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[MSE Lawrence]

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "Ponzis and pyramids... what’s the difference" Blog.

Click reply to discuss below.

[Babycakes]

I was introduced to Amway and BWW. Is this a Ponzi scheme?

[silvercharming]

Babycakes, I can't speak for either of those companies, even after visiting the BWW site I was none the wiser of what they actually sell (a warning sign in itself) but Amway looks like a multi-level marketing scheme (MLM). What I'm about to write is about MLMs generally rather than Amway, as I have no personal experience of it.

Recruitment structures for MLM companies do look like a pyramid, and at first glance they have many similarities with pyramid schemes. But there is a fundamental difference; you are primarily recruiting people to sell products, rather than recruit other people. If they choose to recruit others, they are recruiting them primarily to sell products too.

This is important; rather than earning the joining fees of people who are joining, you are earning a commission on the products they sell. This means you are not relying on people joining in order to get your money back. There is no imminent collapse of the pyramid so long as recruits have enough customers who wish to buy their products. Many famous names operate this way in the UK. Home shopping catalogues such as Avon, and party-plan companies such as Ann Summers are run along these lines. I have personal experience working within both of these companies' schemes and am still involved in Avon. The majority of people who join these two businesses sell the products to their customers and never even try to recruit anyone else. MLM is an aspect of the business rather than the nature of the business model itself.

There's a statutory declaration that MLMs in the UK are legally obliged to publish on their literature (I know that in the case of Avon it is published in huge bold writing right above where you sign the contract:

It is illegal for a promoter or a participant in a trading scheme to persuade anyone to make a payment by promising benefits from getting others to join a scheme. Do not be misled by claims that high earnings are easily achieved.

Unfortunately some companies who display this message don't live by it, so don't just assume that if they're displaying that message they're okay. If you wish to join a business of this nature, go in WITH YOUR EYES OPEN. Is it going to make you a millionaire? Not on your nelly! Can you make a good living from it? Yes, but you have to work very hard for a long time. Most people who earn a decent living could, in my experience, turn their skills and work ethic to other types of self-employment or work for an employer, and earn just as much money.

There's nothing inherent in these systems that make it easier to make money. Most people I know in these systems just plod along, making a bit of extra cash but certainly not 'living the dream'. I think the systems work best for people who want a flexible self-employed business that they can fit around the rest of their lives, don't have the cash to start up their own business, and want the benefits of selling proven products for a respected brand.

If you do want to join this kind of business, look for one that is registered with the Office of Fair Trading and the Direct Selling Association. Look for a recognised company name and established track record. Make sure the company is primarily expecting people who join to sell a physical product, not one that doesn't sell a tangible product, or where selling the product is secondary to the business of selling 'the dream'. Also don't touch the ones that expect money upfront. A good sell-at-home business will not charge you anything until you are earning money from it yourself, and then it should only be a nominal sum.

Hope that helps