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I have had two relatives get roped into this world - one ended with them forgetting they had to pay sales tax and owing massive amounts of money, to the tune of

I have had two relatives get roped into this world - one ended with them forgetting they had to pay sales tax and owing massive amounts of money, to the tune of millions in back taxes, the other fizzled out pretty quickly. The craziest part of it was they totally bought into the "super secret" nature of the whole thing. There was a huge amount of family drama when someone in the family mentioned that her brother had a business on Amazon. He said it was top secret and he had access to trade secrets that no one else had. Having unfortunately been involved on the tech side of MLM early on in my career, it was painfully hard not to point out the predatory nature of the whole thing.

NikolaeVarius 6y ago
That just makes it seem that the relative was making tons of money and made a "dumb" mistake
- Justsignedup 6y ago
  with drop shipping literally every penny counts. You are competing against prices that are identical to yours, so shaving a few cents off your prices actually matters. He forgot that taxes are needed and shaved those cents off only to be hit in the face.
- thisisnico 6y ago
  I know a few people that claim 100K a month. That's all they claim, they don't say what that 100K a month is. I found out later it was 100k a month in what they managed in the store of a customer. They were the ecommerce middlemen that set up stores for successful brands that wanted to branch into eCommerce. They likely still did make more money then the non-consulting DIY dropshipping middlemen that provide no value.
  - j-c-hewitt 6y ago
    They will inflate the number by just citing their revenue similar to pyramid schemers. You can write a bot that will generate lots of revenue, and any idiot can generate lots of revenue with dropshipping. The trouble is risk and the cost involved in turning a profit from such a business. I am confident that any 10 year old could sell $100k+ per month online with about a week of training if that was the only requirement and they were allowed to spend $120k. Actually earning significant profits is the difficulty here, and that only gets easier with the standard toolkit of running a successful online retail business: understanding the products, knowing the market, and understanding all the legal hurdles.
    - thisisnico 6y ago
      I think the biggest issue here is barrier to entry. The barrier to entry is so low in eCommerce. The required skills are not that difficult to obtain, you don't need years of schooling, you don't need to know how to code, you don't need much of anything. For most people the level of competition is obscene because of how easy it is to get into. It's extremely difficult to reach the top tier because of the unreal amount of competition and very little competitive advantage available to leverage. I look at it the same as I do with YouTube and Social Media Influencers. Incredibly easy to start, incredibly difficult to "Make it".
    - paulcole 6y ago
      > I am confident that any 10 year old could sell $100k+ per month online with about a week of training if that was the only requirement and they were allowed to spend $120k. This 10 year old sounds like they're ready for the next YC batch lol.
Justsignedup 6y ago
Within 15 minutes of hearing the concept it yelled "scam" to me. Super low margins with high scale? Great. Sounds like a bunch of warehouses wanting you to act as a salesman for all the work and none of the money. The more I read about it the worse it sounded.
Nextgrid 6y ago
If he’s owing millions in taxes this means his operation was at a scale where you don’t just “forget” to pay taxes. I suspect he tried to evade taxes, screwed up but doesn’t want to admit it.
- DennisP 6y ago
  Income taxes, sure, but for a while nobody had to pay sales tax on out-of-state internet sales. I could see someone not realizing that had changed. Theoretically they should have gotten good help from a CPA by then, but if it's a largely automated business and it suddenly skyrockets, it might be easy to just enjoy the money rolling in without taking it seriously enough.
  - RandomBacon 6y ago
    My understanding is that it used to be the buyers' responsibility to pay taxes (so almost no one did), and then laws were passed to make it the responsibility of the seller to collect the taxes.
ashtonkem 6y ago
I remember reading about dropshipping in the 4hww, and eventually coming to the conclusion that it just sounded too good to be true, and usually if it sounds too good to be true then you should avoid it.
- weepingprophet 6y ago
  Dropshipping might have worked as a decent side-hustle when the 4HWW was originally published many years ago. I think the space became flooded to the point where I concluded that it was impossible for an ordinary person to make decent money. It's probably also become much, much more predatory since then. It's more lucrative to sell dropshipping advice than it is to do actual dropshipping.
- hckr_news 6y ago
  The 4HWW came out 13 years ago. Probably could have made decent money as an individual dropshipper if you got into it early before all the hype started in ~2014
- csa 6y ago
  If you have an audience, dropshipping is still very viable. That one little trick (/s) of developing an audience, especially a devout and loyal audience, is the part that most people are not good at.
hackeraccount 6y ago
I'm not interested in this but ... if they had to pay millions in back taxes, something must have been going right, right?
- labawi 6y ago
  Sales tax, not profit (% of value, not margin). Their real margins could have been negative - it's easy to undercut competition if you're selling at a loss. They could have 'earned' hundreds of thousands, only to owe millions.
- borisyankov 6y ago
  Id they had to pay 3mils on sales that ended up being 2mils of profit, they were still losing money.

NikolaeVarius 6y ago

That just makes it seem that the relative was making tons of money and made a "dumb" mistake

Justsignedup 6y ago
with drop shipping literally every penny counts. You are competing against prices that are identical to yours, so shaving a few cents off your prices actually matters. He forgot that taxes are needed and shaved those cents off only to be hit in the face.
thisisnico 6y ago
I know a few people that claim 100K a month. That's all they claim, they don't say what that 100K a month is. I found out later it was 100k a month in what they managed in the store of a customer. They were the ecommerce middlemen that set up stores for successful brands that wanted to branch into eCommerce. They likely still did make more money then the non-consulting DIY dropshipping middlemen that provide no value.
- j-c-hewitt 6y ago
  They will inflate the number by just citing their revenue similar to pyramid schemers. You can write a bot that will generate lots of revenue, and any idiot can generate lots of revenue with dropshipping. The trouble is risk and the cost involved in turning a profit from such a business. I am confident that any 10 year old could sell $100k+ per month online with about a week of training if that was the only requirement and they were allowed to spend $120k. Actually earning significant profits is the difficulty here, and that only gets easier with the standard toolkit of running a successful online retail business: understanding the products, knowing the market, and understanding all the legal hurdles.
  - thisisnico 6y ago
    I think the biggest issue here is barrier to entry. The barrier to entry is so low in eCommerce. The required skills are not that difficult to obtain, you don't need years of schooling, you don't need to know how to code, you don't need much of anything. For most people the level of competition is obscene because of how easy it is to get into. It's extremely difficult to reach the top tier because of the unreal amount of competition and very little competitive advantage available to leverage. I look at it the same as I do with YouTube and Social Media Influencers. Incredibly easy to start, incredibly difficult to "Make it".
  - paulcole 6y ago
    > I am confident that any 10 year old could sell $100k+ per month online with about a week of training if that was the only requirement and they were allowed to spend $120k. This 10 year old sounds like they're ready for the next YC batch lol.

Justsignedup 6y ago

Within 15 minutes of hearing the concept it yelled "scam" to me. Super low margins with high scale? Great. Sounds like a bunch of warehouses wanting you to act as a salesman for all the work and none of the money. The more I read about it the worse it sounded.

Nextgrid 6y ago

If he’s owing millions in taxes this means his operation was at a scale where you don’t just “forget” to pay taxes. I suspect he tried to evade taxes, screwed up but doesn’t want to admit it.

DennisP 6y ago
Income taxes, sure, but for a while nobody had to pay sales tax on out-of-state internet sales. I could see someone not realizing that had changed. Theoretically they should have gotten good help from a CPA by then, but if it's a largely automated business and it suddenly skyrockets, it might be easy to just enjoy the money rolling in without taking it seriously enough.
- RandomBacon 6y ago
  My understanding is that it used to be the buyers' responsibility to pay taxes (so almost no one did), and then laws were passed to make it the responsibility of the seller to collect the taxes.

ashtonkem 6y ago

I remember reading about dropshipping in the 4hww, and eventually coming to the conclusion that it just sounded too good to be true, and usually if it sounds too good to be true then you should avoid it.

weepingprophet 6y ago
Dropshipping might have worked as a decent side-hustle when the 4HWW was originally published many years ago. I think the space became flooded to the point where I concluded that it was impossible for an ordinary person to make decent money. It's probably also become much, much more predatory since then. It's more lucrative to sell dropshipping advice than it is to do actual dropshipping.
hckr_news 6y ago
The 4HWW came out 13 years ago. Probably could have made decent money as an individual dropshipper if you got into it early before all the hype started in ~2014
csa 6y ago
If you have an audience, dropshipping is still very viable. That one little trick (/s) of developing an audience, especially a devout and loyal audience, is the part that most people are not good at.

hackeraccount 6y ago

I'm not interested in this but ... if they had to pay millions in back taxes, something must have been going right, right?

labawi 6y ago
Sales tax, not profit (% of value, not margin). Their real margins could have been negative - it's easy to undercut competition if you're selling at a loss. They could have 'earned' hundreds of thousands, only to owe millions.
borisyankov 6y ago
Id they had to pay 3mils on sales that ended up being 2mils of profit, they were still losing money.