Business or Hobby-Is your start up idea worth pursuing?
One of the many reasons that people decide to start small businesses is that they are passionate about something. Following your dream and opening a business can be very rewarding, but not every passion is a profitable business. How can you tell if your entrepreneur idea can be taken to the next level?
If you plan to make some kind of goods or provide some kind of service, you need to first figure out what your ballpark costs will be. Costs include more things than just materials, so it helps to take your time and really brainstorm all of the different things that you will need to run your dream business.
Let us take an example of a person who has been crocheting baby clothes for friends and relatives for some time and wants to take the next step and start selling them. There are several different costs that they need to consider. First there is the cost of yarn, crochet hooks, and patterns. These are the supplies and tools of the trade, and while vital, these are hardly the biggest costs to consider. How will the clothes be advertised and where will they be sold? If there is to be some kind of website, what will the associated costs be? Perhaps there will be craft fairs or other events at which to launch the product line. Will there be some kind of packaging?
These are all important- but we haven’t yet taken into account the most valuable business resource of all- time. What is the proprietor’s time worth? Cottage industry businesses such as this one thrive on the labour of the owner. If the owner had to pay an employee minimum wage to do all of the things that they do for free for the business, they would soon go broke. It is a good idea to look at the time that you will spend on producing your good or service and see what it would cost per hour in your own labour if you were to pay yourself minimum wage. Look at it again in terms of what you would like to get paid per hour. This simple exercise has stopped many a dreamer from going much further with their business plan because it is so telling. If it takes 3 hours to crochet an item, then assuming the minimum wage (in British Columbia, Canada), our entrepreneur will have to charge over $30 in order to come close to breaking even. If that seems reasonable, then let’s carry on and start that business plan. If not, let’s rethink a bit- is there some way to cut those costs or is there something else that you are passionate about that might be a more business worthy idea?
What start up ideas are you mulling over this year? Have you done any brainstorming as to whether or not they can be brought to fruition?