THE BIZOP NEWS

I am very critical of regulators who claim that if the victims of fraud had just realized that "if it sounds too good to be true, then it probably is." This "advice" makes the victim of a con criminal feel that there was some simple check by which they could have avoided the con criminal. This is false. But, now I have logical proof of the regulator fallacy, after my visit to a rather interesting place.

Recently, I was invited an amazing island, in the Raymond Smullyan archipelago. On this Island, there are two types of people: Rogues and Saints. Both the Rogues and Saints talk about earnings projections of franchises, business opportunities, and distributorships.

Now Rogues, unremarkably, always say things that are too good to be true. So if a Rogue says that vending opportunity B will make $3,000 a month, then it is too good to be true and it is false that vending opportunity B will make $3,000 a month. But the Saints, god bless their souls, never say anything that is too good to be true and generally have less to say than the Rogues.

Just before I arrived, the Saints had tired of the Rogues and the devastation they had caused on the Island. The Saints, knowing of my reputation, asked me to help design their due diligence scheme.

They had two proposals. First, they wanted every Rogue to wear a sign saying "I am too good to be true.", the belling of the Rogues. Second, if this was impractical, they wanted to set up a Rogue Registery, RR, which every Rogue would have to register with and have to produce on demand a card which said, "If I am registered with the RR, then what I say is too good to be true."

What advice do you think I gave them?

Well, upon reviewing Raymond Smullyan's many logical puzzle books, I realized two things.

First, a Saint could never say "I am too good to be true." And neither could a Rogue, since Rogues only say false things. So the Rogues could not be belled, without the logic of the Island collapsing.

Second, if a Saint said "If am registered with the RR, then what I say is too good to be true", then since the latter clause is false, and since Saints tell the truth, then the Saint is not registered with the RR. But can a Rogue said "If I am registered with the RR, then what I say is too good to be true."? No, since Rogues always lie and if both the clauses are true, the whole implication is true.

But surely, the Saints exclaimed, at least if we form the RR, the Rogues will be mercifully more silent. I thought this was too good to be true.

Upon reflection, I pointed out that the Rogues would simply say "If what I say is too good to be true, then you can check the RR." A Rogue not registered with the RR can say this because it is false -what he says is too good to be true and he is not registered with the RR. The establishment of the RR would cause Rogues to adopt aliases to avoid registering, and would use the authority of the RR to establish that they were not too good to be true.

The Saints did not pay my bill, and instead held public hearings on the matter.

Posted by michael webster at 12:01 AM | Permalink | Comments (2) | TrackBacks (1)

Here is the advice that the FTC routinely passes out about how to Recognize Business-Opportunity Fraud

"The Federal Trade Commission (FTC) says that fraudulent business opportunities consistently rank in the top 10 categories in its database of consumer fraud complaints.

"Some scam artists are really sophisticated," says Dan Salsburg, attorney for the FTC. "They know exactly how to keep consumers from guessing the true nature of their business by rounding up phony references or creating misleading documents."

Salsburg says savvy consumers can learn to spot the telltale signs of fraud. For example, many fraudulent promoters send spam email or post Internet ads involving vending machines for candy, soda, snacks or personal care items; display racks for greeting cards, CDs, perfume or similar items; or opportunities to buy into medical-billing or envelope-stuffing businesses or activities related to the Internet.

Other tip-offs include claims of high pay in weeks or months for little effort ("work only hours a week"), as well as claims about working conditions like the ability to "set your own hours," "be your own boss" or "work from home." The opportunities cost $5,000 on average, Salsburg says.

According to the FTC, many business opportunities offered through the classifieds or via spam email have little chance of success -- for example, a business with little or no demand in the market; cheap, low-quality or outdated merchandise; poor customer service; and few, if any, locations."

(my emphasis)

The problem with this advice is that it wrong. (Also, Salsburg is completely wrong about the average biz op loss -the average pitch is for around $20k)

People who are get conned or defrauded are not lacking in rationality or reason.

The people I have interviewed over the years all felt that there was something wrong with the scheme -but for some reason, they overrode their gut concerns.

Why?

There are a number of reasons, but the basic pyschological mechanism is cognitive dissonance. Individuals who get cheated have made a commitment, which is often unknown to them, to the business opportunity or franchise. When they uncover problems with the scheme, they have a choice: give up the commitment or rationalize away the gut concerns. The latter choice enables fraud.

Here is a simple example. One client of mine was defrauded over almost $100k in a vending scam -nothing was delivered.

This client is very bright, and had uncovered a number of real problems with the scheme. I was quite impressed with the resulst of his due diligence.

But for him, purchasing this vending route was going to provide much needed economic independence from his family business obligations.

Therefore, every flaw in the scheme was indirectly an attack on this important value.

He rationalized, therefore, the flaws he discovered with his due diligence as attacks on his work ethic -this was a vending opportunity, surely hard work could overcome all the problems.

Well, all the problems except for not getting working machines and have no locations.

We will not stop fraud by treating the victims as somehow deficient in reasoning or rationality.

To attack fraud, we need to be more aware of the automatic compliance techniques that con criminals use.

We need to develop automatic and unthinking defences to these techniques.

Posted by michael webster at 7:49 AM | Permalink | Comments (0) | TrackBacks (0)

I am a big fan of Trade Associations, of all kinds.

Many people don't know that there iss a trade association for vending, National Automatic Merchandising Association, NAMA.

Here is a story from about vending fraud, from one of NAMA's website. Federal Judge Sentences Three In Vending Opportunity Scam @ Vending Market Watch News at AMonline.com

But what caught my attention was the editor's note.

"Editor's Insight: The Justice Department and law enforcement agencies are paying closer attention to business opportunity scams. Vending trade organizations should formally thank law enforcement agencies for these actions. Law enforcement professionals, like anyone, appreciate being appreciated.

The National Automatic Merchandising Association and many state organizations have supported efforts to warn consumers about these schemes, but there is no sure-fire way to protect people from their own poor judgment.

Because NAMA is involved in ongoing efforts to fight business opportunity scams, it is one more reason that operators should support their national trade association. 06-22-07 by Elliot Maras"

I have been involved in prosecuting, investigating, and warning about business opportunity frauds for over nine years. I have interviewed over a thousand people during that time. Over 95% of the victims were cheated by classic vending, payphone or ATM frauds. Not one of them knew about NAMA or the Canadian equivalent, CAMA.

Why is this? Well, NAMA's web page on business opportunity fraud is nothing more than a series of links to the FTC pages, without even any links to the 26 states who have business opportunity or seller assisted marketing plans. NAMA seems content to simply ignore the seamy side of their industry.

Business opportunity laws seem to be known only to regulators.

Posted by michael webster at 7:03 AM | Permalink | Comments (0) | TrackBacks (0)

I have reprinted this article, deleting the material about stock options. The explanation for corporate crime is completely wrong, but wrong in an important way.

CEO Crime & Punishment: "

[This is a guest post from my business partner, and co-founder and CEO of Opsware Inc., Ben Horowitz. Ben has been CEO of a US public company since March 2001.]

As CEO of a public company who grew up in the People's Republic of Berkeley, one question I get from a lot of my old buddies is, 'Why are there so many criminals in corporate America?'

Given the high-profile scandals that led to massive securities law reforms such as Sarbanes-Oxley, and the more recent stock option accounting imbroglio, this is a good question indeed.

Warren Buffet once said that 'marrying for the money probably isn't a good idea in any case, but if you are already rich, it makes no sense at all.' The variation that applies to CEOs is 'robbing investors probably isn't a good idea in any case, but if you are already rich, it makes no sense at all.'

So, why all the fraud? Are CEOs just natural crime bosses who have found a better hustle?

To find the answer, we'll first take a look at regular old run-of-the-mill corporate crime; you know, the Enron, WorldCom, Qwest variety. Then, we'll delve into the very special case of stock option accounting.

What were Bernard 'Bernie' Ebbers, Kenneth 'Kenny Boy' Lay, and Joe 'this guy doesn't even need a nickname to sound like a crime boss' Nacchio thinking? What motivated such legitimately rich and powerful men to risk and ultimately lose everything?

To find that out, we have to examine what motivates CEOs in general. Is it pure greed -- the burning desire to have more money than Bill Gates?
Surprisingly (at least for anyone who watches TV or movies made in Hollywood), the answer is: not necessarily.

What motivates most CEOs is some combination of winning and, as a result, building something great. Building a great institution, a great place to work, a great place to do business with, and a great investment. This is what's most motivating and what's most gratifying. And what they'll fight to hold on to most dearly. And this is where the crime comes in.

So if winning and building motivate CEOs, how does this lead to crime?

Let's use as an example the case of Bernard 'Bernie' Ebbers and his motivation to build a huge company. In case you aren't familiar with Bernie's crime, accounting fraud at WorldCom during Bernie's tenure led to the largest bankruptcy ever. And Bernie got sentenced to 5 nickels hard time.

But the really curious thing about Bernie was that he didn't sell any of his WorldCom stock while he was committing this fraud. In fact, he got himself into massive personal financial crisis by borrowing $366M against his WorldCom stock to avoid selling it. If Bernie committed this crime out of personal greed, how do you explain that?

This is simple. Any low class ponzi scheme operator knows that he has to cut and run at some point. But the skillful criminal realizes that he needs a better closing. Bernie realized that if he borrowed $100,000 and couldn't repay it, then he had a problem; but that if he borrowed $400,000,000 and couldn't repay it, then the banks had a problem. It isn't curious that Bernie didn't sell his stock, it would have been curious if he hadn't taken advantage of this asset at all.

Bernie was the classic American success story. He came from humble beginnings. He dropped out of college twice prior to graduating from Mississippi College. He began his career as a high school physical education teacher. He worked as a milkman by day and a bouncer by night. He built himself up from nothing to arguably the most important and powerful man in the multi-trillion dollar telecom industry.

As WorldCom grew at a rapid pace, Bernie set expectations high. This led investors to give him advance credit, thus boosting his stock, which was the currency he used to build his company. When Bernie saw that WorldCom wasn't going to meet those high expectations, and that thousands of shareholders to whom he had promised great performance would lose their money, and thousands of employees who he had hired would lose their jobs, he was willing to do anything to make things right. Even if it meant doing things that were wrong.

Like a killer committing his second murder, the decisions to commit fraud must have come easier as Bernie gained experience. In addition, the stakes continued to get higher. He continued to commit fraud, because if he hadn't, there was a 100% chance that he would let everyone down who mattered to him and he would no longer be the person that he had worked so hard to become. He wouldn't be Bernie Ebbers #11 in Time Magazine's Cyber Elite; he'd be Bernie Ebbers, former milkman, bouncer, and disgraced CEO.

By committing the crime, he was taking a chance that something much worse would happen (i.e. jail), but he was willing to take that risk. He very likely talked himself into thinking that he wasn't taking much of a risk at all. Bernie's conversation with himself probably went something like this: 'The accounting is complex and I can argue the accounting treatment either way. I am a good person. I have donated enormous amounts of money to charity and done outstanding work with my church. I care more about others than I do myself. Since a good person would not commit accounting fraud and I think that this is a reasonable approach, I am not committing accounting fraud.'

Much like blue collar crime, there is no flashing sign that tells you when you enter into the world of white collar crime. When somebody has five drinks and then walks to their car to drive home, it's likely that nobody tells them they are drunk and about to commit a crime. When Bernie agreed to financial treatment that made the numbers but wasn't quite right, his team might not have pointed out that he was crossing the line.

This is a silly social history. Crime is not accidental. Fraud is planned, and executed with the intent to deceive. It is not something you cross the line into. You cheat because you want to cheat and break the rules.

Of course, accounting fraud and bankruptcy in the telecom sector did not begin and end with Bernie. Bernie just got the ball rolling. There were also accounting and/or bankruptcy issues -- the two tend to go together even if not publicly -- at Qwest, Exodus, and Williams Communications to name three (there were many more).

This is where the 'winning' part comes in. The burning desire to win is why corporate crime becomes contagious. This will be important when we get into stock option accounting.

Once WorldCom started committing accounting fraud to prop up their numbers, all of the other telecoms had to either (a) commit accounting fraud to keep pace with WorldCom's blistering growth rate, or (b) be viewed as losers with severe consequences.

How severe were the consequences for not breaking the law? Well, like a baseball player who refuses to take steroids, CEO Mike Armstrong of AT&T did not keep pace with the cheaters. As a reward for his honesty and integrity, he was widely ridiculed in the press prior to being fired and AT&T, perhaps America's most valuable brand, was acquired for cheap. Now you see why Barry Bonds needed something to help him keep pace with Mark McGwire.

Cheating is not winning. Cheating is a parody of winning - the foam without the essence of the beer, so to speak. There is no burning desire to win, there is only the burning desire to deceive -it is a thrill in itself. That is what make a con criminals a criminal: the overwhelming desire to deceive and manipulate. Winning has nothing to do with it.

So how do CEOs avoid committing accounting fraud? There are a few important keys:

1. Be clear with yourself –- As CEO you must realize that every incentive for every employee in the company drives them to make the numbers. The only counterbalance to all those incentives is the law. But the law is not always crystal clear, so the company looks to the CEO to make the final call.
2. Be clear with others –- It's important to let the people who account for the business know that they are not responsible for making the numbers; they are responsible for reporting them accurately. I always say to my finance people: 'we may whiff a quarter, but we are not going to jail.' It may seem silly to have to say that, but it's critically important for everyone in the company to know that the CEO is not asking them to push the legal limits.
3. Stay away from the gray –- It's very tempting to be 'aggressive' when making an accounting judgment, but it's also very dangerous.
4. Organize to stop fraud –- One of the most important things that your friendly blogger pmarca insisted upon when we started our company was to make sure that the General Counsel reported directly to the CEO and not to some other executive. When things go bad in the company, it's important that the organizational structure enables you to find the badness rather than hiding it.
5. Heed advice of JaMarcus Russell's mom -- she says: 'trouble is easy to get into, but hard to get out of.'

CEOs who commit accounting fraud don't need a checklist about how to avoid fraud. Afterall, they are intentionally committing it. (I have no views about whether this list would prevent negligence.) It is pointless to pretend that con criminals wearing suits somehow inadvertantly crossed the line into fraud. They started their dubious trade skills as young people, learned that they were not caught, and started doubling down on their fraud.

Posted by michael webster at 11:50 AM | Permalink | Comments (2) | TrackBacks (0)

Here is some poor due diligence advice from American Chronicle: Work From Home Business Opportunity.

The author starts out promisingly:

"While there is definitely work to be had and money to be made with a work from home business opportunity, finding the right work from home business opportunity for you will definitely require some legwork and preliminary research on your part. Why? Well, the unfortunate reality is that not every work from home business opportunity is legitimate. Often, a work from home business opportunity reels interested people in with a lot of lofty promises about unbelievable revenue streams without a lot of effort required on your part. "

How does the author suggest that you do your due diligence? How do you verify the earnings claims, alluded to? What information is legally required from these business opportunity sellers?

Unfortunately, our author reveal himself to be ignorant of the basic federal and state laws concerning business opportunities.

There is the requisite and absurd claim about the Better Business Bureau. "Find out as much as you possibly can about the work from home business opportunity you are thinking about pursuing. Investigate the owners, operators and current associates. Check out the Better Business Bureau or websites that specialize in identifying scams to find our about any potential negative experiences others may have had with this work from home business opportunity. "

Once again, I have to stress that the BBB has nothing to do with due diligence. The BBB is a system which attempts to resolve consumer complaints and keep track of the number of resolved complaints.

Our author knows nothing of the Federal Trade Commission's site on Business Opportunities scams or any of the individual State Business Opportunity Laws and shares his ignorance with the reader.

It is really quite pathetic, and would not be worth commenting on except for the fact that so many individuals looking at business opportunities live in the same space - ignorant of the how the Federal and State laws on business opportunities work on their behalf.

Posted by michael webster at 1:48 AM | Permalink | Comments (0) | TrackBacks (0)

As frequent readers of this blawg know, I am resolute in my opinion, with considerable logical support, that it is too good to be true that scams and frauds pre-announce themselves as "too good to be true". Scams and frauds work, in part, because of the use of illusions and misdirection which feed into a particular person's phantom dreams.

Nonetheless, armchair regulators continue to blather on about identifying a fraud as too good to be true. The latest is Carrierbuilder and their advice about detecting bogus job opportunities, Too good to be true?

What is repellant about this useless advice, useless since it will not help someone genuinely perplexed or not needed by someone sufficiently skeptical, is that Carrierbuilder is one the carriers of this particular virus: bogus job postings from their website emailed to unsuspecting subscribers.

The new proposed business opportunities rule would make this practice illegal, but unfortunately it does not appear that the social job networks will incur liability under the proposed rule.

Who is in a better position to filter out this bogus schemes: desperate job seekers or the advertising giants who are making money by accepting the scammers ads?

To their credit, the Competition Bureau, whom I often criticize, did crack down on a minor player in this field, an employment board for oil jobs in Alberta. But the major players continue to offload the responsibility onto their consumers.

Technorati Tags: job postings, job opportunities, carrierbuilder, frauds, scams, business opportunities

Posted by michael webster at 5:18 AM | Permalink | Comments (0) | TrackBacks (0)

Professor Studies Why Phishing Works and concludes that "Education only goes so far, as people will make poor judgments about whether or not a site is legitimate."

This is an important claim, which is similar to the claim that I have been advancing about educating prospective business opportunities, franchisees, or distributors. The claim on this blog has been that the very individuals who need protection from fraud will if given unbiased information but at the wrong time will be pushed to invest in fraudulant schemes, despite knowing in their gut that they should not be doing so. The clever atriculate brain overrides the shrewd but silent stomach. The unbaised information feeds the articulate brain and provides all sorts of "consistent" stories explaining why this is the greatest opportunity since ...

I have commented before on other academics who are skeptical about the effects of disclosure. I am looking forward to reviewing in more detail this academic work, a part of this anti-phishing site.

However, there was one thing about the academic website which struck me as odd: they are handing out logos to affix any website which attests to the site is an "anti-phishing affiliate". Providing any old website with the authority of the academic website strikes me as a very bad idea.

Technorati Tags: prospective business, brain, franchisees, overrides, shrewd, phishing, articulate, judgments, skeptical, academics, business opportunities, legitimate, stomach, clever, disclosure, sorts, fraud, invest, consistent

Posted by michael webster at 8:08 AM | Permalink | Comments (1) | TrackBacks (0)

Bob Aaron is a well respected Toronto Real Estate lawyer, who often writes for the Toronto Star, which has the largest circulation of the Toronto newspapers. He provides useful and timely advice to individuals and his website contains links to his articles. So it was with some surprise that I read: Greedy consumers fuelled mortgage scam, in which Bob Aaron appeared to be blaming victims for falling for well planned mortgage relief scam.

In the article, Bob Aaron writes:

"I'm not sure whether I have any sympathy for them. I'm debating whether Augugliaro or the greedy consumers should shoulder the losses created by the scheme.

I understand that many consumers are not financially astute, but I'm wondering how much of a role greed played in the whole Brixdale scam.

There is simply no logic to the possibility that a long-term mortgage could be paid off in a few months -- and provide participants with an additional promised $250,000 bonus at the end.

If I were the New York attorney general, I would have directed Augugliaro's restitution money -- if he pays it -- to charity rather than the injured participants. Mostly, they were the authors of their own misfortune." (my emphasis)

This is a common inference among regulators, lawyers and politicians who are entrusted with preventing scams and frauds. Well, well, well once again isn't this a fine mess - did you forget to check whether it was too good to be true, Ollie? Faced with a choice of trying to understand how ordinary reasonable economic agents could fall for the phantom dream dangled by the con criminals, or coming to the easy conclusion that the dumb buggers deserve not to be protected by our consumer laws, few take the time to work out how the deception was achieved.

Finally, if consumer protection laws aren't supposed to protect those who are the authors of their own misfortune, why would we need any consumer protection laws at all?

Technorati Tags: toronto newspapers, term mortgage, toronto real estate, real estate lawyer, consumers, brixdale, greedy, timely advice, astute, greed, sympathy, circulation, logic, surprise

Posted by michael webster at 3:26 PM | Permalink | Comments (0) | TrackBacks (0)

Is the FBI consumer site useful? Well, not according to Tom Fragala, who is underwhelmed by www.lookstoogoodtobetrue.com The name is underwhelming, and having visited the site, my initial impression is that Mr. Fragla is correct. Consider this advice:

" Every day, American consumers receive offers that just sound too good to be true. In the past, these offers came through the mail or by telephone. Now the con artists and swindlers have found a new avenue to pitch their frauds -- the Internet. The on-line scams know no national borders or boundaries; they respect no investigative jurisdictions. But, as with all scammers, they have one objective - to separate you from your money"!

Too good to be true to who? Too good after or before the fact? Scams and frauds do not announce themselves that they are too good to be true, in fact it is logically impossible for this to happen.

So why do regulators continue to parrot this myth? Because it is easy then to feel smug and self satisfied when confronted by a group of victms, that you took an oath to protect and failed, repeatedly failed over and over again.

Technorati Tags: receive offers, frauds, scams, national borders, american consumers, con artists, mail, initial impression, scammers, smug, parrot, regulators, myth, boundaries, fbi, pitch, respect

Posted by michael webster at 11:03 PM | Permalink | Comments (0) | TrackBacks (1)

The FTC has a talking frog on one of its Business Opportunities webpages. This is one of the web pages that you would go to, if the FTC's new Business Opportunity Rule is passed for advice about due diligence.

What does the talking frog do? How does this mythical beast endow ordinary humanity with powers of investigation?

The FTC's talking frog advises a princess. Various of her courtiers are bringing her business opportunities for her appraisal. The frog provides a single word of commentary: "ribbet" which sounds like "rip-off". It is unclear whether the frog is analyzing the business opportunities, or is simply being a frog coincidentally coming to a "conclusion" that is correct. The Clever Hans effect. (Clever Hans refers to a horse which could apparently add.)

So the FTC's line of defence is: the appropriate way to tell whether a work at home business opportunity, a networking opportunity, or some other business opportunity is a "rip-off" is to listenly closely to the advice of a magical frog - who also completes his transformation into prince when kissed.

The FTC site would be laughable, except for it reveals a dark truth about the regulators: they really do believe that identifying and avoiding a business opportunity fraud is easy and straightforward -which I suppose it might be in a land equipped with talking frogs. This is why the regulators treat victims of commercial fraud with barely concealed contempt: you should have just consulted the talking frog, or the parrot which chimes "too good to be true, too good to be to true", in order to have avoided being a victim. No group of victims of crimes are treated with less respect that those victimized by con criminals.

Technorati Tags: frog, work at home business opportunity, ftc, clever hans, business opportunities, mythical beast, due diligence, apparently, work at home business, new business, networking opportunity, line of defence, webpages, princess, conclusion

Posted by michael webster at 6:23 PM | Permalink | Comments (0) | TrackBacks (0)

US Franchise News has some bad advice about how to do due diligence about franchises and business opportunities. Unfortunately, it is typical of the type of due diligence many franchisees and biz op purchases engage in. The US Franchise News starts, however, promisingly enough stating:

"No federal or state agency or private organization can tell you whether a company is legitimate or operates in good faith. The FTC or the Better Business Bureau can report on whether consumers have complained about a company. But, operators of fly-by-night franchise and business opportunity scams know this, and may change the name and location of their company every few months to avoid a record of consumer complaint." (my emphasis)

That should be the end of the story: no agency, full stop, can tell you whether a company is legitimate. Surprise, surprise you have to buy this information.

But no, the story goes on to suggest:

"If you want information about consumer complaints from the FTC, request it in writing. Address your request to;

Freedom of Information Act Request

Federal Trade Commission

Washington, D.C. 20580.

Please identify your letter as a "FOIA Request" and include (1) your name, address and daytime phone number, and (2) the name and address of the company you are asking about"

Note this recommendation is completely at odds with the first observation that the"fly-by-night franchise and business opportunity scams know this, and may change the name and location of their company every few months to avoid a record of consumer complaint"

It would be just too good to be true if there was an agency that gave you out free information on reputations of franchises and business opportunities. Just too good to be true.

Technorati Tags: franchise news, surprise surprise, due diligence, better business bureau, business opportunity scams, legitimate, unfortunately, ftc, consumer complaint, business opportunities, consumer complaints, biz op, private organization, fly by night, franchisees, franchises

Posted by michael webster at 10:57 PM | Permalink | Comments (0) | TrackBacks (0)

Purchasing a business opportunity is generally fraught with risk because of the large amount of fraud associated with business opportunities. Indeed, the Direct Seller's Association complained bitterly about the scope of the new FTC Rule on Business Opportunities because they didn't want to be associated with the term, "business opportunity". It is really saying something when the MLM crowd does not want to associate with you because you are too scummy!

Entreprenuer published a checklist on how to do due diligence on business opportunities, which I am going to reprint because it is generally pretty bad.

1. Make an honest evaluation of yourself and your abilities. If you've been behind a desk for many years, will you be happy calling on businesspeople and selling them an intangible service? If you've been a field salesperson for years, will you be satisfied selling snack foods behind a counter?

This is hopeless, what does it mean to make an "honest evaluation"?

2. You must run your business enthusiastically. Will you be happy introducing a new product or an unusual service that the public knows nothing about? Can you generate excitement for an item not nationally advertised?

This is again foolish, anyone can generate enthusiasm. Why do you think you got conned into this scam - well, were the marketers at the trade show enthusiastic?

3. You must have complete knowledge of the product or service with which you are involved. If the parent company gives you little or no training in technical or management know-how, be wary of the business opportunity. If the licensor-seller has organized all the operating knowledge into a standard operating manual, look with favor upon this business opportunity.

If the licensor has standard operating manual, you are not going to get a look at it until you have made your purchase.

4. Make a market evaluation of the product or service to be offered. Is the time right to introduce it to the public? Is there a need for this type of item, and what is its potential in relation to competition?

How does one do a market evaluation for the products?

5. Find out how many buyers have been in the business successfully for a respectable period of time. A legitimate business opportunity will even provide you with phone numbers of other buyers, so you can verify that they're generally satisfied with the opportunity and that the seller is capable of fulfilling his or her promises.

The only sensible observation, but without pointing out that many state Seller Assisted Marketing Plan legislations requires this information.

6. Check the training and experience required to run the business properly. Is there a suitable curriculum of training? What is the scope of training? Does your background fit its requirements?

How can you find this out before paying the fee? What disclosure is required prior to any payment from the purchaser?

7. What is the company's profit ratio to sales; to time and service requirements; and to the financial leverage requirements? Can you make more in another type of business?

No, the one thing that is important from the seller's income statement is the ratio of income from distributor sales to product sales. How much does the seller make from the sale or real products versus selling hopes and dreams, ie other distributorships?

8. Do you have to work more hours to make the same amount you do now? Can you invest the same amount in the business opportunity yet operate a larger operation and get a better return on investment?

Not bad, but what is the correct calculation here.

9. Check with current operators to see how they're making out. Are they happy with their businesses? What problems do they have, if any, that are common to all units sold?

How do you get this list if the seller says its "confidential"?

10. Research company's history. Is it a new firm with little expertise and experience? Is it an older firm whose regular products have satisfied customers for years? Are the business opportunities all offshoots of their regular business?

Again, what sources of free information would allow you to do this?

11. Is there financial strength and strong credit behind the business opportunity? Can the licensor-seller give you an escrow agreement to deliver a building, equipment, leasehold improvements, inventory, etc., as the unit is made ready for your use? Check out the bank references given by the licensor-seller; discuss the company's financial strength with the appropriate managers.

Worthless, the scam biz op seller will have excellent trade credit references until they fold up their tent and flee into the night.

12. Evaluate the policies and plans of the company with the associations and business groups in which the parent company or seller is involved.

How would you do this?

13. The Better Business Bureau will give you a report if others have lodged previous complaints against the company.

Wortheless, the BBB is not equipped to detect fraud.

14. Having an attorney, accountant or business consultant conduct an in-depth study of the company may be an excellent idea.

How would you pick the correct expert?

15. Visit the headquarters of the licensor-seller. Talk to the personnel and the training director. Visit the original prototype of the business being sold. Evaluate other outlets. Expose yourself to the other outlets' products and services to determine the quality dispensed.

Next to worthless, visiting the headquarters will only confirm your commitment to the scheme.

Technorati Tags: honest evaluation, business opportunities, ftc rule, business opportunity, due diligence, snack foods, entreprenuer, term business, intangible, salesperson, hopeless, mlm, reprint, fraud, scope

Posted by michael webster at 9:33 PM | Permalink | Comments (0) | TrackBacks (0)

One of the worst, although well meaning, advice regarding scams or frauds is: if it sounds too good to be true, it is. This is utterly pointless as a warning, ineffective as due diligence, and patronizing. Nothing sounds too good to be true until after the scam or fraud is discovered. When did Enron sound too good to be true? After the fact, we discover quite easily why we should not have fallen prey to the sirens of the biz op scammer - but it is before the fact that we need to be attentive. There is no simple one line answer for effective due diligence against fraud -but because fraud grows despite our efforts to contain it, regulators face cognitive dissonance. For a regulator, someone in charge of building markets for reputations, their failure leads them to conclude the that there is a simple cognitive solution: just recognize those things that are too good to be true.

Here is the paradox: it would be too good to be true if a scam or fraud announced in clear and loud sounds that they were too good to be true. And so, following the common folk wisdom, it is false that scams and frauds announce that they are too good to be true. This is why the advice is useless and why it will, despite this, will continue to be offered up as a pancea against fraud.

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Posted by michael webster at 10:12 PM | Permalink | Comments (0) | TrackBacks (0)