Beware that MLM plan isn't pyramid scam

Pioneer Press - Twin Cities/August 25, 2004
By Michelle Singletary

Washington -- When it comes to your money (or anything else), I believe you should trust your gut.

When your gut is grumbling, think of it as a natural defense mechanism warning you that you need to be careful.

That's what I told a reader who was being recruited for a new business opportunity.

Here's what he wrote: "I was recently approached by a co-worker with what seemed like an intriguing business venture. I, like her, am considering leaving the company to find greener pastures. She said that she had started an online business with the help of a 'mentor' and suggested that I meet the mentor. I met her at a coffee shop and the two of them talked a lot about business in general and how great their product is." So far nothing seemed amiss.

The reader continued: "I listened intently as they showed me how I could make/save money by ordering through my own online business and that I could make even more money if I got others to set up their own online businesses. The more businesses you help to start, the more you make. The pitch was that if I did 'x' and I got six other people to do 'x' and so on, I could quit work in three to five years."

The reader wanted to know if the business opportunity he was being offered was legit or just another pyramid scheme. Turns out he was being recruited for a legitimate company called Quixtar Inc., the online arm of the privately held Alticor Inc. Alticor, which is headquartered in Ada, Mich., is also the parent company of a more well-known company: Amway.

Quixtar operates much the way Amway does. You earn income by selling consumer goods such as health and beauty products.

Ultimately, what the reader was being offered was a chance to join a multilevel marketing business, an MLM for short. This type of business strategy typically promises that if you sign up as a distributor, you will receive income for both your sales of the plan's goods or services and the sales of people you recruit as distributors, said Edward J. Johnson III, president and CEO of the Better Business Bureau of Metro Washington, D.C.

Some multilevel marketing plans are legitimate. However, others are just illegal pyramid schemes. In a pyramid, your pay is really based on the number of distributors you recruit. If there are goods and services sold, they only serve to make the business look legitimate.

Before you sign up for a multilevel marketing opportunity, even what appears to be a legit one, heed these warnings from Johnson and the Federal Trade Commission:

"A legal MLM should only pay commissions for retail sales of goods or services, not for recruiting new distributors.

"Be leery if you're being pushed to purchase the products yourself or invest in expensive training or marketing materials.

"Be cautious of plans that claim you will make money through continued growth of your "downline " - that is, the number of distributors you recruit.

"Don't pay any money or sign any contracts if you do attend the "opportunity meeting," which often uses highly motivational techniques to hype recruits.

Here's my bottom line if someone is evasive about a business opportunity: If you can't be straight up with me from the get-go, then take your business someplace else.