I’m always meeting new clients and lately I find myself classifying them into one of these categories. Why? Because it helps me to understand where they are in terms of their business, what type of investment makes sense for them to spend on our marketing services, and frankly, whether we should take them seriously.
Be Realistic about Your Business
The IRS classifies you as a business anytime you make money. But that’s a generic term. It’s important to know what kind of business you’re building, where you’re taking it and what investments make sense. The answer to this foundational question will help guide many of the decisions you’ll make. So let’s take a quick look at these three business modes.
Hobbies are just that. But we’ll often talk with prospective clients who don’t realize that their business is a hobby. People get excited and sometimes don’t stop to realize that they haven’t developed a business plan, or even a business model that might work.
- Hobbies are rarely profitable. (Notice I said profit, not sales)
- Often people will establish a business simply as a means to write off hobby-related expenses.
In most cases, you shouldn’t make business investments into your hobby. It may simply be a money pit. Without a sound business model in place, I suggest to prospective clients that they’ll be wasting their money. Additionally, we won’t be able to build a long term relationship as their marketing firm, because their goals and budget won’t justify our costs.
There’s absolutely nothing wrong with a hobby, just don’t confuse it for something else.
This is the tricky category. Many small business owners think they’re building a company when they’re really just interested in job security. Again, there’s nothing wrong with this. Not everybody wants to build and run a company larger than themselves. The rub arises when you try to compete with driven companies. If you want to maintain a 1 or 2 person business than it might not be realistic trying to compete. Notice I used the word maintain. This is a key characteristic of job builders.
- If you develop goals oriented towards maintaining certain metrics, (like sales) you may be building a job. Sometimes I think of this as maintenance mode.
- If you’re not actively marketing your business or not driven to increase in size or product/service offerings you’re probably a job builder.
- Another key characteristic of job builders is their lack of focus on profit. Regardless of your gross sales, if your business doesn’t net a profit after you’ve paid for everything, including yourself, you aren’t on your way to building a company.
- Sometimes we’ll ask prospective clients about their profitability and it’s clear they never really considered it.
- Do you hesitate to invest in marketing, legal fees, and business credentials? If so, you probably aren’t building a company.
- When shopping for services, like marketing, are you primarily looking at cost? If so, you should consider shopping first by the company’s ability to deliver on your goals and develop a lasting partnership. In short, successful companies consider value, not just price.
By now it should be clear how I define a company. For the most part it’s the opposite of the descriptions associated with hobbies and jobs. Perhaps most importantly, a smart company considers decisions in terms of profit. Why? Because profit drives stability, for both the company and their customers. Without a profitable model, and smart money management, a company won’t weather tough times. And tough times are inevitable. Maintaining a healthy balance sheet requires positive cash flow and that requires profits. Without that security a company won’t be around for long, and all of their customers will be left unsupported. In the web design and internet marketing space, this is all too common.
Another key factor in smart company building is long-term planning. Consider the long-term pros and cons when deciding where to invest time and resources. Are you investing in legal structures like incorporating once you’ve reached that point? Are you protecting your company with trademarks, patenting and copyrights? Are you building a brand or just a reputation?
To Be Clear
Hobbies, jobs and companies come in all shapes and sizes. And there are plenty of exceptions to my generalities. What’s most important isn’t that every business becomes a wildly successful company with a 5,000 word Wikipedia entry to prove it. Instead, I think you should consider these characteristics and ask yourself which one you are. Knowing that may be half the battle.