The lockdown and economic impact of the pandemic has left a lot of people bored, out of work and desperately looking for a way to get out of debt. And inevitably on the internet, you’ll find plenty of scammers looking to exploit desperate people. We are after all, living in the post-truth era and the golden age of the snake oil salesmen.
There’s now a whole industry of fake guru’s (or Furu’s) and contrepreneur’s looking to sell you the dream. I’m sure you’ve seen the ads online, get rich quick, financially free, passive income, have more time with the family, work from home, be your own boss, get the fast car, the mansion and the yacht. And these guru’s will teach you…for a price of course. And such guru’s and their cult like following has proliferated recently.
If you have a friend or family member who has fallen under the sway of one of these contrepreneur’s, I’d recommend the youtube channels of Coffezella and Mike Winnet, as both have been investigating these sorts of scams for quite sometime. Another vlogger Munecat (aka Georgie Taylor) has also done some deep dives into a number of furu’s and MLM’s.
Strangely enough, while the scams business ideas the furu’s use may vary, they all seem to follow a similar formula and sales pitch. It combines all the worst elements of manipulation and high pressure sales tactics (e.g. saying the course will cost £10k, but will make it available for £3k if you sign up now, which btw is illegal in many countries). Seriously, Mike Winnet even has a bingo game you can play along while watching these pitches.
But in all cases, the goal is the same, get the marks (and if you attend such courses, you are a mark) to commit to buying more and more expensive classes for yet more money. And they will keep milking you until they bleed you dry. And worse still, if anyone actually tries to implement any of these formula’s for success, they’ll milk you some more. And this can have tragic consequences. A ex-soldier in the UK killed himself after ending up heavily in debt after paying to attend several of these expensive seminars.
How likely is it you can actually make money off the back of these get rich quick schemes? Well you never know, you might win the lottery! In many cases theses courses are just a mishmash of amateurish hearsay (this property furu for example doesn’t even know what a timber framed house is, nor that students don’t pay council tax) and the business ideas they pitch are often dangerously flawed. Of course they sound plausible to someone who isn’t an expert, which is the whole point of scam, and why they are pitched at a certain vulnerable people (rather than people with money or business experience who’d spot the scam straight away).
Some contrepreneurs will sell you on the idea of property investment as a way to get rich quick. However as this BBC investigation on on property Furu’s shows, its basically a fraud. Shaf Rasul from Dragon’s Den (and an actual property investor) picks apart such scams here. The reality is that property speculation is a potentially a high risk investment, especially if you are borrowing heavily, or you simply lack the experience about how the property market works (and you ain’t going to get that advice from a furu).
It only takes a small fluctuation in property prices to put you into serious losses. Buying property involved a significant number of expenses, at least £20k+ to cover your deposit, legal fees, mortgage costs, taxes, stamp duty. The average cost of owning and maintaining a home in the UK is estimated at around £9-10k per year. And those maintenance bills tend to come in fits and starts (case in point, I recently had to have a boiler replaced at the cost of several thousand pounds).
Unless you can sell the property for substantially more than it was originally purchased (plus any repair & renovation costs, which can be hard to estimate in advance), you are all but guaranteed to lose money. And recall the point here is to earn enough income to replace your job, so you’d need to be profitably selling several properties each year to earn a living (which is going to require an awful lot of starting capital or an insanely good streak of luck).
And if that weren’t bad enough, some of these contrepreneur’s, aware that their mugs clients have blown their savings on these courses, instead encourage them to borrow the initial stake money (which means you are paying very high interest rates), or proposes the use of risky buying strategies that carry much greater risks of failure. So much so that your losses can easily exceed 100% of your investment (you lose every penny, the house and still owe the banks money, potentially leading to you losing the home you live in as well).
Similarly with buy to lets, the mortgage and ownership costs (again £9-10k per year) have to be less than the rent in order to provide a monthly income, which isn’t always the case. Rents are driven by supply and demand and its all to easy to find yourself in a situation where its not covering your costs. This is a particular problem when it comes to schemes such as rent to rent. or Air BnB’ing property. As I’ve discussed before, this isn’t the cash cow its portrayed to be. If you aren’t careful you could find yourself running an illegal hotel (in violation of planning laws, building codes, while simultaneously committing tax, insurance and mortgage fraud).
All in all property investment is a bit of minefield. There’s also sorts of laws and regulations, as well as lending rules set by the banks and insurers. It is not the place for amateurs who are cash poor to start gambling in.
Day trading…or perhaps that should be called daily losing!
Another popular pitch is day trading of stocks, share, currency, crypto, etc. Again, this seems to rely on the ignorance of most people about what goes on in finance. I know people who work in the industry and no they do not spend all day screaming buy, buy, buy into one phone, while shouting sell, sell, sell into another. The reality is very different (in fact here’s an interview with an actual trader).
Instead, they spend most of their days with their noses buried in ledgers, spreadsheets and reports that are so dry and boring they’d put an entomology professor to sleep. And the traders aren’t alone, they have an entire building full of staff backing them up (data miners, analysts, computer geeks, risk management, lawyers, accountants, vampires, ghosts and ghouls, etc.). I mean why do you think banks have those massive tower blocks for?
Either way the pitch from these fake guru’s is that you in your pyjamas and a laptop can take on these massive wall street firms (with an army of staff, supercomputers and a near infinite supply of cash behind them) and win. Good luck with that one. How many day traders actually make any money? 50%?, 30%? Actually, its closer to 3% according to this paper, with only 1% producing significant returns (i.e. enough to earn a living).
In fact another point I’d make is that financial companies tend to be extremely secretive about their strategies. After all, if every body knows your strategy, they will copy it (or try to bet against you), in which case why are we paying you this huge mark up? Anyone who claims to be a successful investor who is willing to tell a couple of bozo’s on youtube his secret strategies for a fee (rather than just using that strategy to make more money) is to be treated with suspicion, as he’s either gone a little nuts, or he’s a fraudster (or a failed trader like Nigel Farage).
Amazon FBA: Helping Bezo’s get richer…while you get poorer
Another common pitch is Amazon FBA, whereby you set up an online store via Amazon. You’ve probably seen the pitch, “I sold hundreds of thousands of units for $20 which I originally bought for just $1….”Well, even if that were true, you are an awful excuse for a human being and little short of a thief. What you are doing is called “price gouging”, which is not only unethical, but also illegal in many countries (several hoarders of sanitisers & loo roll got caught for this during the pandemic).
And its a toss up as to whether the authorities or Amazon shut you down before your customers figure out what you are up to (if you can find it online for $1 so can they!). Upon which, you’ll get a load of awful reviews (drawing the attention to past and future customers) and you will never sell anything to any of these people ever again. Or your competitors figures out what you are up to and begin selling the same item for $10 or $5 (that’s sort of how capitalism works!).
But ignoring all that, there are are a number of problems with this pitch, most notably overheads (the costs of getting Amazon to fulfil the order, postage, taxes, etc.) and sales volume. The overheads eat into your profits (if any), such that, at best you are making maybe a few pence per item (or losing money with each item you sell). Which means that your sales volume would have to be huge in order to give a reasonable income. And again, there is a risk factor, what if the products just don’t sell (and given that these guru’s have every tom, dick and harry trying their hand at it, there is going to be massive market saturation).
Yes, there are companies with successful Amazon FBA stores. But they tend to be using Amazon to supplement an existing business (i.e. they have a real store in the real world), providing a way for those who can’t physically get to their store to shop, as well as assisting them in meeting customer demands in store. Ultimately this means that even if they aren’t making a lot of money, its still worth their while, if it means more traffic and a higher overall sales volume.
I mean seriously do you think Jeff Bezos, one of the most ruthless capitalists since the robber baron era, is some sort of hippy looking to let various bozos ride on his coattails and get rich quick. No, Amazon FBA its another way for Amazon to make yet more money, while discouraging anyone from trying to establish a rival online service.
The cult of MLM’s
Finally we come to MLM’s. Now, there are some MLM’s who are genuinely trying to distribute a product that would otherwise be difficult to sell by conventional means (that said, you have to question the viability of such a business model in the interney age).
However, an awful lot of MLM’s are little more than thinly disguised pyramid schemes, where the emphasis is on recruiting more members, with the bulk of sales going to new members rather than genuine customers (so it ends up piled in members attics unsold). And some MLM’s are prone to dangerous and controlling cult like behaviour (so much for being your own boss!), as discussed by John Oliver back in 2016.
A legitimate MLM would instead try to limit the number of sales people, to avoid market saturation. Bottom line, if you know someone else in your area who sells for the same MLM, its probably a pyramid scheme, in which case only those at the very top (i.e. not you) will actually make money, while everyone else will lose massively.
Scrubbing the internet
And speaking of which, there are various red flags to watch out for with furu’s, the obvious one being when they constantly showing off their expensive cars and wealth (if Bill Gates did that would you be more or less inclined to buy MS software?). But a foolproof method is to put the furu’s name into google along with a search term such as “…… is a fraud” or “……exposed”. And if the first page of hits you get is just links to the guru’s own site, or shills saying “is ….. a fraud?”, not at all! (hilarious one here where one furu get’s caught out shilling for himself under a fake name).
This indicates that our furu has gone to great lengths to manipulate the search algorithms (probably by hiring an IT expert), in order to bury any genuine feedback and criticism. Likely because most of the real feedback is almost entirely negative. They are also prone to being fairly litigious often threatening people with lawsuits, or using NDA’s to gag their victims. In fact, the one skill contrepreneur’s won’t teach is that of due diligence, probably because they don’t want you conducting due diligence on them.
And it will probably come as little surprise to learn that when it comes to politics most of these furu’s are libertarian objectivists (which is basically a nicer way of saying you are a selfish thieving bast@rd), or admirers of the prosperity gospel (god wants me to be rich…by stealing off the poor, that’s what the bible says, doesn’t it?). And yes some of them are promoting the usual Covid conspiracy theories. In fact one of them got arrested recently for using money from a Covid relief fund to buy a Lamborghini.
And if they do get caught or exposed by the media, they claim its just haters who are jealous (presumably because these haters prefer to be poor), or its all a big government conspiracy….so the government, currently run by snake oil conmen, is apparently against snakeoil con men like these furu’s. Go figure!
Setting up a business isn’t easy. A significant proportion of business ventures ultimately fail (75% of them by one estimate). And I’d argue that this is likely because many people simply lack the experience to undertake such a venture, or they underestimate the amount of work that’s involved, not to mention the capital requirements (as any business will initially run at a loss for sometime).
“Being your own boss” sound good, but in reality bosses are very busy people. I recall sending my boss an email once, then bumped into him in the corridor and we spending about five minutes in his office talking. During which I could see on the screen behind him my email went from the top of his inbox to disappear off the bottom of the screen. Similarly, there’s no free lunches, passive income isn’t really something most people should aspire too.
And you need a unique selling point. For example, when I was growing up, we had a neighbour who was very musical and so he ended up starting a business which re-furbishes, tunes and sells pianos. And, given that he’s got all the gear to move them safely, he also hires out roadies to music festivals. I know someone else who started off in his hippie days installing renewables (generally on the homes of other hippies), who now runs a renewable installation business. Then there’s Louis Rossemann, a right to repair advocate, who also runs a computer repair business in NY, as well as a YouTube channel (where he describes some of his struggles to get his business off the ground).
You will probably notice the trend, all of the individuals above are operating in a field where they enjoy what they are doing (and are thus willing to commit to long hours). And they have a unique set of knowledge and experience, allowing them to carve out a niche. Indeed, the advice we give students before embarking on a PhD is pick a field you enjoy doing research in, because while you might end up hating the subject at the end of your PhD (which stands for Piled higher and Deeper), you will at least have the resolve to finish it. Its no different in business. Hence the lunacy of the contrepeneur’s pitch (high risk business ventures, in a field where a penniless amateur is all but doomed to fail).
If you do want an education on running or starting a business, I’d advise checking out your local college, who will probably run professional courses (typically short P/T evening or online courses) on a variety of related topics. There also MOOC’s run by the world’s top universities. You will be taught by qualified experts and many of these courses will be accredited by an outside agency (so you’ll be getting a recognised qualification you can put on you’re CV). While some will include fees, these are often subsidised (plus there’s a long list of free MOOC courses). You’ll be paying a fraction of what a contrepeneur would charge you and getting a much better service. They might not sell you the dream, but you will at least get something for your time and money.
As the saying goes, in a gold rush the only people making money are the people selling shovels. In the post-truth era, it seems the best way to make money is by selling lies.