Hobby or business—it’s all in the plan
May 30, 2017
Owning and running your own business has a certain appeal for a lot of folks. From being their own boss to a path for wealth, these and many others are motivators for taking on the risk of going it alone. Taking account of the various motivators, every entrepreneur shares a belief that he or she has an idea that will favorably complement their motivator and provide the means to the desired end.
No one starts a business with an acknowledged "bad idea." Yet a clear distinction emerges when some simple discipline is applied to the commercial viability (aka "Who will buy this?) of any creative endeavor. For many, this personal creative endeavor has a uniquely personal satisfaction and competency attached to it and might even be regarded as a hobby. The challenge is figuring out whether this personal hobby can be turned into a viable business.
A key first step is in defining what is meant by a "viable business." In its simplest approach, you can consider a business to be viable if its revenues consistently exceed its expenses at a level that satisfies you. People who start secondary businesses while working other full-time jobs have different expectations of profitability satisfaction than those whose entire financial survival is attached to the success of their adventure. As simple as it may seem, understanding and recognizing this fact can help avoid a lot of heartburn and possible financial loss.
Please consider for a moment a talented craft maker. Selling a few items at a flea market or even over the internet for more money than they cost to make certainly fulfills a requirement for profitability. The hobbyist, however, almost always never properly accounts for his or her time in the production of the product. He or she knows what the wood costs, the paint, the screws and maybe even the booth at the show, and even how long it takes to make. But individual labor costs and particular equipment costs are absorbed into their hobby.
In addition, it is very easy to self-rationalize a successful event into a sustainable process. Having hypothetically worked for a year to make a few crafts for the fair and being lucky enough to sell all that you had at the price you were hoping for, these are not indications that you can do this week in and week out for the foreseeable future. Yet everyday, well intentioned and committed individuals make the decision to grab their piece of the American dream by starting a company based on just such an experience.
This is where a little thought and a little discipline can do wonders to establish a base for success. This thought and discipline manifests itself in a living, breathing document known as a business plan. This plan forces its owner to move out of the emotional and subjective mindset of the hobbyist into the pragmatic and objective world of the businessperson.
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It's important to note that insightful revelations go both ways. On one hand, the plan can underscore fundamental weaknesses and head off doomed failures. On the other hand, it can also reveal significant market and financial opportunities and spur its originator on to new heights. In both cases, these are good decisions.