After learning that one of my acquaintance was running his own business, I asked about the kind of business he was running -- just out of curiosity. I was in for a surprise. I was expecting a short-and-sweet to-the-point answer, but what I got was an hour long "information session" on Quixtar (supposedly an online shopping company). He claimed it was the solution for gaining my financial independence by becoming an IBO - Independent Business Owner - affiliated with the company.
As much as it motivates me to be my own boss and run my own business, I'm always sceptical whenever someone talks about the big bucks I can [potentially] make in a [relatively] short period of time in some sort of business with minimal investment. And of course, they have the fancy charts, literature and math to back up the numbers.
Despite what they say, Quixtar is a pyramid scheme, albeit a cleverly disguised one. Citibank's Primerica also operates in a similar fashion. Both are "multi-level marketing" schemes. The basic idea is for an IBO to sell Quixtar products and to "sponsor" (i.e. recruit) other IBO's (who will work under you). The sponsoring person gets a bonus for recruiting, and a fee from everyone that the new IBO recruits. The recruiter also get a percentage of the new IBO's sales and of the sales of everyone under the new IBO (if any). The new IBO is strongly encouraged to sponsor/recruit more people.
Advocates of Quixtar are quick to point out that almost all corporations operate in a pyramid fashion, where the employees are at the bottom of the so-called pyramid and company executives reap all the benefits of a regular employee's hard work. This is certainly true. But what's the point of becoming a Quixtar IBO and "owning your own business" if the employee-employer relationship still holds true, where the IBO can be thought of as an employee of Quixtar and all the hard work is benefiting the company? I think it makes much more sense to get into a business where you are the sole beneficiary of your hard work. Otherwise, you may as well be a salaried employee of some company (with paid vacation days, benefits and then some)!
I don't think it is possible for IBO's to make any significant amount of money by re-selling Quixtar products, which are over-priced. It's "re-selling" because an IBO purchases products from Quixtar and re-sells to the public. The concept is similar to a franchise, where Quixtar is the franchiser and the IBO is the franchisee. It's not a money-losing strategy for the IBO, but obviously not a money-making one either.
No wonder the average gross income for an IBO was only $115/month in 2006 (the most recent year for which data is available). Gross income is total income before taxes or expenses. The actual amount one will pocket will be much less. I wonder how much time one has to put in to gross $115/month... I suspect it is a lot. I would much rather spend time with family, friends and doing things that I love, instead of wasting it on this business.
I've learned the hard way that if it seems too good to be true, then it usually is. One cannot break the golden rule of life, which is, you reap what you sow. Somehow I'm suppose to receive exponential benefit from other people, by paying a one time fee of only US$250 to "setup" my business. In business and in finance, just as in life, risk and reward go hand-in-hand. Although not always true, the bigger the risk (i.e. investment), the bigger the potential gain (or loss).
Clearly, the only way to make money in these types of businesses is by mass recruiting, and not by re-selling Quixtar products. This is why it is a pyramid scheme. Money simply flows up the chain in the form of referral bonus/commission. Those at the top make lots of money; those at the bottom make next to nothing. If I become a Quixtar IBO now, it will be like going to a party when the party is over. I'll be at the bottom of the pyramid with little to no chance of even recovering my initial investment. The people at the bottom of the pyramid who are not able to recruit any IBOs themselves are the losers in the game.
About five years ago when I was looking for a summer job I got caught in a trap laid by Primerica. I was told at the first "interview" that I was exactly what they were looking for. The interview was more like a brain-washing session where they tell you what everyone wants to hear (i.e. how much money you can make and how they will make you a "Team Leader" and how it will help you accomplish your financial goals). Primerica's concept of a "Team Leader" is the same as Quixtar's "IBO". I was subsequently invited for an orientation, which was another brain-washing session. I don't want to go into more details, but this turned out to be a pyramid scheme just like Quixtar. Luckily I was able to get out in only two weeks without any major financial loses. However, I wasted a lot of time with them attending "business meetings" (at my own expense!) and other such nonsense. It is indeed quite an elaborate scam and it's very easy to fall prey to it.
Perhaps the biggest problem with this business is the way IBO's are trained to recruit new people. The whole process is so misleading that one gets an entirely wrong idea about the business. This business also forces an IBO to look at every single person as a potential recruit. Promoting your business is one thing and trying to recruit every new person you meet is quite another. I think my friends and family will hate me if I try to get them involved in this.
I'm not the only one who feels this way about Quixtar. There are quite literally thousands of people who feel duped by this business and say that it is a "scam". Just google "Quixtar scam" or "Quixtar pyramid" for thousands of relevant stories on the many people who feel duped by this business! Google'ing anything is usually a self-fulfilling prophecy, but is it wise to ignore their experience? Ignore at your own peril, but then again, ignorance is bliss.
Having said all this, I don't think the folks who talked to me about Quixtar had any intention of misleading or misguiding me. I felt that their passion for this business was genuine and that was admirable. I wish them all the best!
Ghoshana on Rajgad
2 weeks ago