Thursday, March 11, 2010

Four opportunities that are not what they seem

I spend quite a bit of time on Yahoo! Answers, and I noticed a disturbing trend: a lot of people are looking for supposedly "safe and easy ways to make money". Alarm bells go off in my head when I see words like that. The main problem is, they won't take good advice even if it bites them in the ***.

My friend was a perfect example. He got taken in by a "confidence scam". Someone online, allegedly female, befriended him through Internet chat over course of weeks, and managed to convince him to raise some money so she can pay some fees on her inheritance in Europe, which will solve all financial problems, both his and hers. My friend was so taken, he actually asked to borrow a thousand dollars from me and his other relatives and friends, to raise the "$5000 needed". He claims that FBI have given blessing to the deal and he had talked to the trust manager in Europe. It got so bad, that SFPD have to invite him down to their HQ for a long chat to tell him something that was obvious to me from the start: he had been conned. I would hate for you to experience something similar. Fortunately for my friend, he lost no money because he had none. But you may not be so fortunate.

I will go over some of these alleged "opportunities" that often appear on Internet forums or late night TV infomercials. I will point out a few things that you need to think about before you jump in. Then I will point out some things that goes into a "real" opportunity, some questions you need to ask about any supposed opportunity.



* Find me a reliable dropshipper/wholesaler! *

One the most frequently asked question on Yahoo! Answers Business and Finance section is "Who is a reliable dropshipper/wholesaler?" (Incidently, the most frequently asked was "How can I make money fast [as _______ ]?") Basically, the person who wants a dropshipper is trying to open a perfect business: stock nothing, sell something that you don't even have. Take the money, pay a dropshipper who will ship from their location straight to the customer. Keep the difference as your profit. In fact they supposedly heard of many people who are making money this way. No risk, just profit. Right? If you think there is a business like that, ask the following questions and see if you can give yourself answers that YOU can believe in.

== How *do* you sell something you don't have? If you advertise on classifieds or Craigslist, people would expect you to be local with product in hand that they can see touch. So would they actually trust you enough to pay you money, and HOPE something will arrive in the mail later? It is another matter if you do a special demo event or demo party, but just off Craigslist or such? I think not! eBay, maybe, but there are already bazillion people on eBay, and they already have the positive feedbacks, you don't.

== How *do* you take the money now, and deliver later? Mail merchants can do that by charging credit card, but you will probably have to take cash or check or money order... Esp. if the buyer is "local" to you. How would YOU know that the check or money order you got is real? Remember, if you deposit a bad check, YOU are the one who will be in trouble! And credit card machine cost $$$! (and monthly fees, AND transaction fees!)

If you sell over the Internet, like eBay or Amazon, payment and such is not a problem as you can take Paypal/credit card, but you still have the following problems...

== How *do* you ensure that the dropshipper will ship out the product as promised? You don't. You can't even be sure that the dropshipper *have* the stock. Guess that's where "reliable" comes in.

== Why don't the dropshipper sell the stuff direct by doing what you're doing, and cut you out of the deal altogether? You aren't adding anything to the deal that they can't do. If you can put up a website, they can put up a website. If you can post ads, they can post ads. Why you? Why not them?

The last question is the hardest to answer, and what most people fail to consider. How does having YOU add to the value of the product? Retailers add to the value by providing convenience of location. That's why your corner convenience store have prices higher than that of supermarket 15 blocks away, and why supermarket have prices higher than that of a warehouse store 15 miles away. Avon, Amway, and other MLMs actually have their reps demonstrate their products either as actual user or by demo parties. The reps are doing hands-on marketing locally, in your face, in truly interactive fashion, which is more effective than TV or print advertising. The reps are adding value to the products, by adding local presence, sampling, demonstrations, and marketing.

When you sell through the internet, you lose all of the local presence, samples, demonstrations, and your personal charm. You can add pictures and descriptions, but you're back to "print advertising". So you just tossed away all your local advantages. What you *do* gain is a much wider audience, and possibly tighter targeting of your audience, but then so can bazillion other people do the same thing. In other words, you just gained bazillion competitors. Or to put it this way: you just tossed away ALL of your advantages, so you're now just another winnow in the ocean.

What did you add to the product, other than your "markup"? If the answer is NOTHING, then do you really have a business at all? And just WHO did you find that actually IS making money off Criagslist or whatever that way? Can THEY answer those questions? Do *they* even exist? And are they still making money?


* Make money with the Robot Profit System! *

Every once in a while you see questions on Yahoo! Answers like "should I buy ________ robot system that supposedly can make money in ________ market automatically?" The market can be stock, bond, forex, commodity... whatever. The name of the system will vary, but the idea is you just follow its signals, and you will make $$$. Without naming names, you may have seen the infomercial: "Buy when it's green, and sell when it's red!"

Those who actually trade would have heard about Dr. Alexander Elder. I'll paraphrase something from one of his books:

"Whitebox software is a toolbox that professionals use. Blackbox software is for people who believe in Santa Claus." * (I'll find you the exact quote later)

So what is blackbox software? Blackbox software just gives you signals without explaining what factors it had used to calculate the index or whatever, and what triggers the signal. You can't see inside the box, so it's called "blackbox". You just feed it some data, and out pops "buy" or "sell". It's like those "supercomputers" in the 1960's sci-fi movies, esp. Colossus. All these "robot systems" are blackbox software. So folks, do you believe in Santa Claus?

But wait, they have testimonials of people making lots of money on it!

Those people may be real, but let me put it this way: did they tell you how much money they NET'ed over a year? Or did they just tell you about their biggest gain? I can tell you about my biggest trade profit without telling you about my 99 other losses, and it'd be technically true! It's just not the whole picture.

But wait, they claim to have predicted the _______ disaster ahead of time! or the boom!

Sure, they tweaked their blackbox formulas AFTER the disaster happened, to make sure it will show the right results with HINDSIGHT. That doesn't mean it can predict anything in the future.

Of course they will make a profit... off of you who buys such systems!


* Profit from the Cash Flow Business! *

Every once in a while you'll see infomercials about the "cashflow business". So how do you profit from that? It's actually a real business, but you won't be the one making lots of money from it.

Cashflow is basically $$$. A business needs money to run. It needs to pay for material, labor, maintainance, utilities, and more. However, a lot of the money is on credit now. "Net 30" being very common, which basically means you pay 30 days later. So what if the business need money during those 30 days? They can "sell" those invoices at a discount to get cash now.

To give an example... let's say XYZ Widgets just sold $10000 worth of widgets to Widgets R Us, for terms of "Net 30". That means it won't get that 10000 for 30 days. What if it needs money now? It can get a loan, or it can sell the $10000 invoice to a broker at a discount, like $9000. You may think, "Wait a minute, why would any one sell something worth $10000 for only $9000?" The problem here is TIME. Business gets the $9000 now, vs. $10000 in 30 days. Yes, that's like 10% interest in 30 days, or 120% interest per year! But for people who need money right now, it is a source of money when loans and credit have been maxed out or simply not available. Business will lose some money, but it is better than stop running altogether. Remember, a business can be profitable, and still fail, due to lack of cashflow.

In a way, this is a lot like the check cashing business: you write them a check for $250 for the near future, and you get $210 now. They make that $40 difference, but later. You get the $210 now.

Cashflow business basically have you go out and search for businesses who needs money now, and can't wait the "net 30" or whatever terms they gave to their client. You find these businesses with invoices they can't quite collect yet, and tell the main guy (probably the guy who taught the course), who will then buy the invoices at a discount. And you get a cut of the profit he'll make off the invoices.

However, keep in mind that the people who really will be raking in the money is NOT you, but the people with the money to BUY those invoices. They make large amount of money in just a month or two, with you doing all the legwork! They just need a few hours of attorney time and few hours of their own time looking over the contracts of the invoices, and of their own contract to buy the invoice. Let's say you make 20% of whatever they make. In the above example, their profit is $1000, so your compensation is $200. Not a lot, is there? Guess how many deals you have to find in order to make a decent living?

Please note that I am NOT saying that you won't make money off of the cashflow business. You just won't make a lot of it, and mostly you'll be making OTHER people rich. It's a job, not a business. And it is NOT as easy as you think. Do you think business are eager to tell you about their financial difficulties? I think not! You are more likely to have doors slammed in your face than to be invited into the office for a chat.


* Make thousands of dollars while you sleep with our automatic Internet money machine! *

That's one of the most ridiculous things I've ever heard, because it contradicts the first rule of real business: it is too good to be true. And you may have recognized the line from another one of those late-night infomercials. And if you listen carefully to the pitch, you'll realize they never explain HOW they make the money, just that it has to do with Internet, and websites, which they will give you, no computer or Internet experience required! All you hear about is how their life has changed after they got the money, how easy it is to make the money once you set it up, how great their life is now after they've done it, and why don't you join them by signing up with your credit card right now.

(And if you call during the next 15 minutes, you also get this bonus, how to make even MORE money off the Internet!) (That's my sarcasm, sorry)

Frankly, the idea of setting up something on the Internet and make money by someone with no experience and no skills is utterly ridiculous. It's be like telling someone that they can be making money off car repairs without knowing anything about cars! It may technically be true, but it won't be done overnight, that's for sure! In fact, it reminds me of a joke:

Man: "Doctor, can I dance when these casts come off"
Doctor: "Sure! Your legs are as good as new!"
Man: "Good, I never did learn how to dance!"

Computer and Internet is exotic enough that some people may just be naive enough to believe it, esp. with the announcer crooning "order now and we will take 50% off our regular price, and we will throw in this bonus item, absolutely free! AND if you order in the next five minutes, you get FREE shipping!"

If they won't even tell you *how*, even just a hint of how they make the money, then it's probably 1) legal gray area 2) vastly exaggerated 3) relies on your ignorance 4) distasteful, 5) any or all of the above.

Making money on the Internet "automatically" is actually not very difficult, it's just that you won't make MUCH of it, and it's not as "automatic" as you think. One such is display some ads, like for Google Adsense, which anybody can join. However, you need people to actually visit your website to see the ads. And most people nowadays surf the web with adblockers. So that won't help much. And you get like pennies, if anything at all. You need content to entice people to see the ads you display. Another way is join some sort of referral system to help someone else sell things. Amazon have Amazon Associates, where you display ads linked to Amazon.com's items for sale, and you get a cut of the sale.

The problem is... Nobody will visit YOUR website, unless you have something else to offer them, something good enough get readers to come to read your stuff, and maybe then you can sell something related, or display some ads. If you have no content, nobody will come. It is not as easy as you think. Nobody browse for ads. People want to see CONTENT. They tolerate some ads or sell if they see useful content.

And don't think about "stealing" content. With a search engine, it is VERY easy to check for plagiarists. And your webhost frowns upon having to deal with content pirates. Your site will be deleted as soon as it can be verified to contained plagiarized content, as they don't want to be held liable for YOUR illegal actions. And then you still have not considered how to put your website in front of potential buyers/readers.

Thus, selling on the Internet is nowhere as simple as you may think. And any one that says you can EASILY make lots of money while doing little if any work is at best, misrepresenting the truth. (Worst case: outright scam) There's no talk about the initial time setting up the whole thing, and no talk about the long process maintaining the thing, and the constant marketing costs that must be done to bring people to your website. And I am assuming BEST CASE. The truth may be much worse.


All business opportunities must be evaluated on the following terms:

* What product or service will you be selling? If you don't understand it, or there's nothing to sell, then that's probably not a business, but a scam, and you may as well skip it now.

* How does the product or service compare to what's available now? Is there any competition?

* WHO would actually pay for the product or service? Would YOU pay for it as a customer?

* How much will you be paying to FIND those customers? (i.e. marketing costs) Most ran out of "friends and family" very quickly, and people ignore telemarketers and spammers. Marketing cost is also ongoing. So this is often the most underestimated expense of a business.

* How much can you make per sale? This is dependent on the cost (labor, material, etc.) and the price of the service/product.

* How many sales must you make to "break even", just to make back the cost of buying this "opportunity"?

* How much time does it take to sell the product or provide the service to one customer? Facial, manicure, and pedicures cost $$$ because they are time intensive. Only X customers can be served a day by one person. You are not going to make a lot of money if you end up only making $10 per customer and service one customer per hour.

* Is this something you can handle alone, or will you need employees? (and cost of such employees?) How much do you plan to pay yourself?

* What special training will you need for this "opportunity"? Can you get this training elsewhere or will they sell you some sort of DVD training course for exorbitant prices?

* Is it possible to buy the equipment elsewhere for cheaper, if any special equipments are needed? Some of these opportunities will include a whole turnkey system, just plug it in and start working, but very often the equipment is obsolescent and vastly overpriced.

* What reputation does this opportunity offering business have? Check the FTC and BBB for any complaints about them, as well as the Internet. You want to read about the BAD stuff, not the good.

* Anybody else in the same business in your area, and what did *they* say about this opportunity? A lot of thes supposedly testomonials on TV are from shills and actors. You want to hear the REAL story from people who were actually IN it, used it, and hopefully, made some money from it.

* If there is component about recruiting more members, such as MLM, how much reward is from recruiting new members, and how much is from the actual sales? If there is more reward about recruiting than about making sales, you should be VERY VERY wary, because this is a sign of pyramid scam, where the older members are paid by the newer members.


In Conclusion...

There are plenty of ways to make money, even in this down economy. However, there are plenty of ways to lose money as well, esp. by going into businesses and investing with inadequate training and preparation. Infomercials are advertisements that will emphasize the good, imply the best, hide and disguise the bad, and simply not mention the ugly. They do NOT represent a balanced view of the stuff. Do NOT jump into anything without thorough investigation, or you have only yourself to blame.

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