Archives for April 2015

The Jobbie Entrepreneur

When hobbyists want to make money from their hobby, often they end up with what I call a “jobbie.” A jobbie is a hobby disguised as a business or a career. This happens because, as noted, someone decides to make a product or offer a service associated with a hobby. Or, they have a pursuit in an area that they love that doesn’t really make them a full salary. My litmus test is that if you are pursuing the endeavor full time and are not making in profit—not sales—the minimum wage (currently $7.25 per hour at the federal level, higher in some states) on an hourly basis and have no real, credible plans to do so, you have a jobbie. Additionally, if you are not pursuing your endeavor on a full-time basis, and are rather dabbling and making some cash on the side, you also have a jobbie.

Jobbies tend to disproportionately affect certain groups, such as stay-at-home moms, creative types, recent college graduates, and good-old dreamers. There is nothing wrong with a jobbie inherently. It is actually great if you can make a bit of extra money from your hobby or can support your hobby, instead of having a hobby that just sucks up your money with nothing to show for it except for some fond memories. Just be realistic about it and know what it is. Make sure that you are not dependent on the jobbie as a source of income. You are not going to do yourself any favors by pretending that you are starting a business that ultimately goes nowhere because it didn’t have the foundation to be a business. Also, when you have a jobbie, you can sucker yourself into buying crazy amounts of inventory, spending an outrageous sum on a high-end website, and costing yourself a lot of money with delusions about your jobbie’s potential. Jobbyists sometimes dream that they will make huge sums of money from their side business. If you think that you are going to make a ton of money, create a real business plan, complete with financial statements and reasonable assumptions, and then evaluate whether it is a bona fide business opportunity or a jobbie.

You can also delay making real money by kidding yourself that this jobbie is actually going to become a full-blown business. Sometimes that is the point of a jobbie—a crutch to fall on so that you don’t have to get a real job. Just be honest with yourself, even if you aren’t with those around you.

That being said, a jobbie may actually be a perfect alternative to starting a real business. If you can pursue your passion and make a bit of side money, you may be able to satisfy your personal wants and needs without taking on an inordinate amount of risk (again, assuming you are cognizant that you are starting a jobbie and not investing at the same levels that you would for a bona fide business).

The Idea of Get Rich Quick Scheme

Many people who want to get compensated for their business ideas are basically get-rich-quick type of people (otherwise known as lazy and/ or delusional). There is no getting rich quickly in business. Businesses require work. Here is my final attempt to demonstrate why you can’t depend on ideas to get rich quickly.

There is a young man who calls me every six to nine months. He was pawned off on me—I mean “referred” to me—by one of the lawyers I do a lot of business with. Sometimes referrals are great, and sometimes referrals are someone’s way of passing the buck. This particular situation is the latter, and I have never forgiven my lawyer friend for this “referral.” I will call this young man Chad. Chad is desperate to make money from ideas, but doesn’t have much else to offer.

Chad first contacted me because he knew of a great niche food manufacturing and marketing business that he wanted to buy. He had a contact (I use that word very loosely, as it was his word, not mine) who was a part of said company’s board of directors. This contact apparently told Chad that the company’s shareholders would consider selling the company for the right price. He wanted to see if I could help him raise the money to purchase the business.

I will keep a long story very short. When asked how much money he was going to contribute, Chad had none. Not $10,000, not $1,000; he literally didn’t have a penny to contribute toward the potentially multimillion-dollar purchase price. When I asked Chad what his previous experience was in the food business that he was going to bring to the table ostensibly to help grow the business and create more value from it, he said he had none. Invariably, I told him with no money and no experience, he wasn’t going to make a great partner for any investors who might consider helping purchase that food company. He was expecting to earn ownership and even a management position in the company, but what was his added value to the business going forward?

His answer; “It was my idea to buy it.” I quickly explained that it wasn’t a very novel idea and that without anything else to contribute, he wasn’t going to be able to make that happen. I thought he understood, and Chad dropped that idea.

Chad and I had many similar conversations relating to other “ideas.” My most recent contact with Chad was a few months ago. I felt a bit of dread when I heard his voice on the other end of the phone, but I always do try to provide a few words of encouragement (or a quick reality check, as the case may be) when possible. This time, Chad informed me that he knew of a business that was struggling that he again wanted to buy, but his “financing” (again, his words, not mine) had fallen through, and he wanted to see if I could help him find new financing. I was shocked to hear that he had financing in place for an acquisition, so I was compelled to learn more.

Successful Businesses without Business Ideas

Let me quickly give you a few businesses that were very successful without a novel business idea.

  • McDonald’s certainly was not the first, or last, hamburger joint, so clearly that business idea—“Let’s open a restaurant selling hamburgers!”—wasn’t what made McDonald’s successful.
  • Starbucks wasn’t the first coffee retailer, nor the only means to get coffee. In fact, when Starbucks was founded, you could get coffee at nearly every convenience store, Dunkin’ Donuts, or even at home if you preferred. The business idea of opening coffee stores on every corner certainly wasn’t the reason why Starbucks was successful.
  • Then, there is the Snuggie—the blanket with arms that’ s basically just a bathrobe that you put on backward. This wasn’t a new idea— bathrobes have been around for a long time— and Snuggies aren’t even attractive (you look like a monk when you wear one), but they are marketed brilliantly and more than $100 million worth of Snuggies have been sold in a year’s time. It may be more of a product than a business, but whatever you want to call it, the basic idea is not what made Snuggie successful.

As you can see from the aforementioned examples, the business ideas had very little influence on the outcomes of the various businesses. Basically, the ideas are just a starting point to help you get focused. It is what you do afterward that creates the value.

Nobody whose head is screwed on straight will buy a business idea from you, or anyone else, because any value related to a business idea is in its implementation. Maybe if you give someone a business idea, they will one day send you a coupon for a free product, but that is about it. The further something gets away from an idea, the more value that exists. Things like customers, profits, and competitive barriers to entry create value. The reality of the lack of value in business ideas is a shock and a disappointment to many people who want to get compensated for thinking of “the next big thing.” If I haven’t persuaded you yet, then the best way that I can illustrate to you why, in the grand scheme of business, the idea has such little value is through the chart on the next page. I have taken some, but certainly not all, of the facets required to run a business and broken them down. A few of the tasks are specific to certain types of businesses, but most are required by all businesses.

So, in looking at this whole thing we call a business, would you place a lot of value on a one-time idea that took no risk to produce, or on the other thirty-plus tasks that have to be done indefinitely, day in and day out, that take a ton of risk and hard work? Hopefully, that answer is crystal clear, and my breakdown gives you more insight on why business concept ideas have no value so that you, like me, can also make peace with not getting compensated for them.

So What Exactly is a Business?

In simple terms, a business is an entity that sells goods or services to customers in exchange for money. However, I would like to make a case that the definition of a business should be changed to: a business is an entity that sells goods or services to customers in exchange for money and whose existence is not dependent upon any one person or small subset of employees .

If you take a business like Walmart, any person within that organization could leave, and the business would still exist and probably not feel any impact. The CEO could leave, the head of the marketing department could leave, the cashier at any given store could leave; yes, any of the employees could leave and Walmart would still be Walmart. It would still have value, and its shareholders would still have the opportunity to make a return on their investment. There are a lot of entities labeled as businesses when this is really not the case. Take Tommy’s Massage Therapy Inc. Tommy provides a service—massage therapy—in exchange for money. There are no other employees in this business; it’s just Tommy and his clients.

However, if Tommy doesn’t want to do massage therapy anymore, or if he is hit by a bus, then Tommy’s Massage Therapy service has absolutely no value. In fact, it ceases to exist. So, regardless of whether or not there is a corporate “business” entity around it, Tommy doesn’t really have a business, Tommy has a job. This is a job that is unlike any other. At a regular job, Tommy doesn’t have much at risk. He may have to pay for a uniform or put gas in his car to get to his place of work, but basically that is all he is risking.

The worst thing that can happen, the extent of the risk that Tommy bears, is that he gets fired and has to look for another job. But at Tommy’s job-business, he has to pay for the privilege of having a job (plus he has to deal with all of the other issues that come along with running a business, which we will be discussing later). He actually risks his own money to be able to have his own job-business. In addition to spending money, time, and effort to create a job, with a job-business you are not building equity value, which I believe is the really compelling reason to create a business. In a true business, you as the owner have an entity with value that is separate from you. This is the value that you create for the business as a going concern, above and beyond the strict value of your assets minus your liabilities, which makes owning a business worthwhile.

That means you can eventually leave the business (down the road, after many years of hard work) or sell the business (again, after many years of hard work) and get value for it. That is how most successful entrepreneurs make the “big bucks,” by capitalizing upon the value of their business entity.

The Customer is Always Right

I always say that the most important asset of a company is its customers, and I will reiterate that again here. If you have no customers, or more accurately, no paying customers—you have no business. It is impossible to have a business without any customers. This gives your customers unbelievable power, they own you! So, if you believe owning a business means you get to be the boss, forget it; the customer is the number one boss, bar none.

If you think that you have worked for some of the most incompetent, god-awful, foolish, horrible superiors before, they may pale in comparison to your new bosses—your customers. This is exacerbated if you work in a business that services end-customers (rather than a business-to-business scenario, which isn’t a picnic either). I have worked for nearly a decade and a half with businesses that sell products and services to the consumer; let me tell you that customers as a group can be beyond anything you have imagined.

Have you ever spoken to someone who works in customer service? If you don’t work directly with customers in your current job, then I suggest you speak with someone who does before going to work serving customers. Some customers will blatantly try to scam you or steal from you. I have spoken to numerous customer service representatives that have recounted stories about people wanting refunds because their dog chewed up a product and now believe it is “defective.” There are the representatives who work for a major bath and home retailer who explained that every year, right after Christmas, customers would return dozens upon dozens of used holiday tablecloths. One customer even had alterations made to the tablecloth to fit her unusually shaped table. The reasons for those returns—it “just didn’t work for me.”

There will be customers that will try to not pay you, there will be ones that try to nickel-and-dime you, customers who return products as damaged that they actually broke themselves, and customers who will take the product out of the box, replace it with something that you don’t even sell, and try to return it for a full refund. There will be customers who will dispute your charge on their credit card because they didn’t like the way they were treated or who will complain that the meal you served them was too cold and needs to be “comped” or discounted. Then, there will be customers who are so lonely that they will want to keep you on the phone, tied-up in person, or engaged in an email dialogue about all of their personal problems (none of which relate to your business).

You will send promotional emails to customers with a 50 percent discount on one item from May 1–6, and dozens will email back asking when the offer is good through, how much is it good for, and whether they can use it when they get paid on May 10. Guess what? All of these people are your new bosses. Lucky you—as a business owner, these are the people for whom you now work!