Pyramid Schemes vs Multi Level Marketing and My Personal Experience

About 6 years ago I was introduced to a friend of a friend that did multi level marketing (MLM) for Ignite Energy.  Ignite, still in existence today, is the marketing arm for Stream Energy and uses the MLM model to sell electricity to customers in Texas (Google them if you want to learn more).  I watched the presentation for the Ignite business/marketing model one afternoon at my dining room table.  I wasn’t sure at first, but thought it was a great product and after considering it a few more days.  Who doesn’t need electricity and who doesn’t want to save some money on their electric bill every month? Who doesn’t want to make a little extra money? Duh! This wasn’t a company marketing some outrageously expensive product either.  In fact, Ignite/Stream was offering lower rates than the leading electricity provider in the Dallas area because of their reduced overhead expenses and had plans to extend to other states (which they have now done).  I decided to join the marketing team.  I found out that I needed to recruit new  directors under me as well as new customers.  Customers agreed to convert to Stream and new directors were responsible for finding new customers as well as more new directors.  I was paid commission when customers converted to Stream or directors in my network converted  customers to Stream.

Quick Beginning and Ending

Pyramid Schemes vs Multi Level MarketingI got a list of all my contacts together, organized my materials and had DVD’s of the presentation available which provided an overview of the company, product and opportunity.  I figured any customer might decide to be a Director and so on which would grow my network and be the start of a new business!  I was really excited, but then I started making phone calls.  Again, who wouldn’t want to save money, right?  To my surprise, I found that most people I talked to weren’t interested.  They would be kind to me over the phone, but few of them took action.  Yes, I got a few customers signed up for Stream, but I never signed up another Director, so my Ignite organization and big plans flopped. It didn’t take long before I decided to give it up.  I don’t think I invested much, if any, money to start. It was all very reasonable and what I still feel was a legitimate MLM opportunity.  It just didn’t work out for me.

Why Didn’t I Do Well with My MLM Network?

For some reason I felt uncomfortable telling everyone about the opportunity.  I always felt that people (my friends) were skeptical of it and I’m sure some probably were.  Perhaps I was my own worst enemy.  No one ever said anything bad to me (well, maybe a few people), but no one really showed that much interest or thought it was as great of an idea as I did.  Perhaps my lack of confidence was written all over my face or was evident in my voice.  The only thing I needed to do was show my excitement and  invite the potential customer/director to watch the presentation.  In theory, they would be as excited as me, sign up and grow the network and market the product.

As I wrote this article, I came across the Ignite website.  There are many people on the website in the organization leadership that I’m sure are doing quite well.  They’ve probably made a lot of money and also saved people a lot of money.  I think that’s pretty cool as long as they’re wise in the way they manage their earnings and conduct their business honestly.  During one of the presentations I learned that all you really needed to do is to be persistent in sharing the opportunity.  Too much information scares people away.  Just enough information and excitement will help people be more open to listening.  One person said it was like passing around a plate of cookies.  Some may take a cookie, but others will pass.  You have to keep passing around the plate, they said.  Obviously, I didn’t pass it around very long.

Pyramid Schemes vs Multi Level Marketing

I think many people get confused between MLM and Pyramid Schemes and that’s an easy thing to do. I know I was concerned about friends thinking I was involved in something illegal because of this common misunderstanding.  According to the FTC, you have to do your research because some Pyramid Schemes try to pass themselves off as legitimate MLM’s.  Here’s what the say:

It’s best not to get involved in plans where the money you make is based primarily on the number of distributors you recruit and your sales to them, rather than on your sales to people outside the plan who intend to use the products.

Fraud.org provides a good comparison between the two approaches.  Again, they identify a Pyramid scheme as an organization that is primarily focused on recruiting new members vs selling a product.  There may be a product, but it’s typically something that no one is interested in buying or it’s priced a lot higher than competitor’s prices.  This is by design because they’re not really interested in generating profits from the product as much as they are from the profits of getting people to pay membership and start up fees.  The start-up costs are typically substantial and the vast majority of people lose money.  I also noted that Pyramid’s typically have high pressure  sales presentations to get people to recruit new members.  The business model is never sustainable (no product revenue) and you’ll never find them listed with the Better Business Bureau.

Final Thoughts

It’s definitely easy to get the two models confused.  I can also see why many people would avoid MLM’s based on my experience.  Even if there is a good product being offered, it takes time, persistence and hard work.  I do know you can’t be overly concerned about what others are thinking, otherwise, you’ll never talk to anyone.  I think you have to be confident in your product and simply share the opportunity.  Some people will be interested and some won’t.  Overall, a legitimate MLM can be a good opportunity for people as it has been for Mary Kay and I’m sure many with Ignite.   But, it’s important to do some research before joining up, otherwise, you could get scammed.

About Jason Price

Jason Price is a family man saved by grace, passionate about faithful financial stewardship (1 Cor 4:2 NIV), soccer and the Pacific sun.

  • Grdups

    This is exactly how I feel about Team National!  SO many people in our church have gotten involved in this!  We are besieged with requests to “join” almost to the harassment stage every time we enter church.  On one particular Sunday morning, we were accosted by no less than 14 different Team National “recruiters”.  EVEN A STAFF MEMBER IS INVOLVED.  Now, I am not suggesting that there is anything illegal taking place, just feels like a Pyramid Scheme to me because every person that has asked us to join speaks of building their “downline”.    Hmmmm…

    • http://www.onemoneydesign.com/ Jason Price

      Thank you for sharing this! People get really excited about these opportunities because it’s a way to earn extra money. Even with legitimate multi level marketing, I think it’s easy for people to focus on building their network. At the end of the day, you have to evaluate the quality of the product. These things are really a judgement call and you have to be careful. I’m definitely no expert, but as I mentioned, there are pyramid schemes out there that try to disguise themselves with a product. Consider the enrollment fees, quality and price of the product. Never heard of Team National, but if it isn’t of interest, kindly decline.

  • cleeser

    well, this model doesn`t work because most of the people are just not natural salesmen or enterpreneurs , so in theory everyone can be a Director but in real life not….