Evaluating A Business Opportunity

Posted by Neville on November 16, 2010 under Glossary, Reviews | Comments are off for this article

Will I Join This One?

I recently investigated an opportunity being pushed by a respected online marketer, but there were some things about the scheme that set me thinking about how realistic, or even  legal, it might be.

The thing that really stuck out was that the promoter of the scheme mentioned a couple of times in his professional video presentation, that there were no limits (infinite possibilities no less) to the income that could be earned. Clearly that is hyperbole, as income possibilities are limited by the population of the earth which is not infinite.

In fact, another of the promoters admits that only a small proportion of the people who see the presentation will take up the opportunity. So only a small part of the finite population will get involved.

There is no way that the income possibilities are infinite!

Is It A Ponzi Scheme?

The way in which this scheme is presented is appears to me that the owner has tried very hard to disguise it, so that it is not easily categorized as a Ponzi scheme.

But I get the feeling that it is a Ponzi scheme! Am I right?

Here’s how the US government describes ponzi schemes:

“A Ponzi scheme is closely related to a pyramid because it revolves around continuous recruiting, but in a Ponzi scheme the promoter generally has no product to sell and pays no commission to investors who recruit new “members.” Instead, the promoter collects payments from a stream of people, promising them all the same high rate of return on a short-term investment. In the typical Ponzi scheme, there is no real investment opportunity, and the promoter just uses the money from new recruits to pay obligations owed to longer-standing members of the program … both pyramid and Ponzi schemes are illegal because they inevitably must fall apart. No program can recruit new members forever. Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth’s population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.”

To read the full FTC statement regarding pyramids and ponzi schemes, visit this website: http://www.ftc.gov/speeches/other/dvimf16.shtm

My recollection of how this opportunity works is:

  • Members are signed up and need to recruit new members. The income that flows to members comes from newer members further downline.
  • No commission is paid on sales of products.
  • To qualify for participation a member has to sign up as a “reseller” of a range of PLR, Free and rebrandable “products” at $10 per month. All of that monthly payment goes to the promoter. There are no commissions.
  • The products do not seem to be of high quality and are perhaps provided just to have some product, to disguise the Ponzi like nature of the opportunity.
  • New  members are gifted into the scheme by their upline. That upline, however, only pays for 1 or 2 new members, and all others that they personally sign up are “gifted” in by a paper transaction in the back office.
  • The payments are made directly between members, thereby taking the promoter out of the loop, perhaps as a way to counter the description as above “…promoter just uses the money from new recruits to pay obligations owed to longer-standing members of the program” .
  • This program will never be able to recruit forever, so it must collapse at some stage, with lots of people having paid their upline and had no returns themself.

This looks and sounds like a type of Ponzi scheme to me.

Am I right?

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