Turning your Hobby into a Business
October 14, 2008
Converting your personal hobby into a profitable business can be a handy way to supplement your existing income or even embark on a whole new career.
But it is important to understand the risks involved in such an undertaking, and prospective entrepreneurs should consider factors such as market conditions, competitor status and their own range of skills. Once committed, there are several steps that can help a small business improve its chances for expansion within an industry.
Is Entrepreneurship Right for You? Many well-known businesses had humble roots as a hobby or personal passion. Through skill, persistence and timing, some enthusiasts have managed to develop their pursuits into full-fledged companies.
Paul Teutel, Sr., for example, was a metalworker who began building customized motorcycles in his basement. After he and his son, Paul Jr., founded Orange County Choppers in 1999, they saw success with their first custom bikes and their business took off. In September 2002, the Teutels' shop gained prominence in the custom vehicle industry with its own TV show, which has since been syndicated.
Of course, not every startup can expect rapid success, and it is usually important to evaluate your circumstances to determine if a viable business model can be formed. According to Entrepreneur.com, some of the important questions to ask before embarking on a new business venture include:
- How committed are you?
- Is your glass half full or half empty?
- Do you like to make decisions?
- Do you have the money to make it happen?
- Do you like to sell?
For help determining if you're ready to start your own business, try the free assessment tool from the U.S. Small Business Administration (SBA), or consider meeting with a consultant.
Preparing for the Future To convert a personal interest into a profitable startup, crafting a thorough business plan is crucial in the preparatory stage. There are a number of different concerns that may go into this plan.
"You have to consider sales programs, advertising, purchasing and accounting and deal with various state and federal entities and taxes. Then there are the cash-flow and capital considerations," Bob Rock, a photography enthusiast turned production studio owner, told AOL Small Business.
(See IMT's earlier Biz Startup Basics for some detailed information.)
According to the small business adviser at Bankrate.com, the difference between a functional business plan and an unrealistic one "isn't a matter of ability, software, available market data or a lack of business planners," but rather diligence on the part of the small business entrepreneur. The adviser recommends that prospective business owners crafting a plan should:
- Determine which market would yield the most profits from sales of products and services;
- Estimate the size of the marketplace and the amount of potential revenue based on your company size;
- Develop an operational plan that will balance equipment purchases and hiring practices according to the startup's expected market share; and
- Establish financial projections by which sales goals, expenses and profit margins can be measured.
Meeting these goals will help set the framework for a viable business plan, which should include the following:
- An executive summary of your business and its goals;
- A description of the products or services being offered;
- Market research that details the targeted demographic;
- Possible advertising and promotional strategies;
- An operational assessment of the supplies, employees and workspace required; and
- A financial forecast, including cost analysis and income flow projections.
A small business entrepreneur armed with this range of information stands a much greater chance of acquiring business loans or investor support for an upcoming project.
From Startup to Success Expanding a small business can be a challenging endeavor, especially if the startup has entered a crowded market with large, well-established competitors already in place. Despite such obstacles, and even in a down economy, a small company can have potential for securing new contracts and growing within the industry.
For example, in 1966 Harold Hamm started his energy services business with a single truck. Two years later, it was incorporated as Continental Resources, which has since grown into a multi-billion dollar oil and gas exploration firm. Its founder is now one of the richest former small businessmen in the U.S.
In planning for expansion, it is important to identify a company's limitations in order to establish a timetable for realistic growth. "No company can be all things to all people, and many have gone bust trying," aptly notes Inc.com. "You not only have to decide what your company will do, but what it will not do."
The following are some general tips and suggestions for fostering realistic expansion:
- Develop Partnerships Whether you enter into partnerships, have acquaintances steer clients in your direction or simply have peers provide sound advice. Relying on existing connections can give you a useful leg-up.
- Target Your Segment of the Marketplace Try to establish relationships with companies that purchase your products at a rate favorable to your production cycle and turnover and which make the most of any specialty service you can provide.
- Initiate Scalable Growth Securing more expansive contracts from within existing relationships can be a secure and scalable method of growth.
- Diversify According to Demand New projects that seem within reach and will provide a cost-efficient result can be a helpful way to diversify your operations.
(For helpful suggestions on what NOT to do, see IMT's earlier 8 Mistakes Startups Make.)
Financing small business growth is another fundamental part of expanding within an industry. Weighing the various financing options depends on how much capital you will need, how the existing cash flow is managed, the urgency of your need, seasonal or cyclical characteristics of the business and, most importantly, how additional capital will fit into your overall business plan.
These are just some of the criteria for deciding if your interests are ready to be commercialized and, if so and once you've made the leap, what steps can you take to help your startup grow into a successful company.
Turn Your Hobby Into a Biz by Jacqueline Lynn AOL Small Business, Oct. 4, 2007
7 Small Business Owners Who Turned into Billionaires - They Did it! by David T. Heal Sohoblog.org, Sept. 10, 2008
Small Business Notes, 2008