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FINANCIAL ANALYSIS

Is This a Great Business, or a Hobby?

3 Ways to tell if your business idea has what it takes.
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Here’s a crazy business idea: a wealth management firm, client-centric, all-inclusive, completely independent, female-run. What? You mean you aren’t planning to jump right on it and run with that concept? Investing does happen to be my particular passion and area of expertise, and I have turned it into a successful business, but everyone has their own unique talents and passions. Who hasn’t wondered if they could turn their favorite pastime into their bread and butter?

But not every hobby, no matter how much you love it, should be turned into a business. Success ultimately rests on two things: profitability and sustainability. Passion is key, but the viability of your company is a numbers game. So how do you distinguish a passionate personal interest from a great business idea?

Be honest with yourself

You have to ask yourself the tough question of whether this is a pet project or a serious, sustainable business. You surely love your idea, but is it marketable?

I have some friends who founded a t-shirt company. Were their graphics cute? Of course. But had it been done before? Yes, many times. After a few months, left with boxes of inventory and a failing LLC, they realized that this was more of a hobby than a business. They took their knocks and moved on to a new venture.

Identify a point of pain for others that is a point of passion for you

Many people don’t like dealing with their finances, or they aren’t interested in putting in the time required. I, on the other hand, love investing and love making people’s wealth work for them. If you are capable of doing something well that others cannot or do not want to bother with themselves, you have a market.
Next, evaluate the differentiating features of your product or service. Is it truly innovative and unique? And if so, does it scale easily?

I love to bake. I can make a mean chocolate chip brownie. However, although I think my brownies are pretty amazing, are they really that different compared to other amazing brownies? If you ask anyone besides my fiance, the answer is probably no. And baking brownies would yield a relatively small profit margin compared to what I could garner using my other skills.

Get ready, get set, launch

I hardly mean to rain on anyone's parade in terms of pursuing a business dream. I simply encourage aspiring entrepreneurs to take an objective look at the expected rate of return on the investment it will take to turn your hobby into a business. If at the end of the day your passion is destined to remain in the realm of hobby rather than business, know that your personal interests can still be a fulfilling focus in your life, if not the basis of your livelihood.  Drawing inspiration from your interests is a key part of building a rich life - and of coming up with creative growth ideas for any business.

If your idea is indeed marketable, sustainable, and scalable, go for it! You do need a well-thought out business plan, but you don’t have to wait for every single piece to fall into place. Start small, learn, and build from there. Work weekends, work nights. Make it happen, and always think scale.

Last updated: Aug 26, 2013

ELLE KAPLAN | Columnist | CEO, Lexion Capital Management

A finance expert and self-made entrepreneur, Elle Kaplan is the CEO and founding partner of Lexion Capital Management, the only 100 percent woman-owned asset management firm in the U.S.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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