Would I lie to you? Five cons still kicking

By Karen E. Klein

updated 7:46 p.m. ET April 19, 2006

Startup entrepreneurs are optimistic, enthusiastic risk-takers determined to take the world by storm. That kind of energy is essential to business success, but when it's coupled with lack of experience it can make would-be businesspeople prime targets for con artists. The resulting losses undoubtedly derail many great ideas before they come to fruition.

"Unfortunately, we continue to see a lot of early-stage entrepreneurs get defrauded year in and year out," says David Weiss, president of the Better Business Bureau serving greater Cleveland. "What they need to develop is a healthy dose of skepticism and a mindset that won't allow them to suspend disbelief, no matter how attractive an offer looks."

This year's crop of tricks and traps are variations on cons dating back generations. The way to avoid all of them is to exercise common sense, do extensive research before entering into business with anyone, refuse to believe everything you read (or see on TV), and verify claims. Here are five common startup scams.

1. The Scam: Free Money
Charismatic individuals claim they know of funding sources that don't have to be repaid. Buyers who send several hundred or thousand dollars get directories filled with information that's readily available elsewhere for free. Promised "government grants" either don't exist, or are designed for nonprofit entities or scientific researchers. "They promise money-back guarantees, but in order to get your money back you have to prove you applied for 10 grants and were turned down," Weiss says.

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Sad Story: "We had a local business owner who received a telephone call telling her she'd received a $12,500 business grant. The caller just needed her checking account number in order to direct deposit the money. They took her for $300, and their phone number is now disconnected," he says.

The Lesson: There's no such thing as a free lunch — or free lunch money.

2. The Scam: Patent and Invention Services
Business "experts" evaluate your invention or business idea, declare it a sure-fire winner, and ask for thousands of dollars to secure intellectual property protection, help you find manufacturers, and do marketing. They claim to have helped many entrepreneurs hit the jackpot, but when you ask to talk to other clients, they tell you that information is "proprietary."

"Getting a product to market is very complex, and there are consultants who specialize in it. But before you hire anyone, vet their company thoroughly and demand to speak to multiple clients about what they paid and what the company did for them," Weiss says.

Sad Story: When he worked for a consumer protection agency in the '80s, Weiss sent an idea for a product widely known to be illegal — fluoride chewing gum — to an invention marketing service to see how they'd react. "They loved it, told me they had connections to big people in the industry and could make me millions," he recalls.

The Lesson: Cautionary information about specific scam operations and operators is available online. Do your homework; the Federal Trade Commission has information about patent scams.

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