Carving out a living in this world is tough especially if you aren’t cut out for the regular 9-5 daily grind. Fortunately this is the land of opportunity when it comes to small business and almost anyone can turn an idea into a million dollars. Unfortunately there are many predatory schemes out there like pyramid schemes looking to prey on those who want a piece of the American business owning dream with promises of raking in the dollars while sitting at home in your pajamas.
Pyramid schemes have been around for decades and they are illegal to operate in the U.S., but that doesn’t mean unscrupulous companies haven’t found ways to skirt these laws and still scam millions of people out of their hard earned cash.
They work not by selling a product, but by selling ‘investment opportunity’ in the company. Money is made by recruiting others to ‘invest’ under them and then getting the recruits to in turn recruit others. Eventually the revenue stream stops as there is no real product being sold and those at the bottom end up losing on their investment while the people at the top take in all the money.
While pyramid schemes are illegal in the U.S., social media has made it easy for these scams to pop up, pull in lots of cash then disappear before the authorities and the victims even know what happened. The TelexFree pyramid scheme operated for just a few years and scammed people out of three billion dollars.
How To Spot A Pyramid Scheme
- There is no real product being sold or the product is low quality. This shows that the business is not about actually selling the product, but selling the rights to sell the product and collecting revenue from downline sales of people underneath you.
- People will advertise as a vague “business opportunity” usually won’t give out the name of the company until they’ve given you their sales pitch which is full of false promises of wealth and buzzwords. There is little mentioned about how the business actually operates, they just spend time talking about the money you can make.
MLM (Multi-Level Marketing)
The demented daughter of the pyramid scheme is the MLM or Multi Level Marketing company. While not illegal because there actually is a product being sold. These products are usually of lesser quality and are more expensive than what you can find in stores. MLM recruiters use cult like tactics to recruit and put pressure on their sales team to purchase inventory that most likely will never sell. LullaRoe and Younique is an example of an MLM.
While they seem like enticing opportunities for housewives or people who are looking to start a business, 99% of people who sign up to work for an MLM end up making no money or losing money.
How To Spot A Shady MLM
- They claim to be “business owners” and post constantly about the product. Trying to recruit people on to your “team” is encouraged.
- The product is nothing special in reality, but they make wild and baseless claims about the product (amazing weight loss, healing properties, etc)
- You are pressured to invest a lot of money up front and buy more inventory than you can move.
- Cult like tactics including pressuring you to stay away from “haters” and accuse you of being a “negative thinker” for asking legitimate questions. They encourage you to attend meetings and conferences at great expense while celebrating the “success” of a few top sellers.
Kind of like an MLM, but there is less pressure to recruit others underneath you, and you make your money actually selling the product. With direct sales businesses, you’re selling a product directly to the public online or through parties. Avon and Pampered Chef are just two examples of legitimate Direct Sales companies. While you can make some money off of these sales, it likely isn’t going to be enough to quit your day job.
As a secondary income or a hobby, direct sales isn’t a terrible way to go, but there are shady ones out there that exist to steal your money.
How To Spot a Shady Direct Sales Scam
- They hit you with high startup costs for a “sample kit”. Most legitimate direct sales companies have low startup costs.
- They pressure you to buy inventory before you sell it.
- The product makes wild claims that they can’t possibly back up.
- They promise “no selling”, but then insist you use your money to take out ads for the products.
Invention Help Scams
We’ve all seen those late night infomercials with wacky products that are somehow making millions. Then, we think to ourselves “Why didn’t I think of that?” When you come up with an idea for a new product or have an improvement on an old one, navigating the patent process can be difficult. There are many companies that claim they can help you patent and sell your invention getting it on tv and out into the public. Unfortunately many of these companies are scams.
How To Spot an Invention Help Scam
- They ask for money for “market research” then never really deliver actual numbers or research. The company will just tell you the results were positive in order to sell you more services
- They tell you to describe your idea in writing and mail it to yourself in a sealed envelope. This may seem like you are protecting yourself, but there is no legal basis for this.
- They guarantee a patent and marketability. Nobody can do that.
Work From Home Scams
Who wouldn’t love to work in their pajamas? While there are many legitimate remote work opportunities that exist, there are a lot of scams out there.
How To Spot a Work From Home Scam
- They require you to pay to search “opportunities”. They may claim you can make money playing video games or writing vacation blogs. But all they offer is a list of websites that “may” pay you for an article “if” they end up publishing it. Or list a bunch of remote job opportunities that require advanced skills or degrees. Many of this information that you paid for you can search online for free anyway.
- They have “start up costs”. You shouldn’t have to pay to work.
- They are paying way below minimum wage. Some work from home sites offer such little pay for the work being done you end up making only a few dollars an hour.
How To Start A Legitimate Business
Going into business for yourself is always a risk. However, don’t invest your money into a scheme that is almost guaranteed to fail. If you’re interested in starting your own business, contact your local small business administration for free classes, workshops, and other resources to help you get started.