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The SBC Small Business Newsletter

presented by the Peak Small Business Center



October 5, 2002

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Regret for the things we did can be tempered by time; it is regret for the things we did not do that is inconsolable.

- Sydney J. Harris



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Staff Article

by: Cary Christian

It's quite common to hear about scams aimed at home businesses. They're everywhere you look online and it has made home business owners very wary. But other than credit card fraud, small businesses are not targeted by scam artists nearly as often.

Lately I've seen a lot more of one particular type of scam that might have your small business squarely in the crosshairs. This scam usually targets either small businesses that are successful but need an infusion of cash to grow or it targets small businesses that are in trouble and need cash to survive. Let's look at each type and what you need to do to protect yourself from them.


Let me tell you a story to illustrate how this scam works.

A few years ago Bill at XYZ, Inc. came up with an idea that was unique and that would allow him to quickly take his company from a strictly local enterprise to the national level. The company was doing very well, but being in a service industry, the company had little in the way of hard assets that could be used as collateral for a bank loan. Bill did check with his bank just for grins, but as he thought, they were unwilling to loan him anywhere near the funds he required.

But Bill didn't worry because he knew he was in a perfect position to attract equity venture capital. He had a solid business, great track record, was well-respected in his industry, and had a concept that could literally revolutionize the way his services were delivered.

Bill prepared a business plan and started investigating venture capital firms. He felt that most of the better-known firms were too big to be interested in his ideas so he began looking into firms that were smaller but seemed to target businesses the size of XYZ, Inc.

He joined several sites on the Internet that purport to bring entrepreneurs and venture capitalists together and entered summarized information regarding his business and the amount of capital he needed to raise. He began to receive requests for more information and happily provided it.

Then one day Bill received a call that he thought would change his life. One of the venture capitalists called (we'll call him "VC") and asked him to fly out west for a sit down meeting. Bill made the trip, met the man who could make his dreams come true, and came back home believing he was on his way.

Over the course of the next few months, VC worked with Bill to improve the business plan and refine the funding needs of the business. VC convinced Bill he needed quite a bit more capital than he originally thought. They discussed the structure of the business in detail and drafted a joint venture agreement with a company that specialized in acquiring investments from European investor groups.

Bill was exceptionally happy with the terms of the investment and structure of the deal with the overseas investors. The paperwork was in place, a letter of agreement had been signed, and they were ready to roll. The only thing left for Bill to do was cut a check for $10,000 to cover his small share of the $150,000 in organization costs of the new enterprise.

Yes, you guessed right. The entire elaborate process of putting this deal together was for no other purpose than to fleece Bill out of $10,000!

Think about it: Bill did all the work. All VC did was keep him working and headed down the right path. At the same time he was working Bill, he was working seven or eight other people in the same manner. On average, about 50 percent of VC's marks will complete the process, earning him a quick $40,000 to $50,000 for a few months of very light work.


First of all, Bill assumed that the larger, well-known venture capital firms would have no interest in his business just because it was small. Venture capitalists, if you can obtain an audience with them, are impressed with vision and people who have a track record of getting things done. Bill had both.

Second, Bill got deeply involved with VC without checking him out first. Bill WANTED to believe that VC had the answer. VC counted on this and worked Bill very slowly and carefully to build credibility and trust that would eventually make Bill think checking up on VC wasn't necessary.

If VC had come in like a whirlwind, compressed the process into a 30-day affair and hit Bill up for $10,000 right away, alarms would have sounded in Bill's head. VC knew better. He was prepared to spend months building credibility and trust without ever mentioning a cash requirement on Bill's part.

Bill should not have believed anything that could not be independently verified. Bill should have insisted on references, and once he obtained them, maybe even make a visit to the business sites of the referring individuals just to make sure they were real companies.

Bill should have also insisted on meeting with the representative of the foreign investors as well. In this case, the representative was just another con man who worked with VC, but by meeting him Bill would have had a better chance of recognizing what was happening.

WARNING! This type of scam can be very difficult to identify. A good con man will have the process impeccably organized and designed to look and feel exactly like such a transaction should. It will appear to be very real unless you really start digging in and peeling back the layers.


VC didn't just disappear with Bill's cash. Rather, he came up with excuses for why the foreign investors were having trouble raising the capital. VC specifically chose to tell Bill the money was being raised overseas because it gave him a variety of excuses to use on Bill. Examples could be problems with currency fluctuations or sudden problems with the economy in the country or countries where the money was being raised.

Eventually, Bill realizes that he's been had. But can he prove it? The bottom line is that it would be very difficult and would probably cost a lot more than $10,000 to do so.


At least Bill still had a viable business that was in good fiscal health. There are many businesses in deep trouble that are looking for a capital infusion just to survive. There are hundreds of scumbags just waiting for the opportunity to "help" them.

The same scam VC ran on Bill could be run on this type of company as well, but it usually isn't. Troubled companies need cash fast, are more desperate, and do not require much stroking. More frequently, troubled businesses are approached by "loan brokers" who claim to specialize in finding this type of funding. Their marks are desperate so they don't wait to hit them up for money. They'll charge anywhere from $2,500 to $10,000 up front to put the paperwork together and submit it to the "lenders they normally work with."

Of course, none of these loans are ever approved. In many, if not most, cases, the scam artist will find a way to blame the inability to obtain funding on something the borrower did wrong that made it impossible to sell the deal. In some cases, the scam artist just disappears with the money and doesn't even go through the charade of submitting a package to lenders.

No matter how desperate the situation, never do business with one of these "brokers" unless you can verify everything they say and you can verify their references. Additionally, most legitimate brokers will not charge you a fee up front. They'll take a commission once they find the funding for you. This is as it should be.


If the scam involves loan transactions, state banking agencies will take a healthy interest in them. In fact, regardless of the form of the scam, there will be some state or federal agency that wants to hear about it. So if you or someone you know are ever victimized in this type of transaction, don't hesitate to report it. Scam artists flourish because they count on people being too embarrassed to report them. If presented with the opportunity, please swallow your pride and help put these people where they belong. In jail.

Copyright (c) 2002

Guest Article

by Mark Smalley

1) Understand the advertiser's user

We need to know the advertiser's buyer or user better than they do.

If you publish an email newsletter on horse breeding the first thing you'll need to do is identify the top "A" advertising prospects.

An "A" prospect would be any company that's already advertising in other similar email newsletters or publications.

These "A" prospects might include prestigious breeding farms, horse brokers or auctioneers. "A" prospects may also include horse training facilities, horse tracks or even stables.

These prospective advertisers need to reach buyers.

A horse-breeding farm may be looking for new horse buyers or investors. A horse broker may be looking for horse buyers. A racetrack syndicate may be looking for new partners, publicity or even high-end gamblers.

So when you approach these companies to purchase advertising you need to know that YOUR READERS are the people who want their stuff.

That's what the structured sales approach to advertising is all about! Know the market!

2) Understand the advertiser's competition

It's hard to sell advertising if we don't understand the advertiser's competition.

One of the ways to locate top competitors for Fortune 2000 type companies is with

When you search for a company in their database it'll display 4 or 5 of the company's top competitors.

What's more, Google ( is another great source for locating competitors. Enter the company name and the word "competitors" next to it, or the name of two companies that are competitors. You'll be amazed how well this works at locating their competition.

If you've already established a relationship with a company you could ask them who their competition is. They'll usually tell you.

We need to know why the competition keeps the marketing guys up at night and then use this to our advantage.

3) Assume the risk and guarantee results

Most advertising is a joke. I mean this from an advertiser's point of view. How many publications are willing to assume the risk of an ad and guarantee results?

But things are changing at the speed of light. Publishers may dislike CPA deals but they better guarantee response rates or they'll be out of business.

After the recent dot com slaughter thousands of companies went to a CPA (cost per action or acquisition model).

Most of the time these dying companies assigned young business development directors with the task of obtaining "lots of customers and affiliates" without cost.

The business development guys would say, "We only do CPA deals."

I could tell that most of these companies had only a few months of life left before they hit bottom because they relied too heavily on CPA type deals.

An irate business development guy once told me, "We're a multi-million dollar company with no debt and enough cash for two years."

The reason he said this is because that is what the CEO told everyone to say. Well, this particular company went bankrupt.   Amazingly, most of the cash went into the CEO's pocket. There are numerous legal proceedings against the company.

There is another side of the CPA deal though. We need to be willing to assume part of the risk for the advertiser and guarantee results.

If an advertiser is willing to assume part of the risk by sending a check that clears I'll bend over backwards for him.

On top of that, I'll always guarantee a minimum response from our subscribers. If we fail to meet the minimum response rate we'll continue to run their promotion until it's achieved.

This approach has been wildly successful with advertisers.

4) Become an expert on your reader's needs

What does a small business owner really need?

What are IT Project Directors really looking for?

What does an Internet marketer really want?

What would a Java programmer like to have?

We need to become experts on our readers. We can do that by asking our readers questions and by reading the same publications they do.

Print publishers of the 20th century would ask subscribers to fill out a "bingo card." The notion was by answering these questions (usually 50 or so) the publisher would really get to know their readers.

Yeah right.

Years ago when I was selling advertising for a high tech print publication I got a hold of the names and telephone numbers of about 20 subscribers. I called everyone on the list. 

Much to my surprise (and the publisher's when I showed him my findings) I learned that only three people out of twenty ever heard of the publication! On top of that, of the three people that did recognize the name of the magazine only one liked it! 

The "bingo cards" are a sham!

What's more, if you ask someone to tell you how much they make each year and you give them multiple choices ranging from $45,000 to $120,000. How many do you think are going to say they make $45,000?

The answer is none.

So the best way to get to know your readers is to send them a personal email from the publisher. If you send just 10f these personal emails (not autoresponders!) you'll begin to be an expert on your readers.


Mark Smalley is the author of "Formulas that Guarantee
Advertising Sales." To find out how to close a $51,478 advertising deal over the Internet -- without any phone calls, lunch meetings, presentations or web conferencing, just click here:

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