The Most Common Business Scams

Warning to Work at Home Moms and Other People:

870814-bizmoney-stock-scamThis will be a difficult topic because this site doesn’t allow articles on certain topics, but please bear with me. I want to warn you of the dangers and what to look for. I have had fairly extensive experience evaluating “opportunities” and I can tell you how to figure out whether what you are considering getting involved with is a scam.

For purposes of this article, I will use the following vocabulary:

MLM means Multi-level Marketing, a business opportunity that lets people build downlines.

Downline means the structure built when you recruit other people to sell under you, and you get a commission on their sales.

Unfortunately, MLM is legal in the United States, because of a few loopholes which made it into federal law because some very large and powerful MLM companies had some highly paid lobbyists to promote the loopholes. The biggest loophole is that if a company is selling a product, they can usually squeak by the laws against pyramid schemes. This is aggravated by the fact that many politicians, particularly pro-business politicians, don’t understand the problem, and may have associations with some of these groups, plus the fact that Republicans and Libertarians often overlook the dangers because they are pro-business. Partly it is because people don’t understand why they are a problem.

“Opportunity”

Danger Word:

The first clue that you might get involved in something that will be seriously harmful to your income and assets is the word “opportunity”. If a site or individual is selling some kind of cleaning product, herbal remedy, juice, vacations, cosmetics, or some other such thing, and the site says that there is an “opportunity”, look that over carefully. Try NOT to watch any videos, because they suck a lot of people in. They are a waste of time because they are long-winded, and they won’t give you the REAL facts. If you can get any information in print, look at it. The best bet is to look at the compensation plan. If they say you will get paid for any sales from anyone whom you recruit to be part of your personal group, you will be required to build a downline to make any money. I will show you in a minute why this is a SERIOUS problem. If they want you to build a downline, run away screaming, please!

Another danger phrase is “Network marketing”. This means that people are forming pyramids, and it’s just another way to disguise the same fraudulent business scheme.

If they want your email address before they’ll tell you anything, don’t give it to them! They’ll SPAM you to death! Often, their “opportunity” is so well hidden that you are hard put to find out about it at first. If you really want to know about a company, use Google and search for the company name plus the word “scam”. You will find out plenty. Do your homework. Don’t get involved in these companies!

Affiliate:

Two different forms of marketing:

Sometimes these companies claim they are doing affiliate marketing. There are two different kinds of affiliates.

The first type of affiliate is someone who is in your downline.

business-scams-main-580The second is when you get a link to a product, and place that link on your own web site. You have an account with the seller, and if someone uses your link to get to the product and then buys it, you get a percentage of the sale. this site ALLOWS and ENCOURAGES this type of marketing, and rightly so; it is legitimate. Your Amazon modules set up affiliate links.

The Simple Math:

Here is why MLM does not work. Visualize a chessboard. Now I will ask you a question. Suppose that I offer you your choice of either:

1. a million dollars

2. the chessboard full of pennies. The first square has one penny. The second has two. The third has four. The fourth has eight. The number of pennies in each square doubles over the previous square until you get to 64.

Which one will you choose?

I will choose the chessboard.

Why? Because the amount of money you would receive would be:

eighteen quintillion, four hundred forty-six quadrillion, seven hundred forty-four trillion,
seventy-four billion, seven hundred nine million, five hundred fifty-one thousand, six hundred sixteen pennies. On the last square ALONE. (If I got my figures right, but just think of it in these terms: it is an impossibly large number even if I am off by a factor of two).

That’s more money than in the entire world!

ScammerNow think about the method of growth of the people working for an MLM. It starts out with a couple of people forming a company. They recruit some friends. That’s the second square on the chessboard. They, in turn, recruit a few friends. That is the third square.

Let’s say on average each person recruits ten people. After only ten layers, there will be more than ten BILLION people involved, and that’s more than the entire population of the world. Do you honestly think everyone in the world will want to get involved in whatever it is you are doing? How many layers deep do you think this company you are looking at really goes?

This is like placing a McDonald’s on every major street corner in a city. How long do you think each McDonald’s will make any money?

It has been calculated that the amount of money the average participant in the oldest and most “reputable” company works out to about $1.57 an hour. That’s a fraction of minimum wage. You’d be better off slinging hamburgers in that McDonald’s!

As a result of this impossible business model, most people drop out in a short time. In order to try to counteract that, some companies have started some serious motivational efforts to keep people involved. People are required to go to meetings, seminars, and conventions, and buy motivational tapes. The result is that this most “reputable” company actually found it made more money on these motivational materials and efforts. And in an effort to do something about its tarnished image, it changed its name. Think about this, too. A company invests a lot of money in its trademarks. Why would a successful company discard such a trademark? Only because what they are doing is not legitimate and hurts people.

My Experience:

The basis of what I know.

I personally only got involved in one such business, and only for a couple of weeks. I wanted to buy their products at a discount. That is a common motivation people have for joining, but if they manage the propaganda right, sooner or later people will get involved in the structure of the organization. I offered to get products for my mother-in-law, and I think she bought a couple of things. But the meetings I was expected to attend were a total turn-off. The woman conducting the meetings had a garage full of inventory. It is becoming common knowledge that many companies expect people to purchase an inventory worth several thousand dollars. So I just stopped participating, and I also stopped buying the products.

Someone very close to me started to get involved. Some people are really susceptible to cults, and he had already been involved in a religious cult. These companies are known as business cults. His next stop was a company that ultimately was put out of business by the justice department. He was induced to buy $5,000 of inventory, most of which he ended up giving away. To buy this stuff, he borrowed the money from his in-laws. Then, because he was not working at a real job, he got so desperate he sold his nice car to pay for food. When he talked to me, I tried to tell him to get out of the business, but his response was to dress me down in angry language. He had gone to another state to go to school, and this also derailed those plans. And it causes the destruction of families. Ultimately, his marriage was destroyed, and this definitely contributed. Equally unfortunately, he didn’t learn his lesson. He tried at least four other companies that I know about, and when he got to the final one, he did the unthinkable. He tried to recruit his own mother! And when she said No and told him why, he dressed her down, and refused to speak to her for a year.

I was also involved in managing webrings for awhile, and if an applicant was an MLM, I would not accept their membership. I cleaned out all of the members who were involved with such a group. In doing the investigations needed to determine whether or not to accept these new applicants, I learned an eyeful. Eventually because of my opposition, I was hounded out of my position.

Some time later, a friend of mine (or so I thought) who agrees with my political views, wanted to see me. So I met him in the cafe part of a mall, and we sat and talked. First rattle out of the box, he wanted to show me something. He had a presentation on his laptop. I declined to watch. In subsequent weeks, I did research on what he was selling. He was supposedly a travel agent, and wanted me to become part of his downline. I told him why it was a problem, and I spent a lot of time explaining it. And among other things, what he was doing was basically illegal because he claimed a status he didn’t really have: travel agent. Legitimate travel agents are not happy with these people. When I told him what I had learned, and told him that I could not be involved in any way, he cut off contact with me.

The Problem with the Products:

In the course of investigating many of these companies, I learned some important things about their products. I also learned that they would often recruit professionals to endorse their products, but that really doesn’t mean anything.

The products are over-priced. They HAVE to be. They have a gazillion “wholesale” agents that each gets a cut. To pay all those people, they have to jack up the price.

The products contain very little of the important ingredients. This is another way to cut costs so they can pay all the people in the pyramid. Usually, they won’t tell you how MUCH of the ingredient is in the product, because they know that you won’t buy a product that has a single milligram of some ingredient.

The products are not state-of-the-art. I keep up with things like natural remedies. When I look at the list of ingredients, I can tell right off the top of my head, that there are many new remedies that work much better, that are not included.

The products wouldn’t sell in a brick-and-mortar store. That’s why they don’t sell products there.

The Problems with the Effort:

Let’s say a person decides to sign up for the “opportunity”. Immediately, the person will have to exert a lot of effort per sale. If you are not a natural born salesman (think used car salesman type), you probably won’t sell much. They’ll tell you anyone can do it. If anyone can do it, it doesn’t require skill. Run away screaming! If they ask YOU to pay for training, they’re not legitimate. Legitimate companies train you at THEIR expense. Any job worth doing requires some kind of knowledge or expertise.

Now this person will be asked to sign a contract. Typically, the contracts will contain the following provisions: you have to use THEIR method of selling, but if you get sued for doing that, you’re on your own. You are an independent contractor. You are liable for all taxes, and you are liable every other which way. You get no employment benefits. If you have any problems, the company washes its hands of you. No reputable lawyer would ever advise you to sign such a contract.

Then there are business expenses. These might include wear and tear on your car when you deliver products, as well as gas. That expense alone may mean that instead of earning $1.57 an hour, you are actually putting out more money than you are bringing in.

All I have to do to understand what this stuff does to people is to think of a close friend of ours. They had a nice home, and nice stuff in it, and a couple of decent cars, and each of the kids had a small saving account that was for college, and then the wife got involved with one of these companies. She constantly pays for motivational meetings. She wanted lots of nice things that she didn’t have. So she filed for divorce. Quickly, all their assets were gone just surviving in separate households, and because of the demands for child support, the husband was nearly wiped out in terms of ability to make any money at all. The children are suffering, and having all sorts of emotional problems. If this is not what you want for your family, stay the heck away from ALL these companies. There are NO LEGITIMATE ONES. They are based on a fundamentally flawed business model. There is no such thing as a company that can truthfully say, “This one is different.” They’re all alike.

So why isn’t something done? Mostly because most people blame themselves for failure. They didn’t work hard enough. They’re ashamed. So they say nothing, and suffer in silence. Thus, nothing is done because the public doesn’t realize what a problem these companies are. Please don’t be one of those people who get suckered by such a company.

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