Small Businesses are Vulnerable to Scams
Several years ago, I got a letter from a Nigerian “prince” inviting our company to participate in an exciting business proposition. He and his cohorts had millions of dollars they wanted to deposit in the United States, but because of legal technicalities, weren’t able to do so. Desperate for a partner, they would gladly cut our company in on a sizable fraction of their loot, if only we would give them access to our bank account so they could deposit the money.
As scams go, this one was laughably crude. The letter was in broken English, riddled with typos and printed on cheap paper, lacking even a printed letterhead. I also happened to be familiar enough with geopolitics to know that Nigeria doesn’t have a royal family, and with human nature sufficiently to understand that anyone who allows a stranger to tap into his bank account could benefit from a brain transplant with a circus animal. I turned the letter over to my state’s attorney, urging him to go after his royal highness.
This letter was circulated to thousands of business owners and managers around the country. It’s astounding that anyone would be stupid enough to fall for it, yet the perpetrators no doubt could make a tidy profit if only a handful of the thousands of recipients agreed to become their “partner.” In a random sampling of that many citizens, I suppose no degree of ignorance is too great to contemplate.
Unfortunately, many other business-to-business scams are much trickier to detect than the Nigerian caper. A variety of swindlers—some protected by law—are out there preying on small firms that don’t have their guard up. Here are some of the gambits to watch out for.
Bogus directories and firmsMany businesses receive a solicitation for a paid listing in some dubious telephone directory. The solicitation will look like a bill to be paid but have, in big, screened letters printed in the background, a notice to the effect, “This is a solicitation, not an invoice.”
This enables the perpetrators to remain legal, but they are counting on the background printing being overlooked by the casual observer. Otherwise, the sheet is designed to resemble a payment invoice. The amount billed is typically a little under $100, which is carefully contrived as not enough to draw undue attention from a busy accounts payable clerk. Many are apt to simply stick it in a pile and write the check on bill-paying day.
Payment entitles you to a listing in some cheap telephone directory with little circulation and usage—if it exists at all. For instance, our company routinely gets solicited to pay for a listing in something called the Illinois Services Directory, which lists various businesses in the state and supposedly gets distributed to state agencies. It’s a good question how much distribution actually takes place, but even if the publisher keeps its end of the deal, there’s no value to such a directory. Most recipients would dump it in the trash or some out-of-the-way corner. It exists only to extract a few bucks from unsuspecting businesses, which add up to megabucks for the publishers.
There must be scores of these bogus directory publishers around the country. They may be in technical compliance with the law, but their business is rooted in deception.
Same goes for myriad companies that operate as invention marketing firms. They supposedly help garage shop tinkerers bring their better mousetraps to market, but the services they render are of little value in relation to their fees. Trade workers, many of whom are mechanical hobbyists, are especially susceptible to their pitch.
The invention marketers offer a free or low-cost evaluation of an invention based upon the flimsiest of descriptions. Almost always, this evaluation will conclude that the device does indeed have sales potential—because in a world in which people have gone ga-ga over everything from Pet Rocks to nose rings, who’s to say that any idea is unmarketable? About the only inventions these companies will decline to represent are perpetual-motion machines and other contraptions that defy natural law. This might be seen by courts that the companies are not serious.
Overall, though, few inventions are too ridiculous for companies that have mastered the art of picking inventors’ pockets. By the time the inventor gets done paying these firms for a patent search, superficial market research report and a few press releases, an average of about $20,000 will pass from his pockets to the invention company’s coffers.
Many of the marks are people of limited means who dream of striking it rich with the one great idea they’ve had in their lives. The invention marketers will play up that dream for all it’s worth, and help the inventor tap into every possible avenue of financing. Some have their own finance subsidiaries, which enable them to drill even deeper into the mother lode for interest.
What services do they render for all that money? Their patent search may be legitimate, but you could hire your own patent attorney to do the same thing for one or two grand. As a trade magazine editor, I’m on the receiving end of what passes for some of their marketing efforts. Basically, it consists of a one-page press release with a vague description of the device and an invitation to contact them if anyone is interested in developing it. Your odds would be about as good, and a lot cheaper, knocking door-to-door trying to find a backer.
The invention marketing companies make their money fleecing inventors, not from actually bringing products to market. A recent Time magazine article on the subject got one company’s publicity manager to admit that of 5,324 clients represented, only 11 had made more money than they invested, and Time hinted even that number might be inflated. The contract may specify a cut of royalties in the unlikely event a product they represent actually goes into production, but that’s just part of the show put on to enhance credibility with inventors. None of these companies will agree to represent an inventor strictly on a contingency fee basis.
Don’t bother trying to sort out the “credible” invention marketing companies from the shysters. The entire industry is suspect. Years ago I did some research on this industry, and asked several of the supposedly upright players to direct me to satisfied clients who profited from their efforts. I’m still waiting for the first referral.
A tangled WebIf your company is not yet on the Internet, you are ripe for plucking by a Web site development company looking for a long-term commitment. They are perfectly legal, and may even render a worthwhile service in producing a Web site for your firm, but watch out for any agreement that calls for a monthly maintenance fee. Usually it’s only $25 to $30, but the fee still adds up to hundreds of dollars over the course of a year, and is totally unnecessary.
Registering a domain name, that is, your Web address, costs merely $35 a year. You can do it by logging on to www.networksolutions.com.
Many Internet service providers will help you design your own Web site. For a better result, you may want to hire a professional Web designer, who may charge anywhere between $30 and $100 an hour. This is a one-time fee, with additional payments if you choose to do periodic updates. Beyond this, your Web site should cost you nothing except what you pay your ISP for Internet access. There is no need for continuing monthly payments to a Web site developer.
These are only a handful of the business-to-business scams that are out there. Watch out for shady companies that try to sell you toner cartridges or other office supplies at what sound like bargain prices, but that in reality are highly inflated. These solicitations often come by fax. (Fax solicitation is illegal in many states without prior permission, although this tends to be poorly enforced.)
Also, get in the habit of carefully checking each month’s telephone bill. This is a difficult task nowadays, which is why many scammers have figured out ways to ding unsuspecting users for services they may not have ordered, at least not intentionally. Operators of psychic hotlines, among other dubious characters, are skilled at getting their services tagged onto your phone bill. The line items typically cost $10 to $15 a month and can be easily overlooked amid the confusing array of charges attached to a modern phone bill.