Sunday, July 6, 2008

What’s the difference between a business and a hobby?

The way I see it, you run a hobby for FUN and a business for PROFIT. Let me ask which you have? Now there are plenty of people who can survive quite well with a hobby but if they think they have a business then they’re fooling themselves. Sadly I think most smaller IT providers delude themselves into thinking they are running a business when they in fact simply enjoy fiddling with the technology. In other words they have a hobby. Like I said, there is nothing wrong with having a hobby but don’t confuse it with a business.

 

So, if you want to run a business then you must be in the business of making PROFIT. The next question is what can you define as PROFIT? Put simply, it is income less expenses, nothing more. Profit can mean more time for you family, it can mean a better lifestyle but generally the easier measure of profit is in dollar terms. Unless you are generating more INCOME from your business than it is COSTING you then you are not making PROFIT. Take a cold hard look at how many hours you are investing in running your business, are you getting a return for this? If you simply dismiss that as ‘part of the environment’ I’m sorry to tell you that you are engaged in a hobby not a business. A true business person would never dismiss extended hours as ‘part of the environment’, they would be making sure they PROFIT on this time. If you aren’t making PROFIT then you have two choices, change the way that you run your business or get out.

 

Making PROFIT can require some hard choices at times and means that you always need to remain focused on the goal of making more PROFIT. This doesn’t mean having greater revenue, it doesn’t mean having more customers or more employees, it means GREATER INCOME and LOWER EXPENSES. Again, many people get fooled into think higher revenue means greater PROFIT but is doesn’t. The aim is to make the most INCOME with the least OUTLAY, i.e. the greatest PROFIT.

 

What’s the first step to generating more PROFIT? Again, simple – measurement. If you don’t know how much you are earning or spending then how are you ever going to determine whether you are making a PROFIT? How does your results compare to last year? Which are you most profitable (again NOT highest revenue) customers? Where are most of your expenses? If you can’t answer these basic questions at any time, then I’m sorry to say you don’t have a business.

 

If you want to have a business rather than a hobby then you have to focus on PROFIT. This can take some getting used to and can reveal some cold facts that people may have previously chosen to ignore. The first step in focusing on PROFIT is to measure it.

 

The fact is that the business landscape has changed and tougher times lay ahead. If you want to guaranteed your survival then ask yourself whether you are focused on PROFIT or just getting a buzz from technology?