Turning a hobby into a business that can support you and your family may not be the easiest thing you'll ever do, but it could be the most rewarding. Here are five steps that often separate those who succeed from those who don't.
You love making pastries and you do it well. It’s just a hobby, yet your friends and family always tell you how tasty your treats are. Is it time to quit your day job?
Such has been the beginning of many American stories: people with a potentially money-making hobby who decide to convert that interest into a business. In good times, they do it for the love of their hobby, or simply to work at home and call their own shots. In bad times they do it because they’ve been laid off and are forced to turn to something else they know to try to make a living.
Either way, it pays to know if you’re a candidate to turn your avocation into your vocation. Let’s start by introducing you to Darlene Faulkner, a pastry chef who decided to convert her love of dough into dough of a different type. Watch the short news story below, then we’ll go over the process step by step on the other side.
Step One: Research your idea
If you’re entertaining the thought of turning your hobby into a business, step one is finding out if there’s enough of a market to support a business. It’s important to play devil’s advocate and think about not only what could make your business successful, but what could make it fail. While it’s a good first step to ask friends and family if your idea is a good one, keep in mind that they’re the least likely group to give you unbiased feedback. Better idea? Find a successful business person in your community, preferably in your chosen field, and ask them what they think. But before you do:
- Search for competition: Check eBay. Google your idea. Are you finding competition? Hopefully you will, because that shows there’s a market for your product.
- Do you have an edge? If you find competition, how can you do it better? Will you offer better quality? Lower prices?
- Ask yourself and anyone else you know: would someone buy this product or service from me and if so, for how much?
- Find a niche. Where would your product or service stand-out?
- Sharpen your pencil. What’s your overhead? Exactly how much will it cost for the materials to create your product? Will you need help? An office? A loan?
Step Two: Create a business plan
A business plan is the foundation of every business from General Motors to Darlene’s pastries. It’s simply a map of where you expect to go and how you expect to get there, expressed in numbers. In other words, it’s an estimate of your start-up costs, plus your estimated annual income, expenses and profits over the first months and years of your business. If you’re going to borrow money, it’s the first thing your lender will ask for. But even if nobody’s going to see it but you, it’s absolutely necessary. Look online to see other business plans, then adopt a few to create your own: This page at the Small Business Administration is a good place to start.
Your business plan will include the answers to questions like:
- How much money will you need to start up?
- How long will it take before you begin to make a profit?
- What will your business look like three, five or seven years from now?
Step Three: Take stock of your business sense
When it comes to starting your own business, while a lot of the planning involves numbers, much of what constitutes success involves attitude. In other words, before you consider self-employment, look inside yourself. Think about things like:
- What it takes to sell: Virtually every business involves sales and virtually all sales involves lots and lots of rejection. Can you handle it?
- That’s why they call it work: Maybe your hobby is fun partially because it isn’t work. Will you still love it when you’re consumed by it 60+ hours every week?
- The sacrifice of the self-employed: Starting and running your own business often involves long hours with low, even no, pay. Are you sure you’re up for it mentally, physically and financially?
- Don’t kid yourself: If you have small children at home, ask yourself realistically if you can manage both kids and business.
In short, if baking stuff is your thing, recognize that baking by itself isn’t a business. Any small business involves sales, marketing, accounting, long hours, low pay and lots and lots of grunt work. Picture it all, and if you don’t like what you see, don’t quit your day job.
Step Four: Take stock of your resources
Ask any accountant: the single biggest cause for failure in a small business is lack of capital. In other words, you run out of savings before you’re able to turn a profit. Even if you’ve got the best idea in the world, it’s going to take time to get it off the ground. If you don’t have the savings to keep your bills paid in the meantime, failure is inevitable. You will absolutely not be able to count on borrowing money, at least not from a bank: business start-ups are way too risky for most banks to handle. If you think you may need to borrow money from friends or relatives, get precise commitments. Don’t assume someone will be there for you if the need arises.
When it comes to how much you’ll need in savings, here’s a good rule of thumb: Imagine that everything goes wrong: you can’t sell your product, it costs way more than you thought to make it, etc. How much money would you need to keep the business going for twice as long as you thought it would take? Got a number? Now double it.
If you can possibly keep your day job while you gradually transition to self-employment, do so. If you have a spouse that can support you while you build your business, all the better. In short, the more you have in savings and the more financial support you have from other sources, the greater your odds of survival.
Step Five: Get Free Help
One of the most valuable things a budding entrepreneur can have is a mentor: someone who’s successfully built a business like yours and is willing to take you under their wing and provide advice, guidance and moral support. Sound impossible to find? Not at all: in fact, this may be the easiest part of the entire process. Your mentor is waiting for you in the SBA-sponsored SCORE program. SCORE is a 12,000-strong, nationwide group of retired executives from virtually every category of business. And all you have to do to find a mentor for your small business is ask. You can call 1-800-634-0245 or go to this page of the score website to find help by zip code. Once you hook up with a SCORE mentor, you’ll have help with everything from concept to execution, and it won’t cost you a dime.
The Bottom line
Turning a hobby into a business is a decision that will affect you on virtually every level, from emotional to financial. Take the leap only after careful consideration and honest introspection. Get as much input as possible. Make sure you’ve considered every angle and that you’ve got the savings and/or financial backing required to see you through tough times.
But if you do the legwork and find that you’re still compelled to go it alone, do it. Successful businesses from Apple Computer to Money Talks News started out as entrepreneurs with a hobby and a passion. Self-employment is the core of capitalism and the essence of what makes our country great.