By Alex Taremwa
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A Ponzi scheme is a is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation.
Recently, several friends have approached me to invest in their respective companies promising higher returns than other investments, in the form of short-term returns that sound abnormally high or seemingly consistent. This kind of investment has come to be known as Multi-level Marketing (MLM).
They are companies whose secondary business often is selling products but whose primary goal is signing up thousands of salespeople who pay for the privilege of signing up even more salespeople in hopes of sharing in their commissions.
In Uganda, MLM for multi-national firms is catching up at a breakneck speed. Graduates view this as a shortcut to living wealthier lives given the unemployment scourge that is preying on the country’s graduate class since those who have join say they get paid weekly in dollars depending on how much you join with as starting from as low as shs900,000 up to shs4m.
A CNN Money Survey published on the 1st of June in 1987 by Richard Eisenberg concluded that while some multilevel firms are legitimate, scores of them are not. Every day, unscrupulous founders of multilevel companies prey on some of the most gullible and often most financially troubled people in our society. The question therefore is how do you tell a legitimate firm from a Ponzi firm? Because there’s no legal definition of a legitimate multilevel marketing company/firm.
Simply put, multilevel (also known as network) marketing means a company sells its products or services through layers of distributors, each usually composed of fewer distributors than the layer beneath it. A distributor earns commissions, also called overrides or bonuses, based on both his sales and those of distributors below him. Unlike franchises, which usually require large up-front fees, it generally costs as little as $10 to $50 to buy an MLM sales kit and become a distributor.
A distributor can easily shell out hundreds or thousands of dollars for such things as phone calls, hotel ballroom rentals, brochures, applications, postage and advertising.
Guma Jeremiah, a graduate from Uganda Christian University who join Telex Free; one of such companies that have penetrated the Ugandan liberal market and earns big by placing five ads on different websites daily; told me that to be able to understand the ways such companies operate, I had to join first.
”You can look forward to an automatic monthly income of up to $104,364.72,” he told me but, concedes that ”Nothing is automatic. It’s all based on effort. If you brought in 29,523 people in one month you could earn $104,000. As you can see, the probability is very high.”
The possibility of earning millions as an MLM distributor is alluring but unlikely. To do so, a participant generally must build a network known as a down line of thousands of people, and the distributors and customers must keep buying products and services or alternatively if you’re involved in advertising, one must place the adverts daily to be able to get paid after the seven days.
According to the CNN report, most MLMs recruit new customers and distributors by holding motivational business opportunity meetings sometimes called sizzle sessions in hotels or homes. There, distributors often speak not of selling products but of ”sharing” them with others. The newer MLMs deliver nationwide opportunity meetings through television shows, VCR videotapes and satellite-broadcasted powwows.
Some of such shows include Person to Person Magazine, Network for Success, Networking Your Way to the Top, Tradevest Today and Money Tree. Some shows always tout one particular company and its products; others feature different MLMs on different broadcasts.
Guma Jeremiah says serious problem for someone interested in becoming a legitimate MLM distributor is getting accurate, unbiased information. MLM sales literature often claims that 20% of American millionaires made their millions in multilevel marketing. After months of interviews, CNN Money says it could find no one able to document the 20% figure.
In this case it is evident that much as some of these organizations may offer quick gains, their longevity and authenticity leaves a lot to be desired. My warning therefore to my fellows out there who keep calling me often is that much as I appreciate their keeping me in mind in as far securing quick gains in concerned, I prefer to use conventional methods that may be slow but are likely to take me wherever I without breaking a glass.
Let us not turn our desperateness and frustrations into reasons to sell all that we have achieved for a shiny opportunity that has simply presented it’s self in the name of risk taking as an entrepreneurial trait.