Pyramid schemes: 7 lessons from the most unscrupulous of business models

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 model.

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 cheques:

1.    Tell everyone you know about what you're doing

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 cash.

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 vision

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 do.

5.    Don't let other people's doubts stop you

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 breathtakingly simple.

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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