how to spot internet business woo?

[cave canem]

I received such helpful response to my vision therapy woo query that I am back for more help.

A very close relative would like me to spot him some capital to start an internet business in which he sells things, as yet of an unidentified nature, through a web site.  The items are drop shipped by someone else, also as yet unidentified, so the relative doesn't actually handle any of the merchandise.   I understand in principle how this could be profitable, but I imagine that the field is crowded with many strivers and that few are likely to really be glad they invested in this.  Right?  Is success or not just dumb luck here?

Where can I find out about the scams and pitfalls ready to ensnare young people who are looking for an income stream without doing much?  I mean, I know the universal type of stuff and a fool and his money yadda yadda.  I mean particular hazards in the context of ecommerce.

Thank you

[Guest]

I do not invest money, time, resources, etc. into *anything* if I don’t know the details - how money is made, why it is worth money, why it is legitimate, who does the transaction. Also, any kind of “business opportunity” I hear about, I will google the name of it and “scams.” I grant you, this alone does not tell the whole picture, but it does give you insight. If you google, “Joe Blow Widget Factory scams” and there are 1,279 results, that certainly a red flag. I also will read some of the results and see if there is a common theme in the complaints. There may be a bunch of people, for example, who say, “I invested $3000 in Joe Blow Widgets because my Uncle Roman told me it was an awesome opportunity, but now I have 700 boxes of Widgets in my garage and I just found out it is illegal to sell them in the US.” If a lot of people have the same or similar complaint, that is a red flag.

Also, if you belong to any sort of frugal community on-line (I am in a Tightwad Gazette group), you can ask about specific ideas there. I just recently found out through my tightwad group that those mystery shopper income opportunities are a good way to have your contact info constantly spammed. I did not know that before, but I’m glad I found that out. 

[Guest]

PS: from your description I would absolutely, categorically NOT financial assist someone with the internet business you describe. 

[Katy]

I'm pretty unclear how or why he'd need money to finance such a business.  That type of business can make plenty of money but it typically doesn't require much startup capital, just a lot of time and work. It sounds like he needs to do a lot of research before he knows anything. So have him write out a full business plan and then get back to you.  Tell him he can find books on how to write one at the library.  10 to 1 he won't get back to you because he's not interested in doing even that much work.

[Katy]

PS: Drop shipping businesses typically involve listing a product for sale on ebay or amazon and not ordering the product until you have money in hand.  This is the sort of thing that many people on the internet talk about but few manage to pull off because finding a product worth selling that's not already being sold at a discount is difficult. There are plenty of people who discuss it in podcasts or on youtube who claim they can sell you the secret to success though. 

[cave canem]

44 minutes ago, Katy said:

It sounds like he needs to do a lot of research before he knows anything. So have him write out a full business plan and then get back to you.  Tell him he can find books on how to write one at the library.  10 to 1 he won't get back to you because he's not interested in doing even that much work.

It's not foregone that he won't do the business plan.  I'd say the probability is 0.50.  I am working on being better informed to evaluate any such plan. 

[Katy]

36 minutes ago, cave canem said:

It's not foregone that he won't do the business plan.  I'd say the probability is 0.50.  I am working on being better informed to evaluate any such plan. 

 

If he's done his work evaluating it will be self-evident. It will show what the product is, what it costs, where he'll sell it, what kind of profit he'll make, what sort of returns he'll expect, what he'll do about fraud, what the competition is, why they will buy his product vs the competition, what he projects sales will be and how he derived that figure, what sort of money he expects gross and net, and when he'll pay off the debt and turn a profit. Note: chances are if he's able to pull this off he'll be able to finance it himself for less than $1000. If he can't save 1000 he's not someone I would invest in. If he's having his own NEW product manufactured in China or another Asian market to list on Amazon there might be some initial costs involved but it should still be well under 5k for a drop ship sort of product. Even then the people who make money at this sort of thing typically have a large social media following and they're selling merchandise to their followers, not a drop ship thing where they don't pay for the product until someone orders it.