What are scam projects and how to prevent business failure

According to Statista, more than 30% of MLM projects cease their operations within the first 2 years. This statistic generates distrust among entrepreneurs towards new network marketing projects due to the fear of failure or falling victim to fraud. From this article, you will learn what scam projects are and how to safeguard your business from failure.

What are scam projects

Scam is a term often used to refer to fraud, scam or deception.

In the business context, the term "scam" refers to the failure of company leaders to fulfill their obligations. For example, delayed or completely halted payments and a breach of other contractual conditions with partners or investors. When all of this occurs, it is safe to say that the project is nearing closure.

Investment hype projects and pyramid schemes have a solid reputation as scam organizations in the network marketing industry. They are built on matrix marketing, gain momentum very quickly, and cease to operate within one year. The closure of such companies primarily leads to significant financial losses for their investors and partners.

The main characteristic of scam projects is that the only way to earn in them is by recruiting new participants.

In typical MLM companies, there is a product that distributors sell, and recruiting new partners is an additional source of income and a classic referral bonus. Meanwhile, for partners in scam projects, bringing new people into the system is the primary source of profit.

When new partners invest their funds, the scam project generates profit, and the system's leaders receive a percentage of the newcomers' investments.

How businesses turn into scams

A systematic decline in profitability is the primary sign that a business is starting to "sink." Several factors can lead to such a phenomenon:

• Market or target audience limitations. This prevents the attraction of new participants and scaling of the project, which gradually leads to the closure of the company. 

• Partners' lack of confidence. Influenced by economic instability or artificially tarnishing the company's reputation, causing partners to withdraw their funds in large volumes.

• Rapid growth at the start. After the company's launch, network structures can grow incredibly quickly, but the influx of partners can also abruptly stop. This leads to a decrease in fundraising levels and a shortage of resources for payouts to partners.

• Cybercriminal attacks. Fast-growing projects with high incomes and their bank accounts attract cybercriminals as an easy source of enrichment.

• Poorly designed compensation plan. Errors in calculating the marketing plan and irrational commissions prevent achieving the desired income or can even lead to losses.

When a business starts to decline and its founders realize there's no turning back, you often observe operational failures or changes in its conditions:

• payment systems or the project's website experience disruptions, and there are difficulties logging into personal accounts. Partners cannot withdraw their funds, but the payment acceptance continues;

• payments are suspended due to alleged technical issues. Administrators provide no precise information about when they will be resumed;

• messages start to arrive, stating that a new verification system is introduced due to payment system updates or other reasons. Partners can only withdraw their funds after completing this verification process;

• previously invested funds are directed to reserve funds or frozen. To withdraw them, you either need to recruit a new participant who makes a significant investment or wait for the company's expansion process to resume;

• the opportunity to earn and withdraw money from the system remains only with the leaders of the project's structures or public figures who have influence over a large audience;

• the amount of advertising for the project increases, and the offers to join become even more enticing. For example, the company will offer new participants the opportunity to quickly earn $1000 with an investment of just $100-$200.

Technical glitches in the project's operation can arise from server overload or DDoS attacks. However, when the above-mentioned phenomena start to occur, it's usually artificially created by the company's founders. The main goal of such actions is to gain as much financial benefit from their project, even on the brink of closure.

Frequent technical failures and difficulties with fund withdrawals create panic among partners and serve as the first warning signs of the project's imminent closure.

How to prevent business failure

Having a great business idea is not enough to launch a project that will generate the desired profits and grow successfully for many years. To minimize the risk of your business failing, it's essential to adhere to the fundamental principles of its development and ongoing management:

• Quality marketing strategy development. The growth of a network company is closely tied to its compensation plan. Creating one requires an understanding of market dynamics and alignment with business goals. When selecting contractors, pay special attention to their knowledge of industry specifics, experience in developing network projects, and expertise in designing marketing plans.

• Creating a flexible business model. Economic instability and constant changes in the business environment necessitate readiness for rapid shifts in strategy, technology, communication methods, or team management. Flexibility and adaptability to new challenges help strengthen competitive positions and preserve your project.

• Testing new solutions. Implementing innovations in business doesn't always yield the desired results. Therefore, start by creating a prototype of your idea, test it, and only then integrate the new solution into your project. Testing should encompass both innovative platforms for your business and new products or tools for your website.

• Building a decision-making team. Significant strategic decisions in business should be made based on collective vision and experience. Form a team of founders, structural leaders, and investors who will collectively make decisions regarding project management and development.

• Risk management strategy development. Changes in legislation or delays in product deliveries can have negative consequences. To maintain your business, it's important not only to understand all potential risks but also to develop a plan to prevent or overcome them with minimal expenses.

• Conducting business analysis. Analysis is an essential tool for evaluating your project's current state and optimizing business processes. Engage experts to thoroughly analyze the reliability and security, transparency, and competitiveness of your business. This way, you can strengthen your advantages and address weaknesses to ensure the stable development of your project.

FlawlessMLM is a team of experts with 20 years of experience in developing and launching MLM projects in various niches. We will help optimize your business to align with the trends and characteristics of the network marketing industry and launch it with minimal risks. If you want to build a successful network marketing company or improve an existing one, follow the link https://flawlessmlm.com/en/mlm_consulting to get answers to all your questions.