Is This a Pyramid or a Legitimate MLM?
By Jeffrey A. Babener
The Inevitable Question
OK, you have either been recruited for a network marketing opportunity or you are the one doing the recruiting. Inevitably, this question will come up: Is this a pyramid scheme or a legitimate business opportunity?
This Tuna's for Selling
Although this is a complex legal area, a simple story draws a clear line in the sand. Party No. 1 sells Party No. 2 a case of cans of tuna fish for $10. Party No. 2 sells the same case to No. 3 for $20 and so on until No. 9 sells the case to No. 10 for $500. No. 10 opens the case and opens one of the cans, which turns out to be rancid. He goes back to No. 9 who refers him to No. 8 and so on until No. 10 goes to No. 1 to complain.
"I have major problem," he says.
"So, what's your problem?" says No. 1.
"Well," says No. 10, "the tuna is rancid, it's inedible."
"So, what's your problem," No. 1 says again.
No. 10 says, "Like I said, this tuna is no good."
"Well," says No. 1, "the way I see it, you don't really have a problem."
"What do you mean?" says No. 10, "this stuff is worthless."
"You don't understand," said No. 1, "this tuna is for selling, it's not for eating!"
And there lies the difference. Distributors in a network marketing program that are merely buying product to buy into the deal as opposed to an intention of really making a market for it, are really working a pyramid scheme, not a legitimate direct selling business. Remember, when you offer this opportunity to your next-door neighbor or your best friend, it's your credibility that's going to be on the line for years to come.
What to Look for - A Checklist
So, what do you look for with respect to legitimacy vs. pyramid? Here's a good checklist to consider.
The Journey Begins
OK, is this the end of your journey? Obviously not. You have now looked at some legal issues and its time to move on to some solid business analysis. But it's a great start.
|Jeffrey A. Babener
Babener & Associates
121 SW Morrison, Suite 1020
Portland, OR 97204
|Jeffrey A. Babener, the principal attorney in the
Portland, Oregon law firm of Babener & Associates, represents many of the leading
direct selling companies in the United States and abroad.
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