This transcript was generated from the episode audio and may contain minor errors.
[Music]
All right, all right, what's up? Welcome. This is a great question today. It's not often that someone calls in and says, "Am I running a pyramid scheme?" But that is basically what we've got here, you know? And let me just say, it is a safe space, okay?
The podcast, Side Hustle School, it is a place where you can ask anything. I'm gonna give you my honest opinion. And better to know upfront, if your idea might not pass muster, right? Like if you're actually wondering, "Am I running a pyramid scheme?" That's probably better than someone who's like, "I'm running a pyramid scheme. "I'm really excited about it," right?
You know, "Would you like to sign up for my pyramid scheme?" In fact, most people who run pyramid schemes don't call them pyramid schemes, but that's a side note. What exactly is our brave caller trying to do, okay? You know, let's see if we can figure it out here based on the information they provide. So listen to their question, you know, see what you think. And of course, I'll provide my answer.
Here's my business idea, a scam, a pyramid scheme, a multi-level marketing network, you know, whatever you want to call it, good times, the detailed question, and my answer coming right up. [Music]
Hi Chris, this is Claire from Seattle. And I found your show last year through iTunes. I have an idea. I want to create a fashion review network that gives out points to people who post in the app.
The points can convert to real money and the more people use the app or refer their friends, the more points they'll receive, which of course can eventually turn into money. My friend, however, told me that this is basically a pyramid scheme, and I've always liked Egypt, but I don't want to do anything shady or unethical. So I thought I'd ask you first. Is this idea actually a pyramid scheme? If so, what are the characteristics that cause you to think that?
Thanks. - Well, Claire, thank you so much for calling in. As I said, it is a brave question. Most people who are trying to defraud people don't usually say, you know, am I running a pyramid scheme? So I have no doubt that you have good intentions.
I'm not sure, I mean, the short version is, I'm not sure we have enough info in this short description to say whether we can call it that or not. And what it really depends on is the answer to this question, what is the actual product? Like, what are we selling here? Like, what is Claire ultimately offering to potential customers? And she mentions that it is a fashion review network that gives out points.
Let's see, what did she say? You know, the points can convert to real money. The more people who use the app or refer their friends, the more money they get. You know, is there a real product or service beyond those few words? Fashion review network that gives out points.
And if so, then, you know, that might very well be valid. But if the revenue model is strictly, you know, get a bunch of people signed up, and if you couldn't keep getting people signed up, then everything would fall apart. That's what makes something a pyramid scheme. If you think about an actual pyramid, like one in Egypt or elsewhere, then you understand that it begins with this very narrow point at the top, and then it expands, you know, as it goes down, you know, further down to the bottom. And in a pyramid scheme, a typical one at least, the only people who make money are the ones at the top.
So as I said, my guess is that Claire is not setting out to scam people, or even to have a questionable business model, but it's more that she hasn't fully thought this idea through yet. So if it were me, I would keep thinking, I would focus less on the referral engine, and more on the product and use case. Like, what is the use case? How are we gonna actually use this product? It's always good to ask, how will this business help someone?
If you have an idea to do something, how is that idea going to help someone? How is it going to make a positive difference in someone's life? You know, where does value come from effectively? And if you don't have a good answer to those questions, then, you know, that's a good sign to spend more time working on your idea, reformulate it, or just try a different approach entirely. So I think that's how you arrive at the answer.
And Claire, you know, I wish you the best. Let me know what happens. Listeners, if you have a question, if you're experimenting with pyramid schemes, well, hopefully not, but if you're just trying to figure something out, if you're evaluating ideas or making next steps in your business, trying to acquire more customers or clients, whatever it is, let me know. sidehustleschool.com/questions, we will continue to feature them throughout the year with a new episode every single day. I'm grateful for you.
Thanks for tuning in today. My name is Chris Guillebeau. This is "Side Hustle School." [Music]
- From the "Onward Project."
