10 Online Scams That Target Small Businesses
By Alison Cooper, How Stuff Works, 23 July 2015.
By Alison Cooper, How Stuff Works, 23 July 2015.
Online or not, scams are nothing new - many of the con jobs on this list have been around for ages in one form or another. For the most part, the online scams that people are falling for today are just updated versions of rip-offs that everyone has heard of. Chain letters, fake invoices, vanity scams, overpayment scams, we've seen them all before. But the Internet has breathed new life into them, expanding their reach exponentially and making them even more dangerous.
Anyone can be a victim of an online scam, but small businesses are especially vulnerable. Start-up companies often don't have the security of established businesses, and employees might not be as highly trained to avoid scams. Overworked, struggling business owners are often looking for help in improving their websites and marketing efforts, and scammers are only too happy to "help." Scammers also target people looking to start small businesses with offers of big paychecks for a seemingly small amount of work.
But while scams abound, many of the items on this list have legitimate counterparts (mystery shoppers really do exist!). "Internet marketing" can be a blanket term for all the scams and phony offers out there, but there are also plenty of reputable businesses that actually do help small businesses. The trick is figuring out who's for real - read on to find out who to trust and who to avoid like the plague.
10. Work From Home
A home office. Credit: Betta Living/Flickr.
The "work from home" scam is as old as the hills. Originally advertised in the backs of magazines and on telephone poles, it's found a whole new life luring in suckers on the Internet. Common sense will tell you that you probably can't make US$5,000 a month stuffing envelopes in the comfort of your own home, but if you've been job-searching for months and are really strapped for cash, sometimes common sense can be hard to come by. And that's when you answer one of these ads.
Work-from-home scams come in all forms. Envelope-stuffing is the granddaddy, but medical billing, craft assembly, typing and multilevel marketing are also common. It really doesn't matter what the advertised job is, though - the scammers make their money on the fee they'll require from you, whether it's for a "starter kit," software or a list of potential clients. You might also be asked to call a 1-900 number (and pay for it, of course). Whatever the case, after you pay up and get started, something will inevitably go wrong (the client list is bogus, they don't send the software) and you'll be a little bit poorer.
9. Mystery Shopper
Image via YouTube
The mystery shopper con is a very common offshoot of the work-from-home scam. There are folks who'd love nothing more than to earn their keep by stuffing envelopes on the couch or sending chain letters from their home office, and some of us are just born to shop. Who wouldn't want to spend their days in the mall and make money doing it? Unfortunately, this can be yet another case of "too good to be true."
The good news is that mystery shopping is an actual job - there are many reputable mystery shopping companies who employ people to anonymously evaluate stores, restaurants and other businesses by acting as a customer. You just have to weed out the scammers, of which there are many. Luckily, this is pretty easy to do. All scams have the same basic ploys, so you probably have a good radar for them. Rule No. 1: Stop in your tracks if you're asked to pay an application fee. Also be wary of companies that claim to pay by the hour (mystery shoppers get paid by the job) or advertise full-time positions (it's always a part-time job). Or, better yet, skip the guesswork and check them out with the Mystery Shopping Providers Association.
8. Multilevel Marketing Schemes
Image via YouTube
Multilevel marketing schemes, sometimes known as pyramid schemes, have a long and storied history. They're usually a subset of the "work from home" scam ("direct sales" is often the keyword) that offer almost unbelievable sums of money in return for a minimal amount of work. There are plenty of legitimate multilevel marketing companies out there - Avon and Tupperware are two big ones - but the Internet is also teeming with scams that can end up costing you dearly and maybe even getting you into legal trouble.
There are two aspects to the multilevel marketing business structure: selling a product or service, and recruiting new members to grow the pyramid. Disreputable multilevel marketing schemes tend to value recruiting new members over selling the actual product. It's not a good sign if you spend most of your time trying to get other people to join, or if you're not even totally sure what product the company is actually marketing. If you get little or no training that's focused on recruiting or have to pay to "move up" a level, just bow out while you're ahead.
7. Search Engine Optimization
As with any business, it can be slow going at first when you're starting an online company. Your target market might take its sweet time to find you, and it can seem like traffic will never pick up, no matter what methods you use to reach customers. If you don't have traffic, you can't improve your search-engine rankings... And if you don't have good search-engine placement, you'll never get more traffic. In desperation, many business owners turn to search engine optimization (SEO) companies and consultants, who are only too glad to step in and help - for a substantial fee, of course. And never mind that SEO doesn't work as well as it used to.
SEO was once pretty effective. Marketers would tinker with a site to make it attractive to the all-powerful search engines, pumping it full of keywords and adding videos and other bells and whistles (some visible, some not) - essentially, artificially inflating the numbers. (These changes also tend to make the user experience a less pleasant one, but you're supposed to turn a blind eye to that.) But Google, which was of course wise to the whole shebang, introduced an algorithm in 2012 that could detect the sites that were trying to cheat the system [source: Urani]. Disreputable SEO marketers are still out there, though, either selling out-dated services or preying on struggling business owners who don't realize that the jig is up. An honest marketer will discuss the legitimate capabilities as well as the current limitations of SEO.
6. Business Coaches
Coaching demos. Credit: Deb Nystrom/Flickr.
If you're perusing a website that pertains to starting a small business, you'll invariably see ads for business-coaching programs and seminars. These companies promise to transform your business - and therefore, your life, if you just take their advice...and give them your money.
The hallmark of online business scams (and most scams in general) is the requirement of upfront fees, and business advice seminars are no different. What sets them apart is the exorbitant sums that some end up extracting when all is said and done - sometimes in the hundreds of thousands of dollars. They also have another crucial trait of many particularly damaging cons: They play on emotions to reel people in and keep them coming back for more. If you're struggling to start a business and things aren't going well, these scammers will play on your desperation and promise your ultimate goal: a new life full of success and free of worry.
Of course, there are many honest, effective business coaches out there, but it can be difficult to tell the good from the bad, especially when emotions are involved and the stakes are so high. The red flags are much the same as with any scam, though: Watch out for fees, constant phone calls, upselling and high-pressure sales tactics. And people who promise things they probably can't deliver.
Phishing and smishing are innocent, funny-sounding names for insidious scams that use email and text messages to trick people into giving up sensitive personal information. Falling for a phishing (email) or smishing (text-message) scam could result in identity theft, computer viruses or any number of other disastrous outcomes.
Phishing and smishing can target anyone and everyone, and small-business owners are common victims. The basic method is an email or text with a dire message: Your credit card has been stolen, your bank account has been compromised, a complaint has been lodged against you with the Better Business Bureau. The email purports to come from a reputable business that you probably deal with regularly, and the language and graphics look legitimate and official at first glance. You're asked to follow a link and enter the pertinent information - Social Security number, username, password - to restore your account or otherwise fix things. Then all hell breaks loose and you're in deep trouble. If anything's questionable, pick up the phone and call your contacts to verify the email or text message.
Online payment. Credit: Vanguard Visions/Flickr
The overpayment scam is another time-honoured classic that's made a successful leap to the online world. It goes like this: A business (usually a small, seemingly vulnerable one) receives a check from a buyer, usually of a big-ticket item. But suddenly there's a hitch - the buyer has mistakenly written the check for more than the correct amount. To avoid the trouble of writing another check, the buyer asks that the check be deposited and the difference wired back to them. We all know where this is going, right? The check bounces, the wire transfer is gone, the scammer is untraceable and the business owner is also responsible for bank fees.
Overpayment scams are pretty easy to avoid with just a few safeguards. There are so many warning signs with these cons that you should be able to stop things before they start. A no-check policy would instantly solve the problem, and it's also best to steer clear of wire transfers. If you must accept checks for some reason, always ask for all of the buyer's contact information and then double-check - or, better yet, deal with them in person and ask for a check from a local bank. Wait for checks to clear before you use any of the funds and, above all, never accept a check for more than the agreed-upon amount.
3. Vanity Scam
Image via KIRO-TV
The so-called "vanity scam" is like the business-advice ploy in that it uses your emotions against you. In this case, it plays on pride and vanity, two traits that we usually try to keep hidden. These scams pile an extra helping of embarrassment on top of the shame of being gullible: You also have to admit that it happened in a moment of big-headedness, even if it was a momentary one.
Here's how the vanity scam goes when it's used on a small-business owner. You receive an e-mail with a pretty exciting offer, usually an award or the prospect of being included in some kind of "Who's Who" business directory. Finally, all your hard work has paid off! People like you, they really like you! All you have to do is hand over a fee to be included or to receive your award - it might be passed off as a "yearly membership" in a certain club.
This should stop you in your tracks: Maybe a directory listing could require a fee, but not too many legitimate business awards come with a fee. In any case, read the fine print and do your research. A quick Google search or check with the Better Business Bureau will tell you pretty quickly if the offer is legit or not. Chances are, it isn't.
2. False Invoices
Invoices. Credit: Camilo Rueda López/Flickr.
This is another age-old scam that has gotten a new life online, and it's probably the simplest of any item on this list. These scammers don't have to advertise, send spam or set up bogus classes or publications. All they do is send fake invoices to a bunch of small businesses (often for office supplies), sit back and wait for the money to roll in.
You might think that large corporations might be better targets for this scam - the more people, departments and moving parts involved in invoice processing, the more could slip through the cracks. Plus, some big companies have so much money that a few hundred dollars here and there would hardly be missed. But they also have trained accountants, safeguards and legal teams. Fake invoicers prey on small businesses with low security, less legal power and accountants who are overworked and perhaps not professionally trained. The success rate doesn't have to be great - if the scammers get only a few checks, it's well worth the effort for doing almost nothing.
Credit: Panda Security France/Flickr
This one isn't a scam, per se, but it's often the result of many of the cons we've been discussing. Scammers can directly cheat businesses out of money and information, and they can also do it indirectly through placing viruses on a company's network.
A phishing scam, for example, can serve a double purpose. Getting business owners to click on a link in an email can lead them to a site where they'll type in sensitive personal information - and the link itself can insert a virus into the business's computers. Malware can also be disguised as a download in an email from someone you know. The contact doesn't have to come from an email, either: Scammers have been known to call people on the phone, claiming they're from Microsoft tech support or the help desk of an Internet provider, and ask for access to computer networks. If they're successful, the sky's the limit for what they can steal from you.
Author's Note: Once upon a time, not that long ago at all, I fell for a long-distance phone scam. I know perfectly well that you should never give personal info over the phone, but the caller ID actually appeared to be from my cell phone provider's customer service. I was walking my dogs, couldn't hear very well, got confused and ended up confirming my account number. That was apparently all they needed to start racking up hundreds of dollars in overseas charges. Lucky for me, it was easily fixed.
1. American Express Open Forum. "6 Scams that Target Small Businesses." June 21, 2012. (April 20, 2015)
2. Federal Trade Commission. "Business Opportunity Scams." (April 20, 2015)
3. Fell, Jason. "Don't Fall for a 'Vanity Scam.'" Entrepreneur, Jan. 6, 2011. (April 21, 2015)
4. Flatley, Joseph L. "Scamworld: 'Get rich quick' schemes mutate into an online monster." The Verge, May 10, 2012. (April 20, 2015)
5. Hinkle, Priscilla. "Silent No More: Online Business Coaching Scammers Beware." The Huffington Post, Aril 9, 2015. (April 20, 2015)
6. Michigan State University Career Services Network. "Job Scams." (April 20, 2015)
7. Scambusters. "Top 10 Work at Home and Home Based Business Scams." (April 21, 2015)
8. Tozzi, John. "Is that Business Legitimate or a Scam?" Business Week, July 23, 2008. (April 20, 2015)
9. Urani, Brad. "The Truth about Internet Marketing Part 2: SEO is a Scam." Techli. Dec. 20, 2013. (April 20, 2015)
10. Western Union. "Tips to Avoid Falling Victim to the Overpayment Scam." (April 21, 2015)
Top image credit: Don Hankins/Flickr.
[Post Source: How Stuff Works. Edited. Some images added.]