How to:Know if you have a Hobby, Idea or Business

One of the top questions I get as a startup lawyer and advisor is:

“SHOULD I start a business with my product/service?”.

Now, here’s the truth, no one can tell you exactly what you “SHOULD” be doing with your idea – everything is truly within your decision-making control. What you can glean for your own information, are the facts needed before you proceed. Here’s an informal test for starting a business from an idea, or a hobby.

It really all comes down to LIABILITY, RISK and YOUR PLANS for GROWTH.

IDEA: You have an idea for a product/service that you think can go big (or really just help people). You’ve seen a gap in the market or you’ve been personally affected by that gap. You think others would benefit from your idea. What you do with an idea, today:

• First, decide whether it will be a Profitable Idea. (Take our free e-course to learn your Customer, Market, Value and Profit Moves.
• Begin that executive summary or business plan.
• Perhaps, talk to potential investors (if you need $ to begin) with a Non-Disclosure Agreement (NDA) to protect the confidentiality of your idea first.
• Put up a landing page (on Convertkit or WordPress) inviting potential customers NOW.
• Test, test, test that idea.

Cold facts: Your idea doesn’t have real merit until someone actually spends MONEY or invests into it.

HOBBY: You have an idea that actually has fans (fans = PAYING CUSTOMERS). You make 1 or 2 sales a month and are happy with this pace. OR you may be getting increased sales every month, and may be getting concerned about increased liability. You may or may not be sure of the momentum or the end possibility but enjoying the side-hustle lifestyle. You definitely want to grow it but are not pressed about the future (at least for the next 6 months). What you do with a hobby, today:

• Protect yourself with basic contracts such as a Client Agreement or Website terms of Service & disclaimers. Your assets are still NOT protected should anything go wrong and you absolutely do NOT need a company structure to have protective contracts in place. Every idea & hobby needs contracts.
• Keep a basic Excel spreadsheet of your expenses, revenue & profit margins.
• Check in with your Business Plan and make Quarterly Goals.
• Decide today if you want to expand into a business or even a Company by the next 6 months.

No judgment if you don’t want a business. Some of the best services out there are actually run by hobby-ists that just enjoy the ACT of providing the service, without goals of expansion or profit. BUSINESS (not Company): You’re banging out sales and increasing month by month. You definitely are concerned about liability and how to protect yourself. You’ve got plans to expand and take this big and affect more people than you are today. What you do with a for-profit business, today:

• Protect yourself with basic contracts such as a Client Agreement or Contractor Agreements & disclaimers in the interim. Your assets are still NOT protected should anything go wrong but you do NOT need a company structure to have contracts in place.
• Decide today if you want to incorporate into a formal company – LLC or Corporation within the next 3 months.
• Get your BIZ clique together (Accountant, attorney, banker, insurance agent) before incorporating. Consult with them about your specific liability and risk factors.
• Get QuickBooks or another accounting software to keep track of your expenses, profit & revenue (Excel still works, too!)
• Your Business Plan is still an active tool in your growth. Make Quarter goals (90 day goals) on your timeline for INCORPORATION, sales growth and revenue milestones.