Bend Over and Own Your Own Business

Are business opportunities offered for sale truly worth it?

by Brian Dunning

Filed under Consumer Ripoffs, Fads

Skeptoid #95
April 8, 2008
Podcast transcript | Listen | Subscribe
 

Tired of the same old grind? Want to break the mold, throw away your alarm clock, tell your boss to shove it, and become independent? Are you ready for financial freedom? Get out your checkbook, because (no matter what it is) if you want it, someone is selling it. And a lot of people are buying it. Business opportunities are made, they're not bought cheaply from ads on the Internet; nevertheless, such ads are ubiquitous. And if you lack expertise in analyzing the value of such opportunities, it's easy to get ripped off.

The basic ripoff model is a simple inversion of a standard sales rep relationship. Normally, companies selling products employ salespeople or contract with independent sales reps, who are paid a percentage of whatever orders they write. You do the work, the company pays you for your time and effort. This is the model that we're all most familiar with, and it's the way legitimate business has been conducted for centuries. Somewhere along the line, someone thought up a clever way to mix things up: A way to get salespeople to continue sending in the orders, but rather than pay them to do so, have them pay for the privilege. By re-labeling a sales job as a "business opportunity", unscrupulous companies could actually make money from the very same people they would otherwise be paying a salary to, and getting the same work for it.

Here's a typical way this works. You see an ad in the paper or on the Internet promising financial freedom, owning your own business. For some fee, say $500, you can become a authorized sales agency for XYZ Company, which sells timeshare condominiums or some other product or service. In exchange for your $500, XYZ Company will provide you with qualified leads, and you are free to pursue those leads however you see fit. Call them on the phone, knock on their door, chase them down on the street and make dramatic flying dive tackles, do whatever you can do (at your own expense, of course; you are self-employed), and hopefully get some sales. You, of course, do not have any timeshare condominiums yourself, XYZ Company does; so you need to spend a portion of the money you earned from the sale to have XYZ Company provide the product to the customer. Everything works out swell for everyone. The customer got his timeshare; you earned a profit; and XYZ Company made a sale. So what's the problem?

Well, your friend Bob was applying for a job at ABC Company at the same time you were selling your old record albums to raise the $500. Bob was given a nice office at ABC Company, was freely handed the same list of leads that XYZ Company made you pay for, and he proceeded to make phone calls on ABC Company's phone bill until he made a sale. ABC Company paid him a handsome commission, deducted nothing from it, and Bob went home for the day, secure with his employee benefits package. Bob is not only $500 richer than you, he incurred no costs of his own, and ran no risk of being poor since most salespeople like Bob are paid base salaries.

But I understand why you don't want to turn green with envy. After all, you have your freedom and are self-employed! Bob is not, Bob has to answer to his boss; and that's a lifestyle you don't want no matter how nice of a BMW Bob gets on a company lease. Your friend Red feels the way you do. Red is an independent sales rep. He sells products from various companies, and earns a nice commission on every sale. He comes and goes as he pleases, and answers to no man. But when you ask Red how much he had to pay each of his companies for the business opportunity, he looks at you like you're from Neptune. Red explains "You don't pay companies to be their sales rep, they pay you."

And now you see how you've been taken advantage of. XYZ Company has sold you on becoming their sales agent, working at your own expense and at your own risk, and also managed to take $500 from you for no good reason. If you wanted to be an independent sales agent, fine; you could easily have gone and represented any of the same companies that Red sells for, and not paid them a dime.

But don't confuse these so-called "business opportunities" with proper franchises. A real franchise, like McDonald's, is all about leveraging a proven brand. You're licensing an outrageously successful brand name, and the company provides everything you need to be a real McDonald's location. The brand name and proven business model virtually guarantees success. XYZ Company, and all the thousands of no-name companies like them, offer neither a proven business model nor a valuable brand name. They merely sell "business opportunities" to supplement their lackluster product sales, if they even have any.

You're not alone, O poor sad XYZ Company sucker. There are many, many companies out there who have figured out this simple tweak. Now they make money whether they ever sell anything or not, so long as they have an endless stream of suckers paying them to work for them, for as much as $75,000 or even $100,000 to join their program. Those are pretty big numbers, more than most of us have lying around handy in the bank. Thus, you'll also find that a lot of these companies offer financing. That's right: Not only do they charge you money for the right to go out and start a business that you could just as easily do on your own without them, they also make money charging you high interest on a consumer loan. You've also seen this business model on television: A lot of companies state that gold, silver, or newly issued gold coins are valuable investments, and they will even offer you a loan to purchase them. These are simply financial service companies. Their entire business is built upon these loans, which they sell to you, and then turn around and sell the loans to a major loan servicing firm. They couldn't care less what you use the loan for, whether it's buying their worthless Cook Islands gold coins or collectible plates with a picture of Dorothy and Toto. There are exceptions — but when you see that any company offers financing on their product, it's a good bet that the financing is actually their real business model, and that the product they're selling is probably not worth much. I repeat, there are certainly exceptions, but this possibility is always worth a scan of your skeptical eye. When the product they're financing is a business opportunity, you'll find that this is the case nine times out of ten.

This discussion would not be complete without a mention of multilevel marketing, or MLM. However that subject deserves an entire episode, so I'll only mention it briefly here. MLMs are the kings of scams. You buy into an MLM by ordering say a few hundred dollars worth of product, and studies have shown that that initial purchase is all that 98% of MLM participants ever make. With this payment, you now call yourself an independent distributor, and you go forth and hope to sell those products to recoup your purchase price but also hope to sell other people to be distributors beneath you. Few people sit down to actually do the math; if even one line of distributors from one MLM program was successful in getting 5 people at each of 15 levels, this would have required the participation of more human beings than have ever existed on our planet. This is not a business opportunity; this is a cleverly marketed ruse to trick people into buying a cheap product at an outrageous price, by claiming that they're buying not just a product, but also an "opportunity". More on that subject in a future episode.

Tip Skeptoid $2/mo $5/mo $10/mo One time
If you're considering any business opportunity, the first rule is to ignore the marketing claims presented with it and examine the deal with skepticism. If someone's trying to sell you something, that means (by definition) that the money is going into their pocket, not yours. Make sure that the value is genuine. People who want your services should be willing to pay you. If they're asking you to pay them, you have very good reason to be skeptical.

Brian Dunning

© 2008 Skeptoid Media, Inc. Copyright information

References & Further Reading

Allard, Lloyd. The Ultimate Selling Guide. Gretna: Pelican Publishing Co., 2001. 27-31.

Berkowitz, B. "Republican Benefactor Launches Comeback." International News Service. Inter Press Service, 28 Jan. 2009. Web. 12 Jan. 2010. <http://ipsnews.net/wap/news.asp?idnews=45588>

Bloch, B. "Multilevel Marketing: What's the Catch?" Asia Pacific Journal of Marketings and Logistics. 1 Jan. 1996, Volume 8, Issue 1: 21-30.

Brown, D. "Marketing Group Merely Selling a Dream." The Times. 27 Nov. 2007, ????: ????.

Edwards, P., Edwards, S., Economy, P. Home-based Business for Dummies. Indianapolis: Wiley Publishing, 2010. 245-255.

US Bureau of Consumer Protection. "Multilevel Marketing Plans." Federal Trade Commission (US). US Federal Trade Commission, 24 Apr. 2009. Web. 7 Nov. 2009. <http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv12.shtm>

Reference this article:
Dunning, B. "Bend Over and Own Your Own Business." Skeptoid Podcast. Skeptoid Media, Inc., 8 Apr 2008. Web. 20 Oct 2014. <http://skeptoid.com/episodes/4095>

Discuss!

10 most recent comments | Show all 49 comments

Get a truck license Macky. Woolies and others franchisees are reported to be setting up a new body for Oz and NZ on tonights news.

If you can cope with the stress of driving a massive unit, I assume they will be looking for new employees.

I have heard you have undergone a little bit of a human rights revolution over in NZ. But then Oz news can exaggerate things a little.

Hell, call a spade a spade, exacerbate things a little.

Mud (Dr Syd), sin city, NSW, OZ
October 6, 2012 4:11am

Thanks for the advice Mud.

I've had a truck license since 1977, and was able to cope with the stress of driving a massive unit quite well, thanks for your concern.

The fruit drink company wasn't the only one offering franchises that I investigated. Green Acres was another one of many. $28,000 to get into it, and 18-20 lawns a day every day mowed and edge-trimmed. The guys I spoke to were all trying to get out of it.

The franchisee is virtually paying the franchisor for the "privilege" of working for them, instead of simply being hired by the company as an employee.

The company doesn't have to pay for, and maintain the vehicle, or sick or annual leave, and is relieved of most of the paper work.

The level of effort required by the franchisee would never be tolerated by employees. One chap I know on a bread-delivery run lost his marriage, because there was no quality family time left in the day and evenings. He started at 5am and didn't finish the paperwork until after 10pm every night. He lost his family, not that he saw much of them anyway, after he took the bread-run on.

Every franchise I've investigated have only been wroughts.

Work it out. Would YOU sign up for one ?

Macky, Auckland
October 6, 2012 2:16pm

I am sure that some franchises are well worth while. The problem is I do not have presience and franchises and small business can be risky and sometimes rewarding.

Lets face it, inattention to detail brings a lot of concerns to ruin.

On trucking, as much as we need them for all our goods, infrastructure planned by governments should have relieved some the pressures that these guys suffer trying to make a buck.

Being a road safety nutter I notice that most drivers are on auto-pilot when behind the wheel of their vehicle. The police here will tell you that vehicle recidivists do not out number the vehicle inattentive.

I can understand how anyone who operates a business based on a vehicle would be time deprived and under great pressure. Economic pressure is just one of them.

As to that lawn mowing business requiring 19-20 lawns a day does not require a franchisee, it requires Dr Who.

I think the bread delivery example is a logical fallacy of the worst kind. Getting divorced because of work pressure has a number of factors that contribute to the divorce and this example can be used in a number of clear arguments with just a change of a few words.

Getting divorced is a very horrible thing to most of your family and surrounding social network. I think the above would be a trivialisation fallacy of some sort.

No, I wouldnt sign up for the franchises you investigated.

Mud, Virtually Missing point, NSW, Oz
December 21, 2012 4:15pm

Yes using divorce is an unfair argument to "prove" the unsuitability of a certain franchise.

There is usually other factors that contribute to divorce (in my experience), and workload can maybe just top them off, the last straw, so to speak.

Nevertheless, such franchises must put strain on even the best marriages, and frankly the examples I've posted are simply slave labour, nothing less.

Glad you won't be caught getting into something that you might have found very difficult to get out of without substantial financial loss.

Macky, Auckland
December 21, 2012 7:45pm

Me and the wife got mixed up in Scamw......I mean Amway through a couple of new "friends".

We opted out when we saw it for what it is, and never heard from, or seen hide nor hair of, these "friends" since.

That was 19 years ago.

If we had followed their "guidelines", we wouldn't have had any other friends either.

Ron, Calgary Alberta Canada
October 16, 2013 10:41am

A businessman friend of mine attended a "meeting' where the Amway concept was explained with of course the obligatory charts on an easel to illustrate the speaker's points.

Two other Amways operatives attended as well, one of them a manager of a company in whose premises I had installed a telephone system.

He asked pertinent questions about Amway that the presenter admitted he could not answer, and then he gave them his considered opinion that it was the sort of pyramid scheme that rested entirely on trusting your downliner not to bypass you and present himself as a downliner to the equivalent of an upliner from another area who did not know him, in order to carry on selling to his downliners without your participation, in other words cutting you out.
That was how Amway was then in the early 80's anyway.

He also pointed out that like any pyramid scheme that has taken off, it was too late for him to get into it, because all the interested parties had already been installed in Amway for some time, and it would now be difficult for him to find any downliners.

The products of the day seemed to be excellent, and represented a good saving over a few months, but my friend and I were marketeers in those days, and most of the people where we lived could not afford the high initial price of Amway goods.

Remarks later from the Amway operatives were along the lines of "negative attitude" etc, but today my friend is a multi-millionaire, sans Amway.

Macky, Auckland
October 19, 2013 12:28am

"Remarks later from the Amway operatives were along the lines of "negative attitude" etc, but today my friend is a multi-millionaire, sans Amway."

What? They didn't call your friend a 'Dream Killer'........?

Ron, Calgary Alberta Canada
October 22, 2013 3:50pm

Well the manager did make some further disparaging remarks about my friend out of his hearing, not that my friend gave two hoots when I told him later.

I also attended an Amways "rally" in a hired hall, that had all the overtones of a religious revival, with members of the audience jumping to their feet giving the clenched fist salute and shouting.

The speaker of course was a "successful millionaire now", after coming from a poor background, and although he admitted that he didn't know exactly how everything worked, he had "come over to NZ from Britain at his own expense to share his success story".

As I sloped out the door at the end, people were standing around in groups talking excitedly and waving their hands in the air.

I recognized a few from my rounds installing phones and systems. One or two averted their eyes when I looked at them, for some reason.
It had all the feeling of a New Day dawning for the world and its inhabitants.

But I haven't heard anything from or about Amway in the last 20 years now.

Macky, Auckland
November 7, 2013 1:49am

Macky, Amway is alive and well and does very well for those who work the sales system as outlined. So does Mary Kay, Avon, and a host of others selling everything from health food to vacuum cleaners. The successful companies of this type have good products and reward their salesmen and saleswomen appropriately.

Sales can be a lucrative profession. Everyone who owns a successful MacDonalds can verify this

The keyword that makes these business professionals successful is "sales."

If you are not a good salesman, if you do not like being a salesman, if you buy into any of it expecting to be something other than a salesman you will lose your friends, your self respect, and your shirt.

I have been an IBO of Amway for 35 years. I haven't sold one thing in all that time: I maintain my relationship purely to buy products (principly vitamins) at the distributer discount. This relationship works for both of us. When I retire from law enforcement I may hang out a shingle and sell vitamins to anybody who like the Amway brand product.

There is no such thing as a free ride, a free lunch or free money. If you run into somebody selling free prosperity, skepticism, thorough investigation, and caution should direct your actions. Parasites are all over.

Swampwitch, Gainesville Fl
January 5, 2014 10:39am

Thanks Swampwitch

It's good to read some positive feedback regarding Amways, and your own experience with them.

Since those days of the mid-80's, Amways seems to have died out around where I live here in South Auckland. There have been no callers to my front door for decades, and no mention whatsoever of Amways in any of my friends conversations at functions, parties, or even over the phone.
There was a brief flurry of activity with another similar company (I can't remember the name) in the early 90's, but since then, nothing.

As far as buying into franchises is concerned, I've given a couple of examples of enquiring into them from my own experience, as a caution to anyone who "wants to run their own business".

I'm sure there are some worthwhile franchises around, but those two are really nothing but slave labour in one of them, and paying a company to work for them (and do all their paperwork) in the other.

Macky, Auckland
January 5, 2014 11:57am

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