As a kid, many of us are taught that if something seems too good to be true, then it probably is. Hopefully most of us would be able to spot a scam when we see one, and know that there are bad people out there trying to take our money. I wanted to explain how one such scam—the pyramid scheme—works, and how to avoid getting caught up in one.

Quick story time: High school Ben was always out to make a quick dollar. Whether it was cleaning pools, recycling or dreaming up a candle company, I was always thinking of my next venture. A good friend of mine was telling me one day about how he’d recently gotten into a new business. My attention was aroused and he told me about how he joined an organization of some sort that sold some sort of a health drink. It basically cured everything short of cancer and essentially changed people’s lives. By the way he described it; I wasn’t sure how people survived before then.

He went on to explain how it worked. The network started with one guy who then recruited two friends to sell the stuff. Those two friends in turn recruited two more friends each to distribute it for them. The first guy got a cut from the people he recruited, and those people got a cut from the people they recruited. So my friend was part of a ‘team’. Somebody recruited him and he was recruiting me. He told me that the quicker I could recruit other people, the quicker I’d make money, and in turn he’d make some more money too. The fee to join was $199 and it came with a ‘starter kit’ of samples of the juice and some marketing brochures. What really confused me was when my friend told me that even if I didn’t sell any of it but recruited at least one person, that I’d still make a ‘fortune’. I felt compelled to join right then and there— I was going to be rich! The scheme still exists, it’s called Monavie. The Wikipedia page on it actually notes “and few of it’s distributors make money”.

– Often it’s a revolutionary product that is changing the world. Whether it’s a life changing juice or internet ad space, you’ll start to wonder how people lived before this (just fine as it turns out).

– There’s typically a sense of urgency. The organization is still in its early stages, and you have to  get in now if you want to ride this gravy train.

– There’s oddly more focus on recruiting other people than there is selling the actual product. That’s because the higher-ups make more money off selling $199 starter kits than they do selling whatever the product is.

– There is often a signup fee. Whether it’s $99 or $199, they still get you to pay the money up front, all with the promise that you’ll quickly earn it back.

– A super flashy website showing you how quickly and easily money can be made. Golly, in only two years I’ll be driving that Corvette.

Now, after reading this you might be asking yourself, but organizations like MaryKay, Avon and the Pampered Chef that work similar. It’s often hard to define if an organization is a pyramid scheme or not but the bad ones definitely stand out whereas the ones listed above actually tend to be a bit more reputable. A little bit of research should quickly help you identify whether an opportunity is legit or if it’s a pyramid scheme.

Pyramid schemes are nothing more than a scam to get your money. They are successful for a time because they rely on people like you and me abusing the trust of our friends and family and convincing them to join in with us. These schemes last for a little while until they eventually collapse and crumble, leaving the founders rich and the people like you and me with nothing.

Always remember, if it’s too good to be true, then it’s probably NOT true!

These scams are out there. Check out the Wikipedia page on them.