How to avoid vending machine scams
Psychological self defence in business
Someone close to me got hit with this recently so I thought I’d take a second to provide some information on a niche industry that plays on the otherwise sound idea of owning assets that create cashflow.
First, let’s remember who really got rich during the gold rush. It was those who were selling shovels. The people in the vending machine business who are most likely to make a good living are the ones selling the vending machines in the first place, AND who are selling the idea of easy, passive income to their prey. For the purposes of this essay we will discuss bulk vending machines which are essentially gumball machines that are designed to dispense candies or toys at a high margin. There’s nothing wrong with the idea and in theory it could be a slow and steady way to make extra income (notice how I didn’t say passive).
We fall for scams because we have “motivated reasoning” which is a form of confirmation bias. We want so badly to have passive income, to find financial freedom, that we only see the information that appears will get us there and our brains don’t even see the clear indications that it’s not as it seems.
There are companies out there who aim to exploit would-be entrepreneurs by selling them on a specific machine and a specific strategy. Most vending machines fail because of being placed in poor locations so they say they will take care of that for you by doing extensive research and finding the best possible locations where your machines will generate the most revenue.
Here is what actually happens. They have a connection with a warehouse of vending machines that they get for a lower price, especially if they can convince you to buy in bulk. They also connect with an agent whose job it is to find locations. So now all they need a slick salesman to pitch potential “business owners” that they should buy their machines through them and use their location finding service.
Tip #1: If you really want to get into the business. Find your own vending machines. You do not need a middle man. Usually you could find one used but even brand new you could save money by doing the shopping yourself. These people don’t have anything proprietary. Also, if someone has to sell you hard on a product it should be a signal that its quality is lacking. These days good ideas and products get loads of positive reviews and excitement naturally. If it were that great of an idea you would see people online doing it. But if you really have the bulk vending bug, find some machines yourself.
They get you on the locations rhetoric. It’s true that a poorly placed vending machine will earn very little and defeat the purpose from the get go. What they don’t tell you is that they don’t have a special formula to find perfect locations; they just have the guts to cold call business owners; a job you’re too chicken to do yourself. The deal with bulk vendors is that business owners agree to give up space for your machine with the idea that you are donating a portion of the proceeds to charity (usually you agree to $1/month but they don’t know that). In fact, many locations finders make it sound like it’s all going to charity which is shady of course when you go to deliver the thing and you discover that the owner understands that this is entirely for charity.
Tip #2: Get your own locations. Call business owners or visit them personally. Show them that you will check on the machine regularly and that you will be %100 responsible for it. They’ll be fine that they don’t get to share profits with you as long as it doesn’t cause them problems. Assure them that if it eats anyone’s coins you’ll be the one to show and make it right. Try to find places where a lot of people work. The best chance that you’ll do well is if people who work there have a sweet tooth, so ask people their what their favourite candy is and then deliver. Restaurants are pretty good, like pizza places etc. Automotive shops might work for you. But nothing is a guarantee and no location is likely to produce as much as your salesman promises.
They’ll tell you that they have some insider secret on what products you should put in the machines and how to get it at the lowest cost. Then when you finally buy your machines and they coach you on what to do, they reveal their master plan: peanut M&M’s from Costco. No duh! They have nothing of value to sell you in terms of strategy. Get Peanut M&M’s, Skittles, Jelly Bellies or Hot Tamales. My friend’s set up had 4 canisters and he reserved one for testing out other products like pumpkin seeds or BBQ peanuts.
The thing with these machines is that it’s a long game. A really long game. A well placed machine will probably not make you more than a couple of hundred dollars for the year. You’ll be promised $100 +/month. Not likely. Maybe if you were the only vending machines at a bowling alley but chances are businesses like that will want to take a cut or they would buy their own vending machines in the first place.
Often these middle men are so good at selling but awful at delivering. You might give them your money but it might take months before you get your machines, in the meantime your locations will go stale and by the time you do get the machines the businesses that originally allowed to have them there will have changed your mind. Then you have a garage full of vending machines collecting dust.
Tip #3: If you are stuck with vending machines that either don’t have a locations or are underperforming, consider becoming the vending machine salesman yourself. Let’s face it, at this point you will probably be taking a loss but maybe there are some bowling alleys or trampoline parks that would be willing to buy your machine outright from you so you can recover some of your capital.
Here some telltale red flags that your motivated reasoning might miss.
Can you find reviews about the company online? If not, that should be a huge red flag. Often these companies scam a few people until enough cause a stir and force them to shut down. Then they just regroup under a new name and do it again.
Will they meet you in person or on a video call? If they only want to talk to you one the phone this is bad news. They are protecting their face in case someone tries to sue them or hold them accountable criminally. In today’s world if you’re going to sell something that is worth thousands of dollars you can get on a zoom call and show your customers around your office/warehouse.
What payment method do they ask for? E-transfer? Don’t do it. Real companies have bills of sale and take major credit cards.
Tip #4: Don’t do it. Unless you can start small and test the market. Buying one machine used and finding a location yourself could be a fun project and the most you risk is a couple of hundred dollars. If it works, go ahead and order 10 more. They want you to buy a boatload of machines right off the bat and that is a bad idea. Sleep on it. Look for a way to test your way into the market and bring it up with other people. This is not how anyone gets rich.