Women Entrepreneurs Ask: Is It A Product or A Business?
If you are a regular viewer of Shark Tank you know how important it is that an entrepreneur, male or female, build a company not just develop and sell a product. Women, particularly, are more likely than men to turn a hobby into a business. So the question for women entrepreneurs is: Is what you BELIEVE to be a business just an expansion of your hobby?
The definition of a hobby is an activity done regularly in one’s leisure time for pleasure. The definition of a business is the practice of making one’s living by engaging in commerce. Clearly, the difference between a hobby and business is the exchange of money. However, launching any type of business requires startup costs and an expectation that profits may take a year or more to accumulate. The trouble begins when the required costs always exceed the potential income and as the days, months and years go along profits are never realized.
Of course, this is why business planning and, particularly, writing a business plan is so valuable to an entrepreneur desiring to build a business. Just because one has developed a product and finds people who want to buy it does not mean a business is born. As often as I say this to potential entrepreneurs (better called hobbiests), too many just don’t understand the difference and go out thinking they are building a business when in fact they are only expanding their time working on their hobby.
So, here are some questions to ask yourself to evaluate whether your business idea is really a business or just an expansion of your hobby.
(1) Do I know exactly what the costs are to produce my product? This question is the most important because if you haven’t accounted for the cost of time necessary to produce your product you will never be able to sell it for a profit.
For example, if you make handbags that everyone wants to buy from you and you decide to launch a handbag business you may start off by making the bags by hand. Of course, you will charge for the costs of the materials necessary for production and the costs to get your product to the customer – marketing, advertising, shipping, packaging, invoicing, merchant charges (credit cards etc.), phone, internet, etc. But what will you charge for your time?
As an entrepreneur you must always think ahead to when others will be doing the work that you must do as a startup. Therefore, if when you launch your business you are the owner, marketer, billing department, shipping department, IT department, customer service department, product manager and creator you MUST add in the costs of the time that these services will cost your company when you grow large enough that these positions will be staffed by others.
Therefore, it doesn’t matter if your product is a handbag, a cupcake, a floral design, a wedding plan or even a consultancy plan. If you want to grow you MUST plan in advance and price your product accordingly from the beginning.
(2) Do I know for sure that there is a market for my product? Yes, I know that for years people have been eyeing your clothes, handbag, floral designs, or whatever and told you they would pay anything if you would just start selling. You would be surprised at just how many people have started businesses by hearing the same words.
The answer is: every entrepreneur MUST do market research. If your product does not fill a void in the marketplace IT will not be profitable for long or if ever! Believe you will run out of friends before you know it and too soon to stop you from purchasing too much goods to create your product.
The biggest question for any entrepreneur in the startup phase with a product business is how much product should I create?
The answer can only be found by doing market research in your area, online, and anywhere your product may find a customer.
I love nothing better than to work with entrepreneurs, particularly women entrepreneurs, and help them build an idea into a business. Some hobbies have turned into some profitable businesses, but in order for yours to make it you MUST take the time to do the work, create the plan, price your product appropriately for growth and be prepared for the ride of your life!
P.S. The photo above depicts Girl Scout Hobby Patches – Girl Scouts rule!