, and pocket the application fee, through some sort of "redemption code" that can be handed out. The upline doesn't get paid much actual money, but instead is handed these "redemption codes". To get the money, the upline have to SELL the redemption codes to new recruits such as you. That way, the upline gets paid real $$$, and gains new recruits, while the company itself didn't really lose any money, and kept the upline recruiting.
For example, let's say this "upline" is paid $250 every four people he recruits. The people who join pays $125 each. The upline gets the $250, half in cash, the other half in this "redemption code", allegedly worth $125. In order to actually get the full $250, he had to "sell" the redemption code to yet another recruit (the fifth one), and pocket the $125 in real money. So in essence, he actually had to recruit FIVE people to make $250, not FOUR as specified. It's a way for the scammer to play with your head. And that is a nasty mind-game. Shows you how nasty this supposed opportunity is.
Another variation of this is the intentional blurring of product vs. opportunity. If you are buying this opportunity for a fee, you are buying a business or business system, not a product. To give an example... Let's say, when you join this business X, for $250, you get a vacation package of some sort. If the recruiter is presenting the whole thing to sell you on the vacation package for $250, and NOT emphasizing the business X at all, either he's very confused, or he's being intentionally deceitful (as he needs the headcount to cycle out).
Yet another variation is buying inventory of stuff to sell from your upline, then sell it to your newly recruited downline. This is basically fake sales, and very illegal according to the FTC. Why? It's basically disguised pyramid or Ponzi scheme. Instead of moving money around, it's moving inventory around, which is just a substitute for money in this case.
(Also, back to first advice: if there's more recruiting than selling, it's probably a scam, and this is yet another way to "hide" the recruiting!)
A variation of this is "stacking", by encouraging a member to register for multiple positions within the company. A real MLM company does NOT allow stacking, because it simply confuses the issue. After all, Why should you get more commission for joining more than once when you're still, well, just you? It's not as if you can sell more stuff by joining twice... The only one that benefits from "stacking" is the people on the top, who then do not need to recruit 15 people, but far less actual people. Any company that allows "stacking" in their matrices or boards or whatever wants people to move through the system, not selling things, and that makes them very likely a scam.
AVOID THE HARDSELL WITH LITTLE OR NO ACTUAL INFO
A lot of these pseudo-MLM scams (and those late-night infomercials) use the hard sell: a lot of images of luxury cars, the high life, beautiful women, corporate jets, personal yachts, dream vacations, beautiful houses, villas, whatever, even people holding up beautiful jewelry and loads of cash... and keep mentioning "wouldn't it be great for you to join them?" That's the hard sell, and that is when your "bullshit" detector should be beeping loudly.
Most of these scams will spend MOST of the presentation talking about how great life is, but very little about what the opportunity is, how you do it, and how you actually get paid doing it, and finally, how you can actually get those special bonuses.
One such presentations was on the Internet for download, to recruit for one of these scams. It was counted that out of the 70 slides shown, only 4 actually gave any details on the compensation package (i.e. how you get paid for what you do). That's just over 5%. Most of the slides actually talked about how great the company supposedly is, how they are giving away luxury cars, laptops, vacation villa stays, even luxury yachts, and so on. It's a sales pitch, not a business opportunity presentation.
If they don't tell you what needs to be done (i.e. what are you selling: product, or service), it's not an opportunity at all.
WHEN GOVERNMENT STARTS INVESTIGATING = SCAM
When a government, ANY government in the world, starts looking at the company, it is time to run away from this alleged opportunity.
How do you know? Internet research.
One such company started operating in January 2009, started recruiting in China in March 2009, and was already declared illegal in September 2009 in China, with dozens / hundreds arrested in sweeps. In March 2010 news came out that it is ruled a pyramid scheme in Hungary. China sentenced at least two "leaders" in the scheme for consumer fraud, and now word just came from Australia that the local consumer protection agency got a court injunction to halt operations of that company's "distributors" from recruiting.
If you had been doing research you would know about such reports.
The five NEVERs
Here are five "nevers" you should heed when it comes to detecting bull****, either from the opportunity, or from its promoter.
NEVER take ANY positive reviews at face value
In a pseudo-MLM scam, which requires people to recruit, people already in the scam will say ANYTHING to score another recruit, which increases his/her chance of "cycling out" and get his/her big money. Thus, they cannot be relied to give unbiased reviews.
If you see a review that says good things about the opportunity, then that reviewer at the end cheerfully wants to recruit you, you should consider the review "tainted".
Similarly, a review should do just that: review the opportunity at hand. If the reviewer switches to sales mode at the end, and tries to sell you "secrets to MLM success" or such, the reviewer cannot be trusted either. It is fine if he use the last sentence or two to mention his secret sauce (that's a joke), but if he reviewed the stuff in one paragraph, then spent the rest of the review trying to convince you that you need his secret sauce, the review itself is a fraud, as he's just out there to get you to look at his "secrets", not really reviewing the stuff. I call those "weasel reviews".
NEVER trust a reviewer who uses logical fallacies
Logical fallacies are basically saying 1+1=3, but in words. Here is an example:
1) BizA pays real money
2) Paying real money = not scam
3) BizA is not scam
This is a logical fallacy because 2) is NOT always true. A pyramid scheme or a Ponzi scheme can pay money for a while, but they are definitely scams. Thus, the conclusion 3) is not true, or at least, not proven by the evidence given.
You can find a list of logical fallacies at logicalfallacies.info
Any reviewer who had to resort to logical fallacies to support his/her statements is doing a horrible job. You can find some examples of this in my "review of reviews"
NEVER trust any one who don't answer lawful concerns
The first thing you should worry about any sort of MLM is whether it is really a pyramid scheme. As explained before, pyramid schemes can be well disguised in buzzwords cloaked by dollar signs. It is also illegal, and a misdemeanor in most states, even for minor amounts. If your recruiter cannot or will not answer questions about why is this thing legal, you should be VERY wary.
Keep in mind that some scammers and uplines, desperate for more recruits, have resorted to inventing definitions of pyramid scheme, in order to "prove" that the scam is not a pyramid scheme. This is known as 'strawman argument', and is a type of logical fallacy. Remember the basic definition of pyramid scheme: get paid for just recruiting other members, who are ALSO expected to do the same. For those who know Star Trek, it's like being assimilated by the Borg. You are turned into a Borg who will go out there to assimilate others, turning them into Borg as well. Real MLM business sell things or service to people. Pseudo-MLM scams just recruit people into their pyramid.
Search for your local law's definition of pyramid scheme, Ponzi scheme, endless chain scheme, or whatever name your local authorities use, and see for yourself if your alleged opportunity fits that definition, and how your recruiter explains that it does NOT.
NEVER trust any one who told you to avoid negative information
Any sort of information have two sides to the same story. A "review" of an opportunity will be good or bad. As we have explained earlier that good reviews cannot be trusted, esp. if it is followed by a recruiting call. Negative reviews would tell you a lot more about the opportunity than a "good" review would ever say.
And if your recruiter tell you to ignore any negative information you found, you should be REALLY wary, because you cannot be sure what is his/her motivation for saying so. Some have been taught to ignore negative thoughts so they cannot "contaminate" their positive attitude, which is needed for success. That is just psychobabble, as no amount of positive thinking can protect you from reality. Yet others are willing to engage in deceit just so he/she can "cycle out" and get the pay out before the whole scam collapses.
Confront your recruiter with the negative reviews, and ask him or her about the points made, and how are they being addressed. And don't take bull**** for answers.
NEVER trust people who make up information as they go along
A real company would have answered any major concerns, such as legal questions, and the concerns raised for those 9 signs earlier. In fact, most companies would have a "compliance officer" to make sure the company complies with all applicable laws.
If your recruiter can't answer the question, or if the company have yet to answer any of these questions, and they are very obvious, then the company may be shady, and do not want to complicate their lies by lying some more.
A certain international scam refuse to acknowledge any questions about their legitimacy, and let its members make up explanations as they go along, resulting in two layers of lies: one by the company itself, another by its members, and it sometimes is hard to separate the two. A legitimate company would have answered the concerns itself. A scammer would leave it up to their members to cover for them.
Many MLMs out there are illegal scams that fits the above warning signs. Each of the warning signs have been explained.
Please keep in mind that even if the company you are thinking about exhibits none of these warning signs, it still may not be profitable to you despite your best efforts.
Be careful out there.