by Gil Rosen
Last night my young neighbor called me and asked to “come over and talk about a business”. Given the fact my neighbor always looked like the regular 19 year old skater I was surprisingly intrigued. “Sure” I replied casually – “why don’t you drop by at around 10pm. “And do you mind if I bring my business associate along?” he added. “ No problem” I said, even more curious now due to the development, “I’ll be happy to listen …and will be glad to help”.
Sure enough a few hours later the two 19 year old nice kids knocked on my door. My first surprise was their non-casual appearance. At 10pm I was in my funky basketball shorts and a slimy ‘home t-shirt’ and they were all dressed up. I’m talking slick. White shirt, tucked in, the shoes, the jell, the whole ‘shabang’. “OK”…I thought…a little bit of an overkill for a home visit…but I’ll play along, take it as a compliment. After the social necessities (“make yourself comfortable, do you want something to drink” etc. etc.) we sat down around the dining table. Then, my neighbors’ ‘partner’ took charge. “So….do you mind if I ask what you do?…” Half amused and half annoyed by his direct approach I took a few seconds to reply but decided to play along without “pulling rank” and letting him know that in my house I’ll be asking the questions first. I answered honestly letting him totally control the situation. ”I’m the Co-Founder and GM of a messaging start-up called TriPlay… were launching soon…yada…yada…”.
He then gave me the ‘LOOK’, did the ‘PAUSE’ and asked with a straight face “Do you consider yourself to be a serious businessman?” …That’s a dangerous pick up line, my young friend (I said to myself), but hey, I’m a good Summerton and by this time I was totally into it. “I hope, I am…at least I do my best to be” I answered keeping an equally straight face.
My reply produced an automatic sales script. …”There is a new technology now…called VoIP, that is VOICE over IP…the numbers are staggering…it’s the next big thing…etc. etc.” naturally handing out a slick brochure, pictures, flows but most importantly a visual business model. The shape was unmistakable, it was a pyramid.
This guy was here to solicit me to become a VoIP agent!…Oh my god! A new age digital entrepreneur, with a chance to sit back and take a shower in an endless cash river. All that while ‘lower level’ agents do my work for me. In short a real life, fully fledged VoIP pyramid scam!
At some point he illustrated the pyramid and explained the rules – “you have a left leg and a right….each leg is separate…they must be equal…once you complete a structure of “8 balanced members” you get your first payment…followed with additional details and ratios and other mathematical nonsense.
Now, I realized this was a pyramid scam approximately two minutes after he started talking. But I decided to let him continue the speech while I contemplated whether or not he is worth of soul saving – it was after an additional three minutes that I realized this kid is totally brain washed. I had to save him and my dear neighbor. Poor young kids sucked into a translucent money trail that is going so….nowhere.
The offering had nothing to do with the actual product (VoIP) it was about becoming an agent, as opposed to a regular VoIP customer. Becoming an agent earns you the rights to discount rates BUT (there is always a but) all you have to do is buy this basic marketing kit - an Agent shirt, brochures, training tapes, a personal marketing website (multi-lingual - wow…) and some additional collateral, all for an economy price of $300. The blasting Jackpot just knocked on my door! Pay $300 now and never work again! It’s a guarantee to anything from $2000 to $20,000 EVEN if most people (like me) will say no (come requiting time). Wow….what a chance! (if it wasn’t sad I would LOL).
Long story short, after 35 minutes they stayed for an additional two hours but this time I did the talking. Without screaming “pyramid” and “scam” (to start with), I explained to them slowly but surely what they are REALLY getting themselves involved in, the communications market in general, why commodities such as VoIP are the last candidates (if there is such a thing) for “multi level marketing” as they called it etc. etc.
The last half hour and not per my queue, the guy asked if he could notes (probably to go back to his pyramid guru master and ask for the appropriate rebuttal), but they did seem to change from a ‘brain wash’ mode to a more humble “tell me more” mode.
I can’t say with a 100% certainty that I made them realize the full extent of the scam they are involved with. I am sure though they learned some things and hopefully in a day or two will realize cutting their losses will save them money (and face) in the long term.
To me, multi level marketing / pyramids always seemed like a marginal phenomenon in the special cosmetics / life style sector. I never could imagine a company creating and selling a vision of endless cash streams based on VoIP (and agent) reselling. Not at a day and age where companies such as Skype announce free “Skype out” calls and other multinationals slash voice rates daily. In my mind it’s not visionary, it’s border line criminal! But I guess, as always, there’s a sucker born every minute.
.
Some additional resources for those who want to enlighten themselves about MLM and the scam Op described above:
Grouphone’s corporate website
The 10 Big Lies of Multi-Level Marketing
MLM Watch
Stay away from MLM - some more usefull links inside
Gil Rosen
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LONG COMMENT, BEWARE (I should use this a signature, I think).
A former colleague of mine invited me about 2 months ago to hear a lecture from a company doing the exact same thing - selling free VOIP calls in an MLM model. I’m not sure if it was the same company or not, but it’s obviously a trend.
Since it was a friend, and since I never took these things seriously, I decided to give it proper credit and check it out. Some things instantly became apparent:
1. The guys selling know about the negative pyramid image, and try as hard as they can to convince why it isn’t a pyramid.
2. Their effort to convince people to start their own business, gain economic freedom, while steering away from appearing anything like a scam, are only matched by their total misunderstanding of the end product they “supposedly” sell. I sat in the lecture, and the number of mistakes and pillars of smoke blown in peoples’ faces was staggering.
3. The mere fact that they don’t know what they are selling wasn’t enough to convince me not to go for it. The world is full of successful salesmen that don’t know what they are selling. My gut feeling was “be careful”, but I promised to check… so I went on.
4. Just selling the product will almost definitely LOSE YOU MONEY. The commission model gives you a very small percentage of the bill your customers will pay. What’s worse, is that the whole sales pitch is about the calls being FREE ! Or close to that. If you get a minor fraction of a very low bill, you have zero chance of covering the setup cost they require, even if you sell to your entire metropolitan area.
5. So… you MUST recruit agents. And those agents must be successful. Here is where the fireworks really start. Anybody who went to see the overly hyped fireworks show off the Tel Aviv coast last week will know what I’m talking about. A lot of noise and lights, but the main result is being stuck in a jam.
Apart from the annoying fact that they have conjured an unbelievably complex model that no layman can understand or analyze, and that it is impossible to get any clean documentation of the model, or any copy of the official contracts you would be obliged to if you join - the bottom line is this: your profit from agents is a direct result of how many new agents you can bring. The new models also get you something for people added by your superiors after you have joined (which is why they claim it isn’t a pyramid). This of course changes nothing - you are still limited by the amount of people “left in the pool”.
The piece of magic I liked the most was when the presenter shows a “chart” of how if every person only brings one more person a month, you have 4095 people under you after a year, which means you will have a jet-set salary. They fail to take this exercise to the second year, where apparently you would have conquered the entire population of Israel, and then some.
6. Again, this in itself isn’t really a problem. In every business people make profits by selling at prices higher than their costs. You could say it’s also a scam of sorts. The difference is that in a decent business, when I buy a product, I know I’m paying a premium because someone brought it to me. I know that guy makes a living off me. And if I feel the premium is unfair - I take my business elsewhere.
In MLM scams, everybody seems to be convinced that nobody can lose. The smoke screen is that you pay a setup and maintenance fee for services. But you’re not. Your paying a fee to cover the promises made to other agents, and not for any service they give you. You’re basically paying money to help the company sell (which is ridiculous, since the company only sells more promises). If the company was decent, it would let you do this without paying anything - just get us good telephony customers, champ.
7. The main thing that deterred me was this - I figured that if I join.. I’ll be selling to my friends and family, and (god forbid), knock on my neighbours doors (note that under the agreement you are not allowed to advertise anything). That’s not the kind of relationship I want with these people - definitely not if they lose money as a result of my efforts. I’d like to make money for my yacht in other ways, thank you.
As an anecdote, I also checked the legal status. Offering a service that connects instead of your phone, allowing you to call people circumventing the local telephony supplier smells like something the regulator should know about. Here I was a bit surprised - more from the progressiveness of the Israeli regulator than anything. It seems that using VOIP to circumvent the telephony carrier (in Israel) is legal - even if you use a real physical phone (and not a PC). However, the entire topic is in regulatory flux, the definitions are very vague and changing, and may change every day. Of course nobody even mentions this when recruiting agents.
These agents may find themselves one day shut down by the government. If not for telecommunications violations… for illegal marketing scams (I heard there is an initiative to ban all these models underway in Israeli Parliament).
05.24.06 @ 7:11 pmI have been approached by people selling Grouphone. I immediately smelled the pyramid scheme part of it and want to stay far away from it. The question is: what does one lose by becoming a customer, and not an agent? That is, only getting the VOIP service. Where’s the catch?
06.07.06 @ 6:17 pmGrouPhone is a regular VoIP company.
it’s leggaly to work with MLM.
MLM give the company to become wourldwide company with low cost to invest on advensters on TV newspapers on etc. etc.
08.21.06 @ 7:41 amGrouPhone is a regular VoIP company.
it’s leggaly to work with MLM.
MLM give the company to become wourldwide company with low cost to invest on advensters on TV newspapers on etc. etc.
08.21.06 @ 7:43 amHello Guys,
Why are you all such superficials ?
Did the young guy told you that you can only be a consumer ?
You don’t have to pay a penny !
Not for registering and not monthly !
You pay only for the calls you make, most rates are lower then Skype and you can enjoy the benefits of talking with Grouphone throught your Mobile phone and home wireless or traditional phone.
Why not saving the monthly 50 skekels we pay every month to Bezeq ?
Why being negative ???
Orin
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Interestingly enough, unlike Nigerian investment schemes (see http://j-walk.com/other/conf/ for a recent conference as well as http://www.spamscamscam.com/read_letters.php) Pyramid schemes (AKA MLM) are very common not only in the industries you had mentioned (look up Amway on wikipedia) but also in the business world. They are now targetted at educated folks (MBAs, accountants, etc.) an are offered by multi-billion $$$ companies.
In recent months I was contacted by 3 such firms, most notably Primerica (affilicated with CitiGroup). You can look them up on wikipedia as well as on www.ripoffreport.com - http://www.ripoffreport.com/results.asp?submit22=Search+All+The+Latest+Rip-Off+Reports+Now%21&q1=ALL&q2=&q3=&q4=&q5=Primerica&q6=&q7=
Or you can indulge in reading www.primericabuster.com, esp. http://www.primericabuster.com/Sixfigure%20income.htm and http://www.primericabuster.com/RecruitPloy.htm
As always, if it looks too good to be true…
05.24.06 @ 4:10 pm