How to Spot Pyramid Schemes


I hope your reading this before you have signed anything. As a Small Business Consultant I am often asked to check out business opportunities that are presented to my clients. Since many of my clients will ask my opinion or advice when it comes to important business matters I try my best to be objective.

I was recently asked to check out an organization called Organogold which claims to be an organic coffee. I sat thru a seminar and a conference call and I have come to this conclusion: It is pyramid scheme disguised as a  MLM company (Multi- Level- Marketing company) which is a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit. Other terms used for MLM include network marketing, or referral marketing.

Multi-level marketing is a legitimate business strategy, though it is controversial. These MLM companies focus on the product as well as the recruitment, while a pyramid scheme uses the same model it focuses on recruitment. Key word here is Recruitment; while the company is making major money off its training events and materials, “Coffee” is the last thing this company is about. For that reason it is illegal.

Organizations following a pyramid scheme model lure you in with a host of promises like “make $100,000 a month” or get a Mercedes Benz that the company pays for. After sitting through the first half, of a four hour seminar, I can see how easy it is to be mesmerized by these complex and sometimes exaggerated compensation schemes.

These organizations have been around for a long time and they will continue to come into existence.  They prey on people who want to get-rich-quick, but they aren’t the only victims of these scams immigrants, the unemployed, the elderly and college students are also victims, just to name a few, these companies do not discriminate.

I was moved to right this piece because as I sat in the Student commons at Saint Paul College, while  eating my lunch I saw three young ladies with a table handing out business cards. That was not the odd part because Universities and Organizations do this all the time. They are usually looking for potential students and employees. The reason I watched them was because  I noticed they didn’t give the business cards to everyone who passed, only a selected few.  It seemed to be people who fit the “Traditional college student” profile, race really didn’t matter.

As I got up to leave I noticed one of the cards on an adjacent table. I had to look twice because the card said “Part Time Work $15.00” .

As it turns out it was a card for Vector Marketing Corp another company with a shady business model. They, however, sell kitchen knives and specifically preying on college students. Their catch is you they offer you a job and you have to put down $150 for your very own knife demonstration kit.  The company is so riddeled with fraud that an organization has been formed with the explicit purpose of raising public awareness. SAVE (Students Against Vector Exploitation), formed in June 2003

As an educated consumer it is up to me to do the research. My advice to you is before you sign on the dotted line you do the same.  You will find a host of information that says negative and positive things about these types of organizations.

I was pushed to write this article when after lunch while walking to my car I was again reminded of OrganoGold  because I saw a guy driving in the parking lot in a Mercedes Benz with the OrganoGold logo on the side. These organizations are moving into the Twin Cites at a rapid pace. As consumers we need to investigate before we invest.

Companies that use MLM models have been a frequent subject of lawsuits.  Their not only similar to illegal pyramid schemes, those who sign exhibit cult-like behavior, trying to convince their friends, colleagues and family to join. The exploitation of personal relationships, as both sales and as recruitment targets can damage your image, and reputation.

The high initial entry costs (for marketing kit and first products), and the emphasis on recruitment of others takes precedent over actually selling the product. Encouraging if not requiring members to purchase and use the company’s products, is also a part of this elaborate scheme.

I know what its like to have a passion for entrepreneurship because I too have that passion.

Although I am passionate I know my business will not be successful if I am not doing what I love.  I learned early as a young entrepreneur if you can’t cook you really shouldn’t open a restaurant. Every business proposition is not for everyone and as entrepreneurs it’s important to find your passion, develop aniche and stick with it.

Many of my friends ask me to look into business ventures and I can do the same for you email me at

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