There are all sorts of good reasons to want to start a business. Often it’s also possible to start a business doing something that the owner personally enjoys: people who like creating artistic works might become graphic designers, those who enjoy writing might become ProBloggers, authors or copywriters, while those who like talking to people might start some business involving sales or consulting.
While it’s great to start a business doing something the owner loves, this in and of itself doesn’t make a business viable! There has to be a demand for what a business is producing or the endeavor will be for naught. As Thoreau writes (perhaps with racist overtones) in Walden:
Not long since, a strolling Indian went to sell baskets at the house of a well-known lawyer in my neighborhood. “Do you wish to buy any baskets?” he asked. “No, we do not want any,” was the reply. “What!” exclaimed the Indian as he went out the gate, “do you mean to starve us?” Having seen his industrious white neighbors so well off–that the lawyer had only to weave arguments, and, by some magic, wealth and standing followed–he had said to himself: I will go into business; I will weave baskets; it is a thing which I can do. Thinking that when he had made the baskets he would have done his part, and then it would be the white man’s to buy them. He had not discovered that it was necessary for him to make it worth the other’s while to buy them, or at least make him think that it was so, or to make something else which it would be worth his while to buy.
Unfortunately 150 years later people are still making this mistake: “I’ve done my part producing a good or service, now you should do your part and buy it”.
A friend told me about recently going to a craft show and feeling badly when she overheard one of the older women complaining that she’d only made 2 sales that day. My mother really enjoys crafts: she knits, weaves, sews and does all that stuff. Whenever she’s considered selling what she makes, once she factors in her time she knows she couldn’t sell it for anything close to what it cost her to make it. Instead she gives what she makes as gifts and hopes the recipients appreciate all the effort that went into them. The women at this craft fair probably enjoy crafting like my mother does, but they aren’t factoring in their time. After they’ve spent hours making the products, they then spend hours manning their booth to sell it (sometimes paying rent on the booth), and of course they lose money.
Two of my friends recently got married, and she’s planning an on-line crafty business which I predict will suffer the same fate. She may make some things, people may say they’re nice and buy them from her, but she’s never going to be able to make profitable use of her time. I’m *TOTALLY* ok with couples where one makes the money and the other pursues some endeavor that isn’t for monetary reasons (like an artist or writer), but it’s nice if the couple is at least honest with themselves that it’s a personal fulfillment activity, not an income generating activity.
One friend talked about starting a kitten farm, and I teased her that the first step will be developing a market for kitten meat (“The Kinder Alternative to Lamb!™ ” – yes, Mr. Cheap is evil). She wisely ignored my nonsense, but admitted that no one was going to pay her to raise kittens: she’d just be a crazy cat lady – not a business. This did prompt her to refine the idea as a cat rescue (as a non-profit) or a cat kennel. She even had the idea that MIGHT work of a cat spa where there would be cat-specific activities like hunting.
The solution to avoiding this mistake when brainstorming business ideas is fairly simple. Once an owner has thought of something he’d enjoy doing, he needs to honestly put himself in a customer’s shoes and ask “would I want to buy this at a price based on what it costs to produce?” Friends and family will be blindly encouraging (a point made quite well by the Onion article: Ridiculous Small-Business Plan Encouraged By Friends), so he HAS to be honest with himself. If he can’t do this (and keeps falling in love with an idea such that he INSISTS people will pay for it because he loves it so much) he’ll have a lot of wasted time, money and effort in his future.
If he is honest with himself and admits no one would buy what he wants to produce, he should keep it a hobby and do something else to earn money.
Mmmm…kitten meat… 🙂
Great topic – I think a related issue is people who make careers out activities they love and then complain when they don’t make much money (because lots of other people like it too). Journalism, musician, cooking, interior decorating etc. are all examples of careers that could be offshoots of hobbies. The pay is crap and those occupations are very competitive.
As for testing a small business idea I think you need to do some market research – even just asking your friends for input without telling them it’s your idea might prompt more honest responses.
Another obvious suggestion is to do the business part-time if possible. Yes, it might make things difficult for you but that way you can see if there is any profit potential without risking everything. I suspect a lot of businesses fail not because they are complete and utter failures (ie gourmet dog biscuits) but because they just don’t generate enough income for the owner to live off of it without their regular job and the owner can’t keep it going long enough to build it up.
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I’ve met so many people who have tons of great business ideas. When people pitch an idea to me and says that their products are the best in the market, I know they bound to fail!
Successful business owners don’t think of products or services, they think in terms of systems or business models. A great example is Bill Gates. He didn’t even own the softwares he sell. He bought the idea from someone else and create a great business behind it. The other example is McDonald. Their products can be made by a lot of people but they are the one who can create millions of the everyday, WHY, because they have a great business systems and not products or services
Systems are consist Communication Systems (Marketing and Sales), Financial Systems (Accounting, Billings), OPerating Systems, Legal, and etc..
Then you have this internal systems, qualities of an Entrepreneur such as Leadership, Determination, Vision and so on…
I’ve seen many businesses fall because they don’t know difference between Capital Gains and Cash Flow. Just look at what happened to all those businesses who went bankrupt.
Also most of the business failure I’ve seen is cause by GREED. You should always know what a customers needs and wants.
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Jess, that’s a good point about having a system/process in place.
I think the mistake that people make is that instead of first figuring out some product or service for which there is a demand for, they figure out what they like to do (knit, bake cookies, play with kittens etc) first and then try to figure out how to make money from their “idea”.
As Cheap points out – it’s very unlikely that this will work.
First you need a good business model – then you can figure out/decide if it is something you would be interested in doing.
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Excellent post and very, very true!! Just because someone is passionate about yoga doesn’t mean they are going to be successful at the BUSINESS of yoga–hiring staff, negotiating leases, promoting classes, remitting payroll taxes, etc. etc.
I owned a successful crafting business (retail store/studio) for 12 years…(so it can be done!) But I learned quickly that in order for it to be profitable I needed to think beyond” make and sell”–I needed to learn to mass produce finished goods for shows, sell ‘craft kits and patterns’ and earned the bulk of my income from teaching classes and seminars where I sold the supplies and provided instruction on creating the projects themselves. (With additional kits available for purchase after class to take home–of course!)
Turning passions into profits requires successful and specific business management skills and many people fail to realize that until it is too late.
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@ldk ,
I have the same experience too just like yours. I learned quickly! I have prowess tech skills, web development, design, programming and etc.. I know how to put it together. But I quickly realize that it’s just part of the business! I have to learn to manage people, project managing, sales and marketing, legal, and financial management. I failed twice before I was able to successfully create a true business.
Once I created a succesful business, I can use the same formula to other businesses. When I started Rental Properties, I used the same formula as my Domain and Hosting company business models. I have to setup billing, support, legal, security, and etc.. Trust me, Running A Rental Servers is the same as Running a Rental Properties. One is online and the other is offline.
Now, I’m starting a Financial Brokerage and Financial Advice business. You bet, I’ll be using the same style as I did with Internet and Real Estate.
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Mike: I thought about mentioning market research, but I actually think that’s for proving (or at least providing evidence) that an idea is good. People need to be able to see for themselves when an idea is obviously bad. For example, if the dog biscuit lady insisted on market research, I’d say she’s in trouble – she won’t be able to test EVERY idea that comes into her head, and if she can’t see for herself that this idea isn’t good she has trouble in the future.
IDK: It’s always interesting to hear from someone in the trenches! You’re absolutely right that the right way to build a business around something you love that isn’t profitable is to look at related activities and see if any of them are viable. If you can’t make and produce, sell supplies and instruction. Very good points!
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Cheap – Haha – yes, some common sense should be all the market research you need.
I guess what I was thinking was that for someone who is basically an idiot and can’t see the silliness of their idea, perhaps some market research might prevent them from quitting their job or investing a lot of money. Or not.
IDK – Very interesting story. I think you should write some posts about your business! Blogging is another business where if you want to grow the blog then you end up spending only a small percentage of your time writing.
Regarding crafts – most crafty type stuff is very labour-intensive and low-medium skill. The only way for someone to get beyond making minimum wage (or less) is to outsource the labour. That’s where the whole “running the business” starts to come into play.
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@ Jess…excellent point on the transferability of business skills and true to my experience as well. I spent 12 years running a retail operation while my husband was self-employed as a business consultant. The business skills we developed ‘in the trenches’ (as Mr. Cheap alludes to!) has allowed us to explore business options that are entirely unrelated to our initial start-ups. ( ie. we now part own/operate a manufacturing business….that has nothing to do with crafts or consulting!)
@Four Pillars…I imagine successful blog management requires a skill set entirely independent of writing ability as many an unprofitable blogger has learned!
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To state your excellant post another way- what problem are you solving in the world with your business? If your product/good solves no problem, the set of people having their problem solved is really small or the set of people having their problem solved have no money (or a combination of all three- see every eposide of Dragon’s Den), then its a great idea fraught with execution challenges. Mainly, who the heck will pay for this?
To take it one more step, and as you also pointed out, even if your business solves a problem if you cannot convey the value of your business easily, you are dead in the water.
Friends and family are NOT good sounding boards unless they are owner-managers as well. They are your hot list- they will buy anything from you at least once b/c they love you. Employees also think differently than owner managers (its a huge gulf in thinking that anyone who starts a business needs to overcome) so their advice, while well-intentioned, is sometimes not the most prudent ont.
Go ask a person in business- one in marketing and one who has built businesses at the very least- whether what you like doing will actually fly or not (or whether the idea flies with the resources you have).
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How true this article is to real business failures. There are dreamers and there are do-ers. You need to find a middle ground to be successful or realize which pool you fall into and hire the opposite. If you’re a dreamer hire a do-er and your risk of failure will diminish significantly.
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I saw a show called Dragon’s Den the other night where people try to persuade the panel of expert business people to invest in their companies.
One lady had something called, I think, Woofstock (which I believe she said she had trademarked). It was a dog fair she’s been running back East for the past few years. It attracts tons of people with their dogs, a couple of hundred vendors, etc. but she wants to make it bigger, start charging (admission has been free) and maybe run it in various cities (kind of like Creation runs SF cons in cities all over North America, with various actors appearing at them).
The guy who is CEO of Boston Pizza offered her money for 50% of her company and she declined because she didn’t want to lose control but he told her he needed 50% because she had a great idea but wasn’t making any money (she admitted it was successful in every way except financially and one of the guys said “the only way that counts”). He had the organizational abilities she lacked but she didn’t go for it. This is the same kind of thing. Without the business plan it’s just a hobby.
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I’ve seen many people thinking they would succeed based on this idea.
Passion is one thing but you need to be able to market your product and this product/service must solve needs 😉
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I actually noticed this recently with people around me that run their own business or are self employed. Sure they are great are doing it but when it comes to the business part of it, they suck.
Whats worse is they turn around the next month and complain they cant pay bills while the last client they did business for, they charged it just barely above cost and made up some emotionally based reason for doing it.
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