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- - - (How to Tell a Legitimate Opportunity from a Pyramid Scheme)

- A Better Business Bureau - Consumer Information Series Publication

- -------------------------------------------------------------------- - Have you ever thought about becoming a distributor for a - - company in order to make a little extra money or build a - business working on your own? - is a system of - retailing in which consumer products are sold by independent - businessmen and women (distributors) usually in customers' homes. - You can set your own hours and earn money based on your efforts and - ability to sell consumer products or services supplied to you, the - distributor, by an established - company.

- The - company also will encourage you to build and manage - your own sales force by recruiting, motivating, supplying and - training others to sell the products or services. A percentage based - on the sales of your sales force would be your compensation, in - addition to personal sales.

- Although it is possible to build a successful multilevel business - with comparatively little start-up money, keep in mind that it is - not a means of getting rich quickly or easily. Successful - distributors who have recruited and trained a large number of - sellers, also have to assume ongoing wholesaling and managing - responsibilities as well as making sales to their own retail - customers. Managing such a large network can be lucrative, but it is - hard work and can become a full-time job.

- Watch out for "Pyramid" Schemes

- "Pyramid" schemes, on the other hand, concentrate mainly on the - quick profits to be earned by selling the right to recruit others. - The merchandise or service to be sold is largely ignored, and little - or no mention is made regarding a market for the products. Pyramid - scheme participants attempt to recoup their investments in products - by recruiting from the ever- decreasing number of potential - investors in a given area.

- Unless you recognize the tactics of a pyramid scheme, you may find - yourself tempted to become involved. Here's a typical example:

- You have just been invited by a friend, neighbor or colleague to - attend an "opportunity meeting" to find out how you can earn lots of - extra money. You go, thinking this may be a way to build a business - on your own. In a frenzied, enthusiastic atmosphere you are told how - easy it is to realize a fabulous return on your investment. A - smooth-talking organizer may try to convince you that his plan is an - exciting short cut to riches, easy living and early retirement. To - invest you usually have to pay a large fee. The organizer may tell - you that you don't have to invest (buy products, courses, etc.), but - it is clear you are expected to, or would be a fool not to.

- You are confused. You are not really sure what the product or - service is, or how it's going to be sold. Instead, the emphasis of - the meeting has been on the fact that all you have to do, aside from - investing your money in the program, is to get others to invest. The - plan focuses more on the recruiting of other participants than on - selling the product or serivce.

- Consider the results if one person recruited six distributors, each - of whom, in turn, recruited six others, and carry the process - through nine steps as follows:

- 1 6 - 2 36 - 3 216 - 4 1,296 - 5 7,776 - 6 46,656 - 7 279,936 - 8 1,679,616 - 9 10,077,696

- At more than ten million people for every nine steps in the - distribution program, the distributors soon would be recruiting one - another. In order for everyone to profit in a pyramid scheme, there - would have to be a never-ending supply of potential (and willing) - participants. Obviously, there isn't. When the supply runs out the - pyramid collapses and most participants lose their investment.

- The tragic aspect of pyramid schemes is that they concentrate on and - exploit people with limited means and limited knowledge of - business-people who can ill afford to lose the investment they put - into the program. Thousands of unsuspecting and trusting investors - have lost millions of dollars by investing in pyramid schemes. Even - worse, the schemes have robbed some retired persons of their life - savings.

- Pyramid schemes are illegal throughout the United States. Keep in - mind, however, that it is difficult to prosecute these schemes; most - often the money invested is lost.

- It's always a good idea to check your Better Business Bureau for a - reliability report on any company in which you are thinking about - investing. Also, if you feel you have been defrauded, your state - attorney general may be able to advise you of some possible - recourse.

- Guidelines for Investors

- * Be wary if the start-up cost for the investment is substantial. - Legitimate - companies usually require a - small start-up cost. Pyramid schemes, on the other hand, - pressure you to pay a large amount to become a "distributor." - The promoters behind the scheme make most of their profit on - the signing up of new recruits.

- * Find out if the company will buy back inventory. If not, watch - out you could be saddled with unsold inventory. Keep in mind - that legitimate companies that require you to purchase an - inventory should offer and stick to inventory buy- backs for at - least 80 percent of what you paid. some state laws require 90 - percent buy-backs.

- * What is the consumer market for the products? If the company - seems to be making money by recruiting alone, you will want to - stay away! Remember, - depends on selling - to consumers and establishing a market for quality products. - Pyramid schemes, however, are not concerned with sales of the - products. Rather, they focus on profits to be made on volume - sales to new recruits who buy the products in order to - participate in the scheme.

- A checklist

- * Before investing, get all the facts about the company, its - officers, its products. Find out the start-up cost and the - company's buy-back policy. - * Get written copies of the company's plan, sales - literature, etc.

- * Check with others who have experience with the company and its - products. Are the products actually being sold to consumers?

- * To check on a company, contact your local Better Business - Bureau, district attorney or state attorney general's office. - Also, you may want to contact the Direct Selling - (1776 K Street, N.W., Washington, D.C. 20006), a national trade - representing legitimate in-home sales companies, - many of which engage in -.

- -------------------------------------------------------------------- - Copyright 1983, 1994 Council of Better Business Bureaus, Inc. - (Revised 1990)

- A Better Business Bureau Publication - Supported by Business in The Interest of Consumers - Published by - Council of Better Business Bureaus, Inc. - 4200 Wilson Blvd., Arlington, VA 22203

- Council of Better Business Bureaus offers this copyright publication - to the consumer as a public service on behalf of its members. It is - not an endorsement of any kind.

- Better Business Bureaus are not-for-profit organizations, serving - the public interest by promoting ethical business practices in the - market-place.