Get Rich Quick Scheme
A get-rich-quick scheme is any project or method that promises a high amount
of return for a relatively small investment. Most get-rich-quick schemes also
promise that these high returns will come with a minimum amount of risk. Since
most people believe that return is a function of risk, the get-rich-quick
scheme seems too good to be true, and often is.
Another element of most get-rich-quick scheme is that they people offering
them realize that it is unlikely that large returns will materialize. Although
it may happen to select individuals, the probability leans in towards losses
instead of gains. The sponsors of these schemes usually profit from selling
the opportunity than from the opportunity itself. It also tends to have a
low percentage of success stories relative to participants.
There are various differences between scams and rip-offs from systems for
making financial returns. Most legitimate opportunities use the main stream
media to promote their products while schemes are promoted through activities
such as cold calling and spam email. Because of the public scrutiny placed
upon the traditional media channels, it is difficult for illegitimate
enterprises to prosper for long periods without being exposed. The illegitimate
enterprises tend to use emotional triggers and confidence building to motivate
participation. They often place emphasis on the exclusivity of the opportunity
to make it more attractive.
Sometimes it is difficult for the public to differentiate a get-rich-scheme
and a legitimate money making enterprise. Take for example the difference
between multi level marketing and ponzi schemes. Pyramids or ponzi schemes are
situations where the sponsor of the scheme uses the influx of new money to
pay off the debts to existing participants. By getting a larger amount of
individuals to participate, sponsors can continue to pay out to those that
have already invested. These are called pyramid schemes because the people at
the top get paid while new entrants take all the risk of loss. Eventually when
new participation slows the cash flows stops and the pyramid collapses. These
types of scams where Peter borrows to pay Paul have been deemed illegal
because they don't provide any legitimate product or service.
Multi level marketing (MLM) ventures are often considered pyramid schemes
because individuals profit from the work of other participants. MLM businesses
usually profit by selling a legitimate product or service and by bringing on
new participants to sell these services. Participants often share in the
commissions made by the people they have brought to the business. Although the
MLM structure can be run illegitimately, most of them are not scams. In most
cases, a company forgoes the expense of a dedicated sales staff by allowing
individuals to create their own distribution networks or down lines. The money
that would have been used to keep a dedicated sales and marketing staff is
used to pay commission on the sales made. In this way the fixed cost of a
sales force is turned into a variable cost of sales. Because the sales and
marketing cost is significantly reduced, services can be sold at a discount
to market prices and commissions on sales can be made to all the people from
the point of sale upward. With MLM structures, it can be difficult to determine
which of these businesses are profiting from the sales of product and which
ones are profiting solely from the initial investments of new investors.
Because it can be hard for individuals to differentiate between scams and
legitimate enterprises, it is important to research any business before
investing. Beware of any company that promotes riskless investments, because
they do not exist. On the other, when investigating any business, make sure
negative information is not just the complaints of individuals that have
incurred losses due to their inability to perform.
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