pyramid-schemeThis past week, I had the wonderful opportunity of hearing a presentation about what can’t truthfully be called anything but a pyramid scheme. Well, that is, except for under the strict definition placed by the government. You see, pyramid schemes, strictly defined, are illegal in most countries. A straight-up pyramid scheme involves people dolling out money for no service or product with hopes that the people they recruited would fall for it and pay their money. The issue is that depending on the scheme, an average of  less than 12% of the people involved in the scheme – those who got in early and were able to recruit effectively – are the only ones that actually benefit. The rest simply lose their ‘investment’. Despite the fact that pyramid schemes are illegal, organizations that deal in a similar fashion but that don’t do that specifically (for example, involving products or services) are not considered illegal.

A diagram of a pyramid scheme which has each person recruit six more.

The scheme about which I had the pleasure of hearing isn’t technically illegal, because it has to do with $30 bottles of juice (apparently extremely healthy, which may or may not be true). The catch is that you have to be committed to it. You’re set up buying a minimum of eight bottles every month. So, you’re stuck paying $240 every month so that you can get your bottles, which you can’t use all by yourself. They consider you to be a ‘distributor’ of the product, and therefore you’re set up buying their product and potentially trying to sell it.

Now, even that practice could be considered somewhat beneficial if you are really dedicated to the juice that you are shelling out large sums of money to purchase. However, the people introducing this plan to me were emphasizing only the benefits of the ‘business’ aspect. They claimed, “You’re not selling juice, you’re selling businesses.” The irony lies in that they were discounting the very practice that made the organization legal. It seemed to me that they did not understand the implications of a business model following that plan. After a short period of time, they are doomed to failure and imminent collapse, with only those in the very top tiers making a profit, while the rest lose all their investment.

Sadly, however, it seems that people don’t recognize these basic facts. A company supported on these principles is going against the fundamental values of the economy, which is based on transactions that benefit both parties involved. In these, however, the flow of money is endlessly up, and the approx. 88% that don’t receive any of the ‘profits’ are left stranded.

I guess that my point is that pyramid schemes are bad. They are the opposite of Robin Hood – they steal from the poor and give to the rich.