I have a friend who just "invested" into this MTM (like Amway) business. He's been posting about it all over Facebook and trying to convince his friends and family to join. He claims that it's legit and "it's early on, so you're guaranteed to make money." I am pretty disgusted by it, and I am afraid he's going to lose a bunch of money, not to mention the respect of his friends! What do I say when he asks me to join? How do I explain to him that it's not a good idea? Should I even say anything at all?
Savvy says: The so-called business opportunity your friend has signed up for is a multilevel marketing set up, otherwise known as a pyramid scheme. You're right to be concerned about where his involvement may lead him. To see the rest of my answer, just read more.
These schemes loop people in by presenting a too-good-to-be-true scenario in which you're "guaranteed to make money." Of course, nothing is that simple. In the pursuit of money, people like your friend are roped into thinking they'll strike gold by putting in very little time and effort. They're told the more friends and family members they can recruit into the business, the more money they'll make because they are to receive a percentage of whatever sales are made by their personal pyramid.
Dateline investigated a company called Quixtar, which they compare to Amway and mention the latter came under government scrutiny for making false promises to its distributors. The exposé breaks the scam down like this: High-level distributors claim they've struck it rich by selling the company's products, but their income is really coming from the books, tapes, and seminars they sell as requirements to succeeding in the business. The rest of the distributors, like your friend, don't have access to selling those materials but shell out a lot of money to buy them.
When your friend approaches you, politely decline and say you don't feel comfortable with the idea. Do some research on the company — you may discover with a simple Internet search that formal complaints have been made against the business. Gently notify your friend of the allegations made against the company or companies like it, express your concern for the losses he could experience, and hope that he listens.
For more great stories, check out SavvySugar.com.