The following is a contribution from my friend Nate at InvestmentZen – on one of my favorite topics, starting and growing your own business!
A couple months ago, Chonce wrote a fantastic article showing you how you could turn your hobby into a profitable side hustle. If you followed the steps there, congrats! You now have a thriving side hustle that’s bringing in extra income, helping you pay bills, pay down debt or invest for retirement.
But what if you want to take the next step and turn your budding side hustle into a full-fledged business?
Having a successful side hustle lets you dip your toes into the waters of entrepreneurship without forcing you to take a risky plunge. Still, there are fundamental differences between running a real business and having a side hustle. It’s important to understand the distinctions so you can smoothly transition from scrappy side hustler to successful business owner.
The Benefits of Having a Business
When you have a side hustle, you’re providing a service (or selling a hand-crafted product) in exchange for money. Side hustles are all about trading your time for dollars. But building a business is a different game altogether – it’s about creating a real asset that can systematically earn money on its own without having to always invest your time.
With a business:
- You’re not limited to trading hours for dollars. Instead, you’re building an asset that will one day let you make money while you’re on vacation, or even in your sleep.
- You can take a profitable business model and combine it with systems and employees to help you scale. Your earnings are no longer capped by the hours you have in a day.
- You’re building a long-term asset that can be sold for life-changing wealth.
Sounds simple enough in theory, but what steps do we have to take to go from side hustler to business owner?
Understand That You’re In The Business Of Business
The classic business book The E-Myth Revisited tells the story of a lady named Sarah, a small business owner who accidentally traps herself in a never-ending hustle. Here’s her story in a nutshell:
Sarah learned at a young age how to bake delicious pies from her dear Aunt. She dreamed of opening up her own pie shop, but when she finally did, she found that it wasn’t quite the fantasy she had envisioned:
“I get to the bakery at 3 in the morning and bake the pies, open the shop for business, take care of my customers, clean up, close up, take the money to the bank, have dinner and get the pies ready to bake for the next morning so I can start another long day. And this goes on 6 days a week, year-round.”
This story is all too common among small business owners. The E-Myth warns us that this happens when the business owner thinks that their job is to be a technician, when their actual job as a business owner is to run the business. Running a business means there are entrepreneurial and managerial responsibilities to take care of as well.
Being great at your side hustle is about being a technician who can bake great pies. But being great at running a business isn’t about baking great pies – it’s about building a system that makes great pies. That’s an often overlooked but incredibly important distinction. It’s about hiring great people to make that system run smoothly. It’s about knowing how to lead employees. It’s about understanding your business model, understanding your balance sheet, running marketing campaigns to bring in new customers, managing logistics and so much more.
The key to turning a side hustle into a business is to understand that it’s not just about being great at baking pies – it’s about business. Let’s take a look at some of the business concepts you’ll have to master as you transition from side hustler to business owner.
Do You Have Enough Margin?
Not every side hustle has the economics needed to sustain a business.
If you’re already charging a premium price in your side hustle, that’s a great starting point! You likely have the profit margin to hire young, hungry, talented workers who can do the work and help you grow.
But if you’ve been charging low prices and barely making standard wages for your industry, you’ll need to find a way to raise your value. You can’t hire someone else to do the work if what you charge can barely cover their labor.
If you’re not seeing enough margin in your side hustle to turn it into a sustainable business, you need to figure out how to increase prices. Sometimes, that’s as easy as just having the confidence to ask for more money!
There’s no one-size fits all answer here. But if you’re stuck, one super important tip is to look at successful businesses in your industry and figure out what makes their pricing model work. If you’re slinging Fiverr logos for $5, figure out how the top sellers on Fiverr are using upsells to increase their rate by 10X or even 20X.
If you want to think even bigger, ask yourself how the top design are agencies charging tens of thousands of dollars for the same level of work. Ask yourself how they got there and work your way back.
You’ll often find that the people charging 10X higher prices aren’t necessarily 10X better. However, they’ve found a market that is happy to pay 10X more for their services because they’ve found a market where they can add more value.
If you don’t have enough margin at the moment to turn your side hustle into a business, your job right now is find a way to charge more for your services.
Create Systems & Processes
How is it that a McDonald’s Big Mac tastes the same whether you’re in the middle of Times Square or in Fairbanks, Alaska? The answer is systems.
Let’s go back to the example of Sarah and her pie shop. How will the business operate when she’s not there? How will the business grow to 2, 4, 8, 16 pie shops? After all, Sarah can’t be at all 16 pie shops at once.
The answer is that she will build systems to guide the business.
A system is nothing more than a series of processes that can run without you. Systems and processes are what will allow you – the side hustler – to automate tasks you’ve been doing yourself. It’s what allows the entry-level burger flipper in Fairbanks, Alaska to cook the exact same burger as her counterpart in Times Square.
As a successful side hustler, your business is nothing more than what you do/build personally. To become a successful business owner, you need to build systems so that the smart people you hire will know how to run your business when you’re not there.
To create processes, start by writing down every step of the main tasks you do. You’ll find that some tasks are easier to define than others. For more complex tasks where independent judgement may come into play, start putting together training materials – film yourself performing the tasks while you explain what you’re doing and the thinking behind your decisions.
For an in-depth look at the power of systems and how they can be used to grow a business and give business owners freedom, check out the book Work The System by Sam Carpenter. You can get a free copy of it here. It’ll open your eyes to the power of systems and how you can start applying them to your business.
Hiring your first employee
Going from a solo hustler to employer is a scary step, but the sooner you can hire someone, the faster you can start growing.
If your income isn’t stable enough to hire a full-time employee yet, you can dip your toes in the water by hiring freelancers. Use sites like Upwork, Freelancer, Guru or Fiverr to take advantage of the gig economy.
Re-investing into your business
Unlike your side hustle where your revenue is basically money in your pocket, building a business means dipping into that cash flow to grow your business. As a business owner, you get paid last while you reinvest into your business.
One of the benefits of turning a side hustle into a business is that you already have a proven revenue stream to fund your business. This means you don’t necessarily have to take on debt if you don’t want to. While I advocate bootstrapping whenever possible and avoiding debt or giving up equity, some business models simply require investing more capital up front.
If you’re confident in your business plan but it requires some funding, you may want to look into a small business loan, taking out a personal loan or finding investors. In many cases though, you can keep your scrappy side-hustling mentality to build a business based solely on your existing cash-flow.
Still, even if you manage to avoid debt, spending half your revenue (or more) on your growing business isn’t exactly a fun feeling when you’re used to putting that money into your pocket. Just remember that it’s a short-term sacrifice you’re making to build a long-term asset.
Hustle Your Way To Business Success
As your business moves away from its side hustling origins, you’ll find yourself spending less time “baking pies” and more time “running a business.” Now that you have a scalable business model, systems and processes and staff to put them into action, what’s next?
You’re still going to have to hustle, but you’re no longer hustling to create “pies” by yourself. Focus your limited energy on the high impact decisions that can help you hit your business goals. Whether that’s hiring smart people or figuring out new avenues for growth, you’re well on your way to building an asset that can change your life!
Photo courtesy of: ©Depositphotos.com/AndreyPopov
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