Is the Company a Scam? How to Identify a Pyramid Scheme

Do a web search for “Is [insert company name] a scam?”, and you’re sure to get a list of results for the company in question using that very phrase. Does this mean that the company IS a scam? Not necessarily. You see, a lot of people that want to sell their business systems (or who have had an isolated bad experience and have an axe to grind) buy up these keywords for every company they can think of in order to capitalize on people looking for honest information. The problem with this is that it can make it very hard to determine which compaMP9004118081 150x150 Is the Company a Scam? How to Identify a Pyramid Schemenies are actually a scam, and which are legitimate companies.

So how do you know which companies are ethical, and which you should avoid? Here are some tips:

  • Ethical companies are about products FIRST. In a pyramid scheme, people are compensated for selling the business opportunity. The higher you are in the pyramid, the more money you make. But in this system, members of the pyramid make money when people JOIN, not when they SELL SOMETHING. This is the critical difference between a pyramid scheme and a legitimate network marketing or direct sales opportunity. In a legitimate company, if the person you recruit doesn’t sell something, you don’t make money.
  • If it sounds too good to be true, it probably is. It takes time to build a business. You need to build a network of people, and establish your business by doing the work. It doesn’t happen overnight, and you won’t make a million dollars in your first month. It is hard work and requires effort on your part. If a company tries to entice you to join by telling you it’s easy, and you’ll make a lot of money very quickly, be careful! Legitimate businesses provide information on what you actually need to do in order to make money, and realistic estimates about how long it takes.
  • Network marketing doesn’t work on autopilot. Often you’ll see claims that you can make money on “autopilot.” Be careful! Network marketing and direct sales are about making connections with people. Connections don’t happen on autopilot. Ethical companies provide you with real information about the type of work you’ll be doing to earn money. If it’s a direct sales opportunity, you’ll have to talk to people.
  • Is the company a DSA Member? Membership in the Direct Selling Association doesn’t come easily. It is a year-long process that requires a thorough legal review of a company’s marketing materials and policies, as well as compliance with the DSA Code of Ethics. When evaluating a network marketing or direct sales opportunity, be sure to look for the DSA logo on that company’s website. This is your assurance that the company you’re considering is committed to complying with the industry’s highest ethical standards. If you don’t see it, think twice!

Even though there are lots of scams out there today, there are also some excellent business opportunities that have helped people earn extra income, or build successful businesses and achieve financial independence, especially when paired with a legitimate company, and a willingness to do the work necessary to succeed.

Are you looking for a great direct sales or network marketing opportunity? Check out this list of Direct Selling Association members. It’s a great place to start.

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About DSEF

The Direct Selling Education Foundation is proud to partner with the Council of Better Business Bureaus (CBBB) to spread our mutual message of ethics and trust in the marketplace. Our ongoing relationship helps consumers identify legitimate entrepreneurial options that help them take control of their finances, and helps business owners make ethical, positive choices that benefit consumers. We provide content like the above article on our blog each week at We invite you to join our online community of business owners dedicated to ethical business growth on Facebook at