Among the recent complaints to ConsumerAffairs.com was one from Barbara, who thought she was jumping aboard an Internet bullet-train to online riches. Barbara found out about a company called Quixtar, whose home page on the Web features several color pictures of deliriously happy people.
Quixtar invites you to become an "independent business owner" or IBO, making money from private-label products, goods in general merchandise catalogs, and links with major on-line retailers.
As an IBO, you rake in bucks by leading other potential customers to the Web site, and collect a monthly bonus based on clients, members and other IBOs registered with Quixtar. Convince other people to buy stuff or, even better, sign on to start "independent businesses" of their own, and your monthly check expands.
Back to Barbara, who sent in the $100 sign-up fee to become an IBO, then waited for the start-up paperwork and tips to get her launched on a profitable venture. Guess what? She still hasnt received anything. She did, however, buy into the dream as spelled out on the Web site, inviting people to join "if you need extra income because the world is an uncertain place or you have an important dream."
It does sound tempting: "As an affiliated IBO, you can tap into e-commerce and earn on the purchases of your clients, members, or other IBOs; start and build your own Web-based business, enjoying special privileges; or utilize the Internet by choosing your income options for achieving your dreams."
Enter the United States Federal Trade Commission (FTC), which might think this business belongs in Egypt next to the other tall triangular structures. It has many publications describing the pluses and minuses of whats commonly called "multi-level," "matrix" or "network" marketing.
The key to this type of marketing plan is that leaders recruit people to go into business, and a large part of the recruits business is to convince others to join the business. Revenues are as dependent on bringing another layer of people into the business as they are on the business persons sale of merchandise.
While we have no evidence placing Quixtar in the "pyramid scheme" category, the FTC has developed several useful advisories for consumers to help them distinguish good Internet business opportunities from bad. Here are some tips to take before logging on with your checkbook in hand:
1) Investigate Internet-related business opportunities as carefully as you would check out any business opportunity. Check earnings claims and talk to others who have purchased the opportunity to see if their experience verifies the claims.
2) Check out the company with your state securities agency, attorney general, local consumer protection agency and the Better Business Bureau where you live and where the company is located. Be sure to check the ever-expanding ConsumerAffairs.Com Rogues Gallery.
3) Avoid plans that offer commission to recruit new distributors. Most legitimate business opportunities depend more on revenue from your own sales.
4) Dont pay money or sign contracts in a high-pressure situation.
6) Use your intuition to ferret-out questionable "opportunities." It an offer seems too good to be true, it probably is. Dont let eagerness for extra income cloud your judgment or cause you to act impulsively with your checkbook.
7) A contract "on the Web" can be as binding as one on paper, assuming you understand what youre agreeing to and "click" on those boxes which state that you understand and accept the terms. If anything is unclear or confusing, log off, ask a knowledgeable person your question, or call the companys toll-free number.
As Barbara might tell you, it pays to be a bit of a Sherlock Holmes when looking into a new business opportunity. Sherlock managed to make his own money without recruiting anyone but Dr. Watson. So can you. ---
Joan E. Lisante is an attorney who writes frequently on consumer issues.