Hey, I get it. You want to get in on the digital nomad life. Who doesn’t? Travel the world, see some beautiful places, wake up to the sound of waves and make money all the while. It’s living the dream (and yes, that’s still true even if you disregard the myths or the disconnect). But that can soon turn into a nightmare if you can’t avoid digital nomad scams.
I even get why that happens. People get so excited they lead with their heart instead of their head and end up leaping before they’ve looked. That’s dangerous. There are sharks in these waters.
I talked to Pieter Levels from Nomad List about this. “Getting a digital skill is ruthlessly hard,” he told me, while “building a business takes years.” In our instant gratification society, many don’t want to wait that long. “So they try to find a shortcut.” And that’s where the scammers come in.
In effect, it’s another version of the get rich quick scheme, but this time with swaying palm trees in the background.
There are a lot of forms these scams can take. Here I’m going to look at a concrete example that’s been discussed a lot in Digital Nomad circles. Then I’ll use that to explore some of the things to look out for, so to avoid scams more generally.
So what is the concrete example?
Dropshipping – for those of you not in the know – is where you sell a product from the manufacturer to a client. In effect, it’s what a lot of stores do, but then online. Some people get the product from a manufacturer, store it in a single location and then ship it out again. That’s not how the digital nomad version works.
There, the product gets sent straight from the manufacturer to the client. In this way, you don’t need a brick-and-mortar store and can be location independent. It is also meant to reduce risk as you don’t need to have property or sink serious cash into buying the product. Nor do you need to learn any specialized skills – like python or how to create high-quality copy.
Proponents say it’s a fantastic way to make passive income. ‘Passive’ is one of those new buzzwords and makes it sound like it isn’t a lot of work. For those reasons, drop shipping has become huge in digital nomad circles.
It sounds like such a good idea!
Which brings us to our first takeaway from this article:
1. If it sounds too good to be true it probably is. And just because you’re not in Kansas anymore doesn’t mean the rules of economics no longer apply.
You see, drop shipping might have been good once, but it no longer is. World Wide Brands says only 1 in 20 dropship businesses are legit (1 in 20!). The reason is that it’s not actually that easy to make money in drop shipping is due to many factors. Not least among those is that the principles on which it is based don’t hold water.
For example, the idea is to buy wholesale, sell retail, and pocket the difference. But that’s only possible if you actually buy wholesale. And that only works if you’re buying in bulk so that the manufacturer doesn’t have to package units individually and send them off one at a time. That’s hard if you don’t have a warehouse.
Similarly, your income is only passive in the sense that you don’t have to take part in each individual purchase. It’s still a lot of work, though. You have to market your store hard, get it to rank well and make sure your product gets to your customers (while taking all the blame if it doesn’t). If you want to offer products from more manufacturers, that will soon multiply into a logistic hell.
What’s more, the more drop shippers there are, the fiercer the competition. And because you don’t need a lot of skills or starting capital and people have been promoting the lifestyle for a while, there is a lot of competition.
But the most damning thing of all is the behavior of the drop-ship gurus. For though they continue to preach this is the way to get into the digital nomad life, their actions say something different. Johnny FD, who is an (in)famous drop shipper to be sure, has just sold his dropshipping enterprise this March. He is retiring (at 35) from the drop shipping scene. Even before that he wasn’t actually making most of his money there, as you can see from is February income report. Instead, it was coming in from affiliate marketing – selling courses, books, and conferences on how to be a drop shipper (among other things).
If it’s such easy money then why is he not only not making his money there, but even getting out? And more important for this article, why does he do one thing and say another? Because he has, what we call a:
Conflict of interest
Johnny has a strong incentive to not be wholly truthful about the difficulties of drop shipping or the state of the market. The easier he makes it sound the likelier you are to buy his courses. Now, this doesn’t mean he’s lying about drop shipping. He might be speaking the truth. What it does mean is that you should not take his word for it.
In fact, that’s the second takeaway from this article is:
2. When people offer you an opportunity always be on the lookout for conflicts of interest. They’re a warning sign that you’re heading for a scam.
The best way to do that is whenever offered an unbelievable opportunity is to ask yourself, ‘What do they stand to gain?’
In fact, it’s a good lesson in all walks of life. Of course, a restaurateur will say their place has the best steaks. Naturally, a banker will tell you that the modern banking system is great. And it is to be expected that somebody who sells courses will tell you that this activity is easy and profitable.
That doesn’t mean they’re lying. It might indeed be true. The thing is not to take their word for it.
Be careful of other people’s words as well – particularly online
A lot of people who want to sell you something have clued into this. They understand that when they say their product is great you might not believe them. And so, they’ve gotten sneakier. You see, online one person can make themselves sound like a whole horde of people. The way that people selling you scams do this online is by creating neutral’ review websites which plug their product.
Or, they’ll offer review sites money for every customer who buys their product by way of the review site. This – you guessed it – once again creates a conflict of interest. That’s because the site creator is tempted to put the sites that pay them better higher up regardless of how good they actually are.
This idea of paying somebody for buying their product by way of your site is known as ‘affiliate marketing’. And we did meet those words before. It was how Johnny FD made a big chunk of his income. Read more about how he does that in this review of his dropshipping course. One course pays him nearly 500 dollars if he sends a buyer their way! How can you be honest in the face of that kind of money?
Do note, not all affiliate marketing is bad. It can be a genuine way for websites to earn money so that they can offer their services. After all, most people don’t want to pay for information, but as websites need money to put it up there and maintain it, they have to make it somehow. Affiliate marketing is one such way. The thing is, there are legit ways to do it – where the price paid doesn’t influence the review – and there are nonlegit ways to do it. And it is hard to know which is which.
So point three is:
3. Scammers rarely work alone. They often work with others to make themselves seem more legit. Review sites are one such example.
So, be skeptical of third parties. With review sites, ask yourself these questions:
- Is it a small operation that only really reviews whatever you’re looking at or do they review other things as well?
- Is it a big site?
- Have they been around a long time?
- Do they only do other things, or only review stuff?
- Who owns it (which you can ask up through Who Is)?
- Who links there (Moz’s link research tool will tell you)? The fewer sites do, the dodgier the site probably is.
- Do they have a physical address or do they let you know who is running it?
For example, take eCommerce Opinion, which was one of the first sites that popped up when I typed in ‘dropshipping review’. The site seems to give an honest review of the Anton Method (the same method that Johnny FD pushes in his courses). The thing is, dig a little deeper and there are tons of red flags. There is no address to be found. The author goes to extensive lengths to not disclose their name, even hiding it on registration pages.
And when you click on the ‘disclaimer’ all the way at the bottom, you find out that – you guessed it – it’s an affiliate site. Which isn’t that weird – after all, this is the same method that pays close to 500 dollars per customer the affiliate sends their way.
The worst part? Despite all these red flags, dozens of commenters (and no doubt hundreds of visitors) still fell for it.
If it sounds too good to be true it probably is
People do things for a reason. If somebody offers you an insane opportunity to earn lots of money you have to assume there are strings attached. This is particularly true if they don’t know you. After all, how many people do you know who would selflessly give away the keys to the castle to a stranger without wanting something back?
That’s not to say that you won’t make any money. You might. It could be a genuine opportunity. But you can’t assume it is. How do you tell the difference between an opportunity and a scam? That’s point four:
4. The less the person offering you the opportunity benefits from your success the less of an opportunity it is.
For example, if they offer you a chance to buy a stake in their company, then your interests are aligned. They believe they’re going to make a profit and will share some of that with you. Of course, they might be wrong, but at least that’s what they think.
But if they don’t stand to benefit from your success then it isn’t a real opportunity. In fact, it’s likely a scam. That’s the case in drop shipping. I’ll let a friend of Pieter Levels explain it.
“Dropshipping is price arbitrage nothing more.” Price arbitrage is where your profit is the difference between the price at which you buy and sell a product. “In every case where an arbitrage opportunity exists, the largest negative influence… is more people selling the same stuff. People selling ‘dropshipping courses’ [are] adding massive competition to the market, making it harder for anyone [in the business] to actually profit.”
Or, to put it another way, they want to sell as many courses as they can. That’s how they profit. But every extra dropship course they sell creates more competition for those already in the market. In other words, what you and they want is exactly the opposite. The fact that they’re getting out of the very market they are advocating proves that point.
Lies, damn lies, and statistics
So does nobody make money in drop shipping? Sure. Some get lucky. Some work hard. And no doubt those that succeeded feel these courses helped. Maybe they even did.
But consider this scenario:
A company sends two letters to 10,000 people each. In one, they say that stock market is about to rise. In the other, they say it is about to fall. The market does one or the other. Let’s say it rises. The company sends out a second set of letters but only to the people who received the rising letter, offering information about the market for 1 buck. These people think ‘hey, they got it right the first time, so why not?’ Again, half the people get a letter saying the market goes up, the other half that it goes down. Again the market has to do one of those things. Again the company sends out a letter only to those that got the right information. This time the information costs 10 dollars.
And so on, and so forth.
Eventually, there is a tiny group of people paying tens of thousands of dollars per letter. They are convinced the company has a golden algorithm working out the future of the stock market. Of course, the company has nothing of the kind. Those people just happened to have been on the right side of a dozen or so coin flips. And the company? They’re laughing all the way to the bank.
That brings us to our final point:
5. Just because it worked for other people doesn’t mean it will work for you.
Luck always plays a factor in whatever you do. The thing is the people that get lucky are rarely aware of that fact. They think it’s down to knowledge and skill. Scammers will pick up on those people that do succeed and say ‘see, my method does work!’ Even as they ignore the vast majority of people who gave up.
And why don’t those people who fail say anything? Because failure is embarrassing and we don’t like to talk about it. This happens everywhere. In science, this is known as the file drawer effect, which is where a study that doesn’t give results is put in a file drawer and never discussed. It’s wasteful as those studies are also important. They tell us what doesn’t work. And yet, because scientists don’t want to admit they have the wrong hypotheses it continues to happen.
And these are the hallowed halls of science, where the guiding principle is disproving things. Imagine how much stronger this feeling is for most people, who are just trying to live their lives and make a buck?
So is drop shipping a scam? The activity itself isn’t. It’s probably just a lot harder than the gurus let on. The courses might well be. They certainly seem to have a lot of the hallmarks of a scam.
- There is a conflict of interest.
- Those that preach it don’t do it.
- Many of the cheerleaders stand to gain financially for cheering.
- Their interests and your interests are at odds.
- Despite the shame in admitting failure, the internet is awash with stories of those who didn’t make it.
The most important thing to realize? Just because these people don’t think they’re scamming you doesn’t mean it’s not a scam! We often lie to ourselves to deceive others. Note that this isn’t true only of drop shipping. It’s true of all parts of life. And if you don’t want to lose your money to some scam – digital nomad or otherwise – then remember that. For we already make enough mental mistakes. Let’s not add this one to it as well.