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Famous
journalist H.L. Mencken once quipped, ¨No one ever went
broke underestimating the intelligence of the American public.¨
Most folks
marketing to home business owners -- or wannabe home business
owners -- seem to have taken that observation firmly to heart.
Either
they are idiots, or they believe we are idiots.
Claims
that can´t withstand the slightest sceptical scrutiny
are marketed in the expectation that out there somewhere,
perhaps very nearly everywhere, are somewhat dimwitted prospects
willing to fork over real American money in return for a clearly
bogus dream.
Just hand
over your credit card, you are told, and with little effort
and with even less intelligence, thousands of dollars will
magicly begin flowing into your bank account while frolic
in the Hawaiian surf.
Having
become a confirmed sceptic during my prior careers as a newspaper
reporter and a litigation attorney, I´m disinclined
to mail in those checks.
At the
same time, lots of people -- including me -- are making a
nice living working at home, without the hassles and overhead
of the standard corporate job.
Being
an optimist, I´ve also learned that if you don´t
enter the race, you have no chance of winning the prize.
How do
you tell the real opportunities from the scams? How do you
know when to send in the money, and when not to?
Here are
some keys to separating the wheat from the chaff.
First,
make sure you understand at a very basic and fundamental level
what fraud specialists refer to as a Ponzi or pyramid scheme.
Many of the more dubious schemes circulating on the net are
just simple variations on the basic Ponzi scam.
The Ponzi
scheme takes its name from swindler Carlo ¨Charles¨
Ponzi, who cheated thousands of ordinary folks out of millions
of dollars back when a million dollars was still real money.
A largely
unschooled Italian immigrant in Boston, Ponzi had failed in
a series of legitimate jobs.
He began
promoting a scheme, however, to make real money by buying
and selling international mail coupons.
At one
level, it seemed like there was something to the scheme. For
a variety of technical reasons involving currency exchange
rates, postal coupons could be bought for pennies in various
European companies and redeemed for dollars worth of postage
stamps in the United States.
Claiming
that he would make money by buying low overseas and selling
high in the US, Ponzi collected money from various small investors
in the Boston area. He promised them 40% returns in just 90
days.
With this
initial money in hand, he did three things:
1) He
continued to market his scheme aggressively, seeking and acquiring
more and more investors.
2) He
adopted a conspicously lavish lifestyle, attributing his wealth
to the very success of his scheme.
3) He
paid off the initial investors, as promised, on time.
As early
investors got paid off, they enthusiastically marketed Ponzi´s
brainchild for him. They sold friends, relatives and even
charitable organizations on the wisdom of placing hard-earned
life savings with Ponzi. Many of the early investors re-invested
their initial profits, and more.
Ponzi
continued to live large and to pay off investors as they came
due. He even used some of his cash to acquire substantial
legitimate businesses, adding further credibility to his efforts.
Eventually,
however, the scheme became so prominent that troubling questions
began to be asked. First, while there was a price difference
in postal orders in different parts of the world, the total
number of postal coupon issues worldwide was quite small,
and not nearly big enough to absorb all the money Ponzi was
raking in. Second, there seemed to be no evidence that Ponzi
had ever actually bought or sold any of those transfers that
did exist.
At this
time, people began demanding their money back -- only to find
out it wasn´t there.
All along,
Ponzi had just been using the money handed over by the new
investors to pay off the old. What was left over, he spent.
The scheme
worked only so long as the number of new investors handing
in cash exceeded the number of old investors who needed paying
off. Put differently, the pyramid needed to keep growing larger
and larger to support itself. When it finally failed, those
who trusted Ponzi lost millions.
The classic
Ponzi scheme is illegal today, as it was then. Many thinly
disguised versions still circulate, however, and all have
the common trait that the scheme can work only so long as
new investors or members outweigh the old investors or members.
If growth
slows or stops, the business collapses because, as with Ponzi,
there´s no real business there.
Which
brings us to the second test: just as a duck looks, quacks
and flies like a duck, a real business looks, quacks and flies
like a real business.
And real
businesses take real work, and deliver real value to their
customers. If it takes no effort and delivers nothing of real
value to the customers, how can it be a real business?
Key point:
If you are offered a payout that is not for the sale of real,
valuable goods, but is directly for bringing new distributors
into the scheme, be very, very careful.
Key point
2: If the new distributor is required to buy products of little
real value to enter the scheme (for example, generic information
products that could just as easily be downloaded for free),
treat the payment on this purchase as a payment for recruiting
a new member, and not as payment for real goods.
So here´s
the act upon advice when you are considering a home business
opportunity.
Test the
business against the characteristics of a Ponzi scheme. If
it smells like a Ponzi scheme, keep your money in your pocket.
Secondly,
look to see what the real business proposition is. If you
can´t see where real value is delivered to fully-informed
customers, odds are that those you want to sell to won´t
see the value either. Once again, use this as a cue to keep
your money in your pocket.
Finally,
if it passes the first two tests, do your due diligence. Check
their references (disregarding, by the way, the testimonials
on their own websites, since those are so easily manufactured).
Go to Google newsgroups and see if there is any buzz on the
company (disregarding, again, anyone touting the company who
appears to be in a position to make money if you buy through
them). Check the Better Business Bureau and your State Attorney
General´s office to see if there are complaints against
them.
Only once
you feel secure that it´s a real business with a decent
track record should you invest any money that you would mind
losing.
Additional
Links Related To This Topic:
The US
Security and Exchange Commission´s Overview of Pyramid
Schemes:
http://www.sec.gov/answers/pyramid.htm
US Federal
Trade Comission Guidance on Multilevel Marketing Plans:
http://www.ftc.gov/bcp/conline/pubs/invest/mlm.htm
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