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In
this section we have:
Small
and Home Business Scams Q & A
by Marian Owen,
BA (Hons) Economics, FCCA
The Home Business Alliance and The
B.O.A.R.D, now Business Opportunity Watch
(B.O.W),
are the UK's senior, private investigation source
into
'business opportunity' style scams and have been
in operation since 1993.
Below,
we give a typical media question and answer session
to help you sort the wheat from the chaff.
How
can people tell a genuine legitimate business
opportunity from a scam?
If it sounds too good to be true, then it probably
is.
Business opportunities which promise that you
will achieve a certain level of income are often
dubious. Logically, it is not valid for a business
opportunity promoter to promise that his business
opportunity will achieve a certain level of income
because the income which any operator will achieve
depends upon the hours they put in, their level
of ability, the level of their local competition
from other businesses offering a similar product
or service etc, etc.
Any particular tell-tell signs to look out
for?
In addition to business opportunities promising
a certain level of income, it's an even starker
warning sign if the business opportunity also
says that it's very easy to operate the business,
and it doesn't take much time, and you don't need
any particular skills or abilities.
If all these claims were actually true, then it
simply does not make commercial sense for the
promoter to be selling this opportunity. Instead,
he would be keeping all the high claimed earnings
for himself and employing part-time staff to carry
out the little work required.
In
general you need to work hard to generate a good
income. Would you agree that if it sounds to good
to be true it probably is? Have you found any
scam-like too good to be true opportunities that
actually were true?
Yes, you do need to work hard to generate a good
income with just about any business. Unfortunately,
if the business model is flawed and it doesn't
work very well, then no matter how hard you work
you are unlikely to be able to build a good business.
The best rule of thumb, once again, is that if
it sounds too good to be true then it probably
is. Business opportunity promoters know this,
and those who can afford it employ the top copywriters
to write very long sales letters which repeatedly
press your psychological buttons to an almost
irrestistible extent so that you forget about
"too good to be true" and become swept
up in the excitement of having at last found an
easy and profitable opportunity.
Sales letters like these typically show you "proof"
of earnings in an attempt to convince you. However,
such "proof" is rarely reliable. Even
if the screen shots of earnings coming into a
PayPal account or the images of money coming into
a bank account are genuine, the earnings may have
come from the promoter's sales of the opportunity,
rather than from his earnings from running the
opportunity himself.
In fact, I would say that if someone promoting
a business opportunity finds it necessary to include
"proof" of earnings in his marketing
material then this is another warning sign because
it implies that the promoter knows that the rest
of the information he gives about his opportunity
is not credible and convincing enough without
this "proof".
I have never come across any business opportunity
which sounded too good to be true which turned
out to be true.
How common are these scams nowadays: craft
assembly, chain letters/emails, envelope stuffing/email
processing/ad placing, MLM, calling premium rate
numbers for more info, etc.? Are there any more
common scams you could add to this list?
Thankfully, bogus craft work and envelope stuffing
opportunities are on the wane, probably largely
because of the wide publicity given to them by
the Office of Fair Trading and other consumer
organisations. Email processing and ad placing
opportunities continue to proliferate on the Internet
however, with misleading advertising suggesting
that these are jobs where you are paid for processing
emails or placing ads, whereas in fact you are
simply operating as a self-employed person and
you don't receive any money actually for processing
emails or placing ads. Instead, you only receive
money if you make a sale. Because you normally
have to pay to place your ads, then you can lose
money if you don't make sales.
Advertisements which ask you to call premium rate
numbers for more information have now declined
due to the legal requirement to show the costs
of the calls and the policing of premium rate
numbers by the regulatory authority.
One category of bogus job opportunity which has
flourished on the Internet, however, comes in
the form of survey jobs and mystery shopping jobs.
There are many reputable companies who recruit
people to carry out surveys and mystery shopping,
and they don't charge you a fee to join. The bogus
variety charges a fee.
MLM
- would you agree that if the opportunity is more
about finding recruits than selling products/services
it's likely to be a pyramid scheme and not recommended?
Multi level marketing is a valid business model,
and a number of multi level marketing companies
are on our recommended list. However, it's also
true that there are a large number of multi level
marketing opportunities where the business model
does not give the average new recruit a fair chance
of building up a business. As you suggest, schemes
which emphasise the need to recruit other people
rather than to sell the products and services
are generally to be avoided. Schemes like these
are unstable and normally don't last long because,
once the scheme has reached a certain size, the
earnings of people in it start to drop because
they no longer find it so easy to recruit other
people, and these recruits were their sole source
of income. Word of falling earnings spreads on
the Internet and the scheme declines.
By contrast, it's a far better option to join
a multi-level-marketing opportunity which emphasises
the quality of its products and services and which
tells its recruits that they need to make retail
sales in addition to recruiting a team of people.
This type of MLM is far more stable because its
products and services are typically of good, marketable
quality and recruits have two income streams -
retail sales and recruitment. The typical recruit
who is not a natural salesperson can concentrate
on retail sales and will find it natural and easy
in due course to talk to satisfied customers about
joining the business, rather than approaching
people cold.
What
about legitimate Home-working opportunities such
as Clickworkers, etc?
I have to admit that I had never heard the term
"Clickworkers" before. I assume that
you have in mind the website at http://www.clickworker.com.
I've had a quick look at this, and it seems an
excellent idea. They have 87,000 people registered
with them. You can register with clickworker.com
to offer your services on a self-employed basis
to carry out tasks such as writing, translating,
inputting data etc. There isn't any cost to join
and, depending on your CV, you are notified of
suitable projects which you can then apply for.
Companies who have work that they need people
to do send details to the site, and they pay a
fee to Clickworker for the completed work.
Unlike Clickworker, all bogus "job"
opportunities ask people to pay, often in the
guise of a registration fee, or a fee for a start-up
pack. It's simple to avoid bogus job opportunities
- simply avoid any which ask you to pay.
It's
advisable for people seeking business opportunities
to get things in writing, contact references,
avoid urgent requests to act now... anything else
you can advise?
Sometimes, getting things in writing doesn't help,
because sophisticated business opportunity promoters
have contracts which are written by lawyers which,
while they seem to be perfectly proper and correct,
in fact give you very few rights. Because of the
specific legal language used, the average person
might not realise this and so it's a good idea
to consult a lawyer before you sign any contract.
Apart from avoiding opportunities which sound
too good to be true, there are two basic ways
people looking for a business opportunity or a
franchise can protect themselves.
Firstly,
make sure that you ask to be put in touch with
some people already operating the business. It's
not a good idea to allow the promoter to direct
you towards just two or three operators of his
choice. Instead, what you want is a list of at
least five operators from which you can choose
the ones you want to contact.
Don't let yourself be put off by invalid excuses
such as the promoter saying he's prevented from
giving you these details by the Data Protection
Act. The Data Protection Act does not apply where
someone has given permission for their details
to be used for a purpose. And, in my view, any
decent business opportunity promoter should have
already secured the agreement of his operators
to take phone calls from prospective newcomers
from time to time.
Secondly - and this is crucially important for
any business opportunity which costs a lot of
money, such as a franchise - ask for proof of
earnings. This doesn't mean a screen shot of a
PayPal account. It means being able to see the
original bank statements of an operator of the
business. Or, with a franchise, it means being
given audited accounts of the pilot franchise,
which all franchisors should run for at least
a year before they market franchises to the public.
If you are pressurised to act now to join a business
opportunity, then this should make you suspicious.
If it's a genuine business, then the promoter's
chief concern will be to get good people to join,
and people who have had the time to carefully
consider whether it is the right opportunity for
them, so he won't pressurise you to make a quick
decision.
How
can people check online if a business opportunity
is legit or not? eg contact your organisation?
It's difficult to get reliable information with
an online search. Some business opportunity promoters,
for example, advertise their opportunities on
many sites and may also have written articles
under different names extolling the virtues of
their opportunity. Also, in the case of multi-level
marketing schemes, recruits often set up their
own web sites in an attempt to recruit other people
into the scheme. Results like these are obviously
not independent assessments.
It's particularly difficult to obtain an independent
view about the viability of a franchise, because
most franchise websites are simply filled with
advertising from franchisors. It can often take
a couple of years before problems with a franchise
become apparent and, even then, nothing about
these problems may appear on the Internet because
a tightly-worded franchise contract may effectively
gag the franchisee from publicising anything about
the franchise.
Forums can provide a useful source of information,
and other users of the forum often point it out
if someone posting favourable comments about an
opportunity seems to be from the company itself.
Also, our own Home Business Alliance website carries
links to Business
Opportunity Watch which carries out formal,
independent assessments of business opportunities
and franchises. There is a charge for these reviews.
Most other sites which provide reviews of business
opportunities, often free, are either financed
with advertising from business opportunity promoters
or they are actually run by business opportunity
promoters, so it must sometimes be difficult for
them to give unbiased reviews.
Is
there an up to date list of scams available anywhere?
Not
that I know of. Scammers and promoters of dubious
business opportunities never cease to amaze me
with their creativity, and new ones are appearing
all the time.
Can
you tell me about any scams that target existing
business owners such as overpayment scams, scams
to protect domain names and evaluate businesses?
There
are a number of scams which target business owners,
such as the following:
- signing up for what you think is a free entry
in a guide, only to later find out that it costs
you several hundred pounds.
- high pressure selling to persuade you to advertise
in publications produced for schools or charities,
and the publications do not materialise as promised
- false charges for operators of CCTV systems,
falsely claiming that they come from the Information
Commissioners Office
- bogus invoices e.g for stationery or printer
cartridges.
- bogus demands for payments for registration
or training for health and safety
- bogus demands for large fees to register under
the Data Protection Act
- cold calling to pressurise you into buying a
domain name, falsely claiming that another person
is interested in buying a domain name similar
to your own and you need
to prevent this by quickly buying it yourself
- unscrupulous firms who charge large fees claiming
that they can greatly reduce your business rates
- emails falsely claiming to be from HM Revenue
and Customs which try to persuade you to hand
over confidential information in order to obtain
a tax rebate
- overpayment for business goods by cheque, with
the customer then asking for a refund of the excess
amount, but the cheque turns out to be fraudulent
In America people can check out a site's
reputation/credibility by calling the Better Business
Bureau. What organisations exist that are similar
in the UK?
The
Better Business Bureau in the USA fields complaints
from US citizens about US businesses. It then
invites the business to resolve the complaint,
and for each business it publishes a report summarising
the complaints received and whether they have
been resolved and it gives the business a rating
as a result. It's a very useful indicator of the
credibility of a business, and it's a shame that
we have nothing like it in the UK.
However, we do have the Advertising Standards
Authority, which does a sterling job in exposing
advertising which makes claims and promises which
the advertiser can't back up with hard evidence.
Recently, the remit of the Advertising Standards
Authority has been extended to include the marketing
content of companies' websites. So anyone who
has doubts about the claims a business opportunity
promoter makes on his website can make a complaint
to the Advertising Standards Authority and they
will ask the promoter to provide evidence to back
up his claims.
How
common are business scams? Do you know any figures
about how many people are affected by them each
year?
I
don't have any recent figures on these scams,
but in December 2006 the Office of Fair Trading
carried out research and produced a paper entitled
"Research on impact of mass marketed scams",
which looked at various scams targeted at consumers
such as property investor scams, high risk investment
scams, premium rate telephone prize scams and
also work at Home and business opportunity scams.
On the basis of their research, the Office of
Fair Trading estimated that UK consumers lost
about £3.5 billion to scams in total each
year. Of this total, they estimated that work
at home and business opportunity scams cost the
UK public £70 million a year and that 330,000
adults fall victim to these scams every year.
I doubt that these figures have decreased.
END.
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