Continuing our discussion on multi level marketing (MLM), I will attempt to answer one of the most common questions that come up  — Are all MLMs pyramid schemes?

The quick answer to this is no. MLM and pyramid schemes are 2 different business models. One is definitely illegal (pyramid scheme) while the other CAN be, but is not automatically considered illegal (unfortunately, not all MLMs are legitimate business opportunities).

When bringing up this objection asking this question (“So, is this a pyramid scheme or what?”) to someone trying to get you to join their company, the most common answer you’ll hear is something like:

Look at any corporation’s org chart. [Taking out a sheet of paper, they start drawing] You have the CEO at the top [big circle at the top of the page] with his minions underneath [more little circles, to form a pyramid an org chart]. The very company you are employed by is, in effect, the epitome of a pyramid.

Clever reasoning, but what makes an opportunity illegal has nothing to do with how its org chart looks on paper. You’re not stupid. Yes, a corporation’s org chart DOES look like a pyramid, but it’s obviously NOT a pyramid scheme. An MLM’s commission structure most often has some form of a pyramid, but that doesn’t make it illegal. So, don’t be fooled by this line of reasoning.

The real issue is understanding the definition of “pyramid scheme.” In part, Wikipedia describes Pyramid scheme as:

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered.

The difference between a legitimate MLM opportunity and a scam is this: PRODUCT/SERVICE, PURPOSE and FOCUS. Here are some questions to help you figure it out:

• What are you selling? An idea (opportunity) or something tangible like a product or service? Its a sure scam if you’re expected to shell out a whole lot of cash for the “honor” of recruiting other people? (See point 1 below. One company I know of called this a “licensing fee.”)
• Is there more attention given to recruiting or selling products/services? Red lights should immediately go off if you’re pressured expected to do more recruiting than distributing.
• Where does the bulk of your commissions come from? Will you make more money selling a product or service or recruiting (sponsoring, signing up, etc) new members? Same as above.

Here are more questions to consider before signing up for anything:

1. How much are you expected to invest up front (sometimes masked as an inventory charge or distributor fee)? A legitimate MLM will not require a large start-up investment.
2. Will the company buy back unsold inventory? A legitimate MLM will buy back 80-90% of what you paid in unsold inventory.
3. What is the company’s main focus? What attention does the company put on the market (consumer, end user)? A legitimate MLM’s main goal is to extend its market reach by getting their product in the hands of (or their service used by) as many consumers as possible . Pyramid schemes give little to no attention to the consumer or end user.

I have only scratched the surface. Other points to factor in is the quality of the product, the company’s track record, the commission structure, etc. But I don’t have the expertise (nor desire) to go into too much more depth.

Despite everything I’ve told you here, some pyramid promoters try to make their “opportunity” look like an MLM.

The best advice I can give you is do your due diligence. Never assume what you’re being told is the truth. If you’re considering joining a MLM, don’t do so under pressure, even if it’s from someone you know and trust. If it’s a legitimate and feasible business, the opportunity will still be there next week, next month and next year.

Read EVERYTHING you can about the company and get your hands on all company literature. Find out all you can about their products or services. Look at actual pay stubs. Ask tons of questions. Check with the Better Business Bureau, Federal Trade Commission, National Fraud Information Center, Competition Bureau of Canada, your local chamber of commerce, and anywhere else you can think of.

Don’t be fooled by promises of making quick, easy money. An MLM is like any other business, it takes time, hard work and money to build and grow.

Can you believe we’re already August 1st. You know what that means — it’s time to announce the Question of the Month.

This month I’d like to know what your 30-second intro is. If you don’t have one, tell me what challenges you face in creating your compelling 30-second intro.

Click here to answer this month’s question. It should take you 1 or 2 minutes.

If you haven’t yet signed up to receive my free guidebook, Designing a Compelling 30-second Intro be sure to do so on my site.

June’s question of the month was:

What’s your greatest blogging challenge?

Better late than never, right? As promised, here are the results:

• Not surprising, 31% of respondents said their most prominent challenge was coming up with relevant topics, actually writing their posts, as well as finding interesting subject matter and content.
• In second place were the 23% who said they don’t blog. Time and now knowing how to start were the top factors.
• 20% replied time was their greatest challenge.
• The issue for 17% was posting daily or having a regular posting schedule.
• Finally, a few respondents listed miscellaneous challenges, like having multiple blogs, choosing which language to post, finding balance and encouraging comments.

Let’s keep this conversation going. Does your greatest blogging challenge figure in this list? If not, what’s yours?

Thanks to everyone who responded. Be sure to participate in this month’s survey about target markets.

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July’s Question of the Month is all about target markets.

What’s your biggest challenge when nailing down your target market? Share your concerns with me.

Have you figured it out? What’s your secret?

Please take one minute to submit your answers here.

I’ll share the results with you at the end of July.

What blogging issues keep you up at night? You don’t have a blog yet? Tell me why.

Please take one minute to submit your answers here.

I’ll share the results with you at the end of June.