Over the years, like everyone, I have tried my hand at ton of different hobbies; golf, sporting clays, fishing, hot rods, motorcycles, and even growing fruit trees. A hobby like golf is a lot of fun, and if for some reason you don’t like it, you can always walk away and try something else.
But a hobby like growing fruit trees is permanent. Robin and I have a collection of about 20 fruit trees on our place including apple, pear, peach, apricot, plum, nectarine, and persimmon. Like a startup business, they all need attention and caring. The work isn’t done when you plant them, it is just starting. If you forget about them, they grow in all different directions, get out of control, and become too tall to harvest. Unless of course, you truly love fruit trees. Then you will nurture them every day, pruning, fertilizing, watering, reading about fruit trees, talking to experts about fruit trees and learning as much as you can.
When I first start working with a startup or entrepreneur, I ask a lot of questions and do some research to learn if their venture is really a business, or is it just a hobby. The questions fall into two categories:
A) does the market support this type of venture as a business, and
B) is the entrepreneur treating the venture like a business.
The first category are the typical business questions, like the problem/solution, market size, and competition. If the venture is missing the mark on these questions, it could mean the market is small, or the margins will be thin. It might just be a matter of aligning the entrepreneur’s expectations.
The second category is where the rubber meets the road. This is where I try to learn if the entrepreneur is playing golf, or growing fruit trees. Are they nurturing their business daily, pruning activities which are unprofitable, fertilizing new leads, watering existing customers to keep them growing, studying their industry, and learning from experts?
Hobby or Business?
Here are some key questions to tell if the entrepreneur is treating his or her venture like a hobby or a business:
- Are key metrics in place and being used to connect the dots between accounting and business performance (customer acquisition cost, average time to close, customer life-time value)?
- Do appropriate accounting processes exist including routine evaluations of cash flow?
- If the entrepreneur is bootstrapping and running on a shoestring, have they estimated realistic costs and margins for when they scale and move out of their garage or basement?
- Are capabilities, people and processes in place across all, or most, of the value chain (marketing, sales, operations, and service)?
- Is there consistent communications with paying customers for feedback on product and service?
If your answers make you feel like your startup is still just a hobby, no worries. That just might mean you are still very early stage. Go ahead and talk to a customer today (everyday), and sort out a metric like “average time to close”. That should get you started on treating your business like a business.
Photo credit to Tyler Hendy