Pyramid schemes: 7 lessons from the most unscrupulous of business models
They may be bad business, but there are some good business lessons buried in there.
Ah, the malevolent old pyramid scheme: triangular devil,
three-cornered fortress of evil, eternally doomed to failure for
some poor souls. Yet an eternally irresistible temptation for
the greedy and needy alike.
And maker of Bernie Madoff's fortune, of course. The greatest of
all business swindlers netted a cool $65bn using the pyramid
We're not about to suggest you start following Madoff's lead,
but we've identified seven key business lessons you can learn from
the masters of evil who, regardless of their lack of ethics,
managed to convince so many people to part with their pay
1. Tell everyone you know about what you're
People in pyramid schemes are always feverishly explaining the
details of the great new fast-track money-maker that fate has
generously handed to them. And people usually respond well to that
endless enthusiasm: they want to get involved too.
Customers and investors in legitimate businesses are similarly
energised by passionate founders. Shout from the rooftops about how
much you believe in what you're doing: you'll be pleasantly
surprised how contagious it can be.
2. Focus on the returns when investing
People don't invest in pyramid schemes for any other reason than
the promise of making hundreds, if not thousands, of pounds -
that's the oh-so-seductive hook.
You, of course, are too smart to get suckered into shoving your
cash into the grubby hands of a pyramid salesman. But you need to
remember this principle when making strategic decisions and taking
risks: only chase business you really believe will bring in the
Make careful cost and cashflow forecasts for all serious
investments. Don't hire staff until you're satisfied that person
will make the business more money than they cost. Avoid any deal
that seems too good to be true: it almost certainly is.
3. Approach friends and family for finance
The tragic thing about the pyramid pack is that they don't grasp
how many people a scheme hurts until it's too late (use this calculator to see what we mean). They
blindly believe it will benefit everyone as much as they've been
promised it will help them. So when it comes to recruiting the next
layer of people below them, their first stops are the people they
care most about.
And, of course, when it all goes wrong, it's those loved ones
who end up out of pocket.
Borrowing from friends and family gives you easy access to fast
cash that often incurs little or no interest, and lets you share
your success with those you care about most.
Just remember running a business is still high-risk, so get any
lending properly contracted out to avoid burning your
mates. Read this feature on
raising finance from friends and family for more info.
4. Recruit people who are crazy about your
That's right - crazy. Cuckoo. Mad as several hatters. Your
employees need to absolutely nuts about what they're doing. In a
small team, passion really is everything. You're going to need to
get them working harder than ever before to justify the expenditure
you've made on staff.
So take a cue from the canniest of pyramid kings. Only rope in
people who truly, madly, deeply believe in the vision like you
5. Don't let other people's doubts stop
If you've ever known or met someone involved in a pyramid
scheme, you'll notice the first thing they say is: "It's not a
pyramid scheme." Pyramiders are perpetually in denial. But you've
got to take your hat off at their resolve - however much their most
trusted friends beg them to stop the madness, however much they
soak them in cynicism, they keep on truckin'. And so should you if
you genuinely believe in what you're doing.
6. Incentivise word of mouth
Triangular triumphs are the dons in their field at promising
fabulous wealth to those they recruit into the scheme. They glow
with enthusiasm, their eyebrows raised to that rare
'yes-it-really-is-this-good' height, as they tell you: "All you
have to do is get three friends to sign up and you'll make £999!
And they'll make £999 too! The fun never ends!" It all seems so
Tap into the insight: get existing customers to spread the word to
their friends in return for a little something free. It's way
cheaper than PR, more genuine than advertising and really, really
easy to do.
7. Use testimonials to sell
Any successful pyramid seller is going to show you a whole bunch
of rave reviews from previous satisfied customers. And you know
what? It works. There's no more compelling sales argument.
Always collect testimonials for your work, and use them. Of
course, when you're the buyer, it pays to apply a healthy dose of
cynicism too. Do your homework, call referees and don't get
sweet-talked into buying something you didn't intend to.
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