When you are enjoying your hobby enough and feel that you can monetize it may be that time where you may want to give your notice at your current job and perhaps dedicate your full time attenuation to it.
Before you are thinking about raising funding via safe notes and scaling up you need to transition first to this new company that you are going to be building. Take these steps to transform your hobby into a business.
Perform Market Research
A hobby obviously captivates you to believe that the idea you have is viable and can succeed in any environment. Though you can never determine the viability of a business idea without any research to back it up. Your hobby should also convert into a business idea and should not primarily come from passion but from market research, the facts, and data.
Market research helps determine the viability of a product or service. Know the volume of customers, and tailor your services to meet their needs. You can also use your research to help secure funding for your business, help determine opportunities and reduce chances of business failure.
Identify a Business Model
A business model can help you identify the target market, expenses and the estimated revenue. Try to figure out how you are going to make money from the business. Evaluate how much it will cost you to produce, how much the customer is willing to pay and the price you will set. Business models are a framework for finding a systematic way to unleash value for a business while delivering value to the clients.
Think of ways to sell the product. There are numerous options for selling such as the subscription model, one-time purchase, crowdfunding, leasing, franchising or ad revenue. Determine the best market or platform to sell your product or service. The price strategy you settle on should fit the customers needs and requirements.
Test the Idea
Market research and a revenue model may bolster you to believe that you have hit a jackpot. The result on the ground often tells a different picture. Hence the need to test out the business idea to gauge the market power of your product. Testing the idea can help you identify the customer avatar and how to market to them.
Testing can include taking preorders, creating a landing page, or running ads. Testing helps you to validate your business and gives you ideas on how to run it once it’s set up.
Develop a Business Plan
Business plans map out all areas of the business and act as a buffer for unforeseen events and when it might be necessary to fund your business with outside capital. The business plan contains the business goals, market research, operational costs and any milestones.
It doesn’t need to be extremely detailed, but it can be updated as the business grows, or there are changes in the market and vision. A concrete business plan is critical in securing loans or pitching investors.
- Data Reference: Include all information about your competitors, the market, and your clients. Reference them with relevant data points.
- Research: Research that goes into your business plan, should take you longer than the creating itself.
- The purpose of the plan: Before preparing your business plan, it’s important to understand the purpose of it. Are you asking to attract investment? Align teams? Or provide direction?
- Show how you care: Show employees and investors you care enough to do this part well, and let your passion shine through.
Use the ideas that you learned in the market research stage to create an accurate and robust plan. Understand that though you have a hobby, it can only be successful if you have a plan that works. Take time to think critically and opt for an adaptive business plan that changes with the growth of the business.
Sort Out the Finances
All businesses require some sort of finance in order to provide for operational costs. Financial documents can help summarize the financial position of the business as well as project the future path. These documents should include:
- Personnel plan
- A cash flow statement
- A balance sheet
- A sales forecast
- A profit and loss statement
- Break-even analysis
A solid financial plan is essential in order to evaluate the business and identify areas of improvement. You could consider getting some professional help in creating the financial statements. Or try out financial modeling software. Once you have the financial statements in place you can then use them to boost your chances of securing a business loan or pitching investors for funding.
Getting your finances in order doesn’t only imply churning out your statements, but also to ensure that they are in good form. It’s generally good practice to separate personal finances from business finances, however at the beginning there may be a need to dig deeper into your pocket to get your business on its feet.
A business is as strong as the sales it can generate. Sales are generally dependent on the number of potential customers you can reach. Marketing is one the most effective methods for reaching out to customers. Even a great product can fail if it does not reach the right market to generate sufficient sales to keep the business afloat.
Fortunately, there are a number of low-cost marketing techniques that a hobby startup can use to reach the right customer. Social media marketing is cheap and can put you in touch with customers who know you and may want to support the business simply because it’s yours. It also reaches a large number of people at a lower cost.
You can also set up a website with a catalog of your products. Google and Facebook Ads can help accelerate the reach. It’s vital to connect with your customers in their day to day business to maximize customer retention. Don’t be rigid with the marketing and alway be willing to test out new messaging and analyze the impact. If you fail in one trial, reinvent and try again.
Sales are great but unless you have repeat customers then your business is bound to fail. The quest is to keep the customer you acquired through sales and marketing. It is difficult to convince customers to get your product and services over and over again unless you have a great product or use some great strategies to maintain your customer.
A tested method that many use is offering promotional discounts, free services in exchange for feedback and reviews, or other incentives. Learn more about your customer and create a customer profile so you do not have to reinvent the wheel every time. Build a good brand and loyalty. Learn to solve any problems experienced by early customers to ensure that they do not leave and discourage new customers.
No business should be stagnant. You need to set milestones in order to achieve the things that’ll make you grow. Milestones help to set the business trajectory. The milestones should be adjusted periodically to meet changes in the market and size of the business.
Milestones can include sales, funding and operations you will need for the business. Since your business is based on a hobby, it is also good to set some personal goals. Milestones can include how much personal debt you need to pay off or maybe hours you have to stay at work. You can use the milestones to guide you on the journey to becoming a successful entrepreneur. Set yourself on track and transform your hobby in the business that you have always dreamt of.
Transitioning your hobby into a business is not simple and requires commitment, consistency, character and dedication. Yet, it is worth all of it.
Alejandro Cremades is a serial entrepreneur and the author of The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Most recently, Alejandro built and exited CoFoundersLab which is one of the largest communities of founders online.
Prior to CoFoundersLab, Alejandro worked as a lawyer at King & Spalding where he was involved in one of the biggest investment arbitration cases in history ($113 billion at stake).
Alejandro is an active speaker and has given guest lectures at the Wharton School of Business, Columbia Business School, and NYU Stern School of Business.
Alejandro has been involved with the JOBS Act since inception and was invited to the White House and the US House of Representatives to provide his stands on the new regulatory changes concerning fundraising online.