February 2003
Can You Make Your Hobby Into A Business?
My client, Jenny, showed me a small selection of knitted wool hats that she had made. She said she had dozens of them in her house. She wondered about the possibility of going into business selling these hats. Up to now she had sold a few to friends without any effort. Wouldn't it be nice to sell them to others! Maybe-on a website.
Many people find the germ of an idea for a business by looking at their hobbies. Obviously they have chosen that particular hobby because they enjoy it so what better way to spend the day then doing something that is fun and getting paid for it!
Sometimes however while something is fun as a hobby, it gets to be tedious as a business. Hobbies are meant to be relaxing. My client could pick up her knitting at any time and work on it, putting it down whenever she chose to. To make this hobby a business however she would need to have an inventory of product. That would mean kniting more regularly. Having the pressure of producing might in fact make something that was fun as a hobby less attractive when put in the context of a business.
Jenny still wanted to try the hat business so I suggested she look at all her expenses including paying herself for the knitting time. For this she would need to see how long it took her to design and knit the hat. Then she needed to come up with a legitimate hourly rate for a knitter to factor into her product. Then she would need to know the cost of the raw materials for her hats.
Once Jenny had computed what she would need to spend per hat, she then needed to mark the hat up in order for her business to make a profit. The resulting price of the hat seemed rather expensive to Jenny so I suggested she do some comparison shopping. Is anyone making hats similar to hers? What were they charging? If there were no other hand made hats that were comparable then perhaps she could check prices of mass produced hats. Of course she would need to survey her market to see what kind of a price premium someone would be willing to spend on hand made hats.
Finally if Jenny were still committed to going forward with the hand made hat business and had decided on a price that she thought the market would bare, she needed to look at whether she could make and sell enough hats to justify all her hard work and cover her expenses.
Running a business is not just making a product. For Jenny to be successful she also must find buyers for her product and that takes time too. In fact most new business owners are surprised by how much time marketing takes.
A real test for Jenny will be to see if she has enough time in her day to make her hats, market her hats, distribute her hats, bill for the order and collect the money. What happens if she gets a huge order? Will she have the ability to make enough products? These are the kind of questions one answers in a business plan. Better to see if your idea can work on paper first rather than to go to the expense of starting a business that is doomed from the beginning.
Even if the numbers do not work for Jenny, this does not mean she can't move forward with a business. She will need to look for ways to save time and/or money. For example she might find others to knit for her at a lower rate than she would require herself. That would free up her time to do the marketing, billing and collecting. She also might eliminate the design phase by knitting the same hat over and over. This would save time and money. Perhaps she could find an automatic knitting machine to make the hats. After the initial expense this might provide a cheap way to make large quantities of hats. Another possibility would be to make her hats so unique that she could set her prices very high and only make a few - more like a piece of fine art.
Will your hobby make a good business?
- Try making a specific amount of product. If your hobby is to
offer a service, try doing it for a specific amount of time. How
does it feel? Are you excited? Bored? Tired?
- Can you make a profit at this business? Write down all your
expenses including your own time. Don't forget things like
telephone, heat, light, Internet charge, office supplies, advertising,
web hosting, your time etc. (include charges even if you work
out of your house)
- Can you make enough of your product or provide enough of your
service to cover your expenses and then make a profit?
- Will the business make enough money to feel the effort is justified?
- Look at your hobby again. Is there some other way to use the
talents, skills, and values you bring to the hobby in a different
business idea?
- Read The E-Myth Revisited by Michael Gerber for a wonderful discussion on turning a pie making hobby into a business. The subtitle is Why Most Small Businesses Don't Work and What to Do About it This book is a "must read" for all new business owners!