Archive for March, 2010

Business Is Not A Hobby

Friday, March 26, 2010 by:David Zahn
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Not all hobbies make for good businesses.

It happened again. A colleague of mine approached me seeking insight and assistance on how to start a business based on an interest she has had for over ten years.  With all of the enthusiasm and excitement that many hobbyists have, it is still not sufficient to expect that just having a passion for something will be enough to sustain a business.  Running a business can certainly be fun and provide a level of enjoyment that rivals that of engaging in a hobby, and it is certainly highly recommended that one have a deep interest in their work or it will become even more difficult to succeed in the business; but at no time should work be considered a hobby.

Business As Excuse To Play

I subscribe to many e-newsletters, paper-based subscriptions, and participate in numerous forums and share group about business and business issues.  Lately, based on the fact that we are approaching April 15th and the payment of taxes, there seems to be an undercurrent in many of the discussions occurring about how one can get the federal government to underwrite one’s hobby and pass it off as a business.  To quote one of  the newsletter writers (www.smallbusinessvictory.com) -

A couple years ago, I decided I was tired of paying for golf. Now I write golf off my taxes. (Effectively making it free) How? Am I breaking the law? Am I pushing the limits? No and no. I simply started a business in the golf market. And when you’re in the golf market, the act of golfing is… sorta necessary. In fact, you could say it’s necessary and ordinary. (The two magic words when determining if something is a valid tax write-off.)

While that may in fact be correct from a tax standpoint, just loving to golf will not be enough to run a successful business.  In fact, that love of something can actually get in the way if one ceases to be objective and make fact-based decisions instead of operating out of a fondness for the activity.

The Fundamentals

What my colleague temporarily forgot and the newsletter writer’s quotemisses (though later in the newsletter, it is addressed more fully), is that business success is predicated on doing a number of thngs correctly and deriving pleasure from successfully completing those tasks appropriately.  Hobbies are fun for the participants in that they organically provide pleasure in the activity.  They are not the same.

  1.  A business is dependent on there being a market for the product or service.  There have to be sufficient number of customers and they have to be willing and able to make purchases.  If only your Aunt Gertrude and her four Bridge playing friends like a product, it is not likely to be a good business.  Further, if Aunt Gertrude is living in subsidized housing, and the product is a cruise adventure vacation, she may not be able to ever take advantage of the great product idea.  Without having sufficient numbers of prospects on which to draw and without those prospects having the willingness and ability to spend money, the business idea will fail.
  2. Communicating with the market is an essential skill.  If prospects are unsure of how the product or service works, or when they would be inclined to use it, they will not be likely to purchase. Understanding the needs of the market and providing a solution that is easily understood is essential.
  3. The logistics of running a business are not the same as engaging in a hobby for leisure.  One must know how to interact with agencies, licensing bureaus, vendors and suppliers, etc. to bring a product or service to the market and understand how to manage finances, inventory, customer relationships, etc. in order to provide the business with a chance at success.
  4. Whether marketing is to be done through word-of-mouth or through advertising or other means, there has to be a method for measuring it, monitoring it, and improving it.  If the marketplace is unaware of the product and sales are not occurring with sufficient margin to sustain the business, then being broke would be a step up from where you find yourself.

Being in business can and should be fun for the entrepreneur and it is not uncommon to have one’s hobby become a business opportunity for the business owner.  However, a business should not be treated as a hobby if it is to flourish.

Post Office Prescriptives

Tuesday, March 9, 2010 by:David Zahn
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One of the perils of beng in business is that a perfectly good business idea that has proven to be sucessful over time can suddenly become irrelevant.  This point was brought home by the recent news that the U.S. Post Office was going to consider eliminating Saturday delivery of mail (http://www.nytimes.com/2010/03/03/us/03postal.html and for the most part, people yawned and acted with disinterest.

Reaction to news that Post Office would no longer deliver Saturday mail.

Business Lesson

However, there is a business lesson to be learned by how the decision was reached and what led to the necessity of even considering this decision.  There was a time when communication of any written sort required sending it through the U.S. Post Office.  In fact, it was so pervasive, that many businesses would receive multiple mail deliveries within the same day to keep up with all of the volume of mail that was being sent and received.

Now, with email being so firmly embedded in how we communicate, cell phones allowing us to be reached wherever we may be and able to provide text and graphic downloads remotely, the volume of post office handled mail has been altered.  However, the costs to maintain the locations and the labor required to staff them has not diminished.  Even if the services themselves could be accomplished more efficiently, the fixed costs are still going to compel the government to seek ways of reducing expenses through different delivery schedules.

With rare exceptions, the Post Office delivers mail in a timely fashion, reliably, and relatively speaking fairly inexpensively.  However, the cost of email, texting, and posting documents to a website are substantially cheaper and require less effort in many instances than using the Post Office.  In short, the service and value provided seemed almost impervious to competition – that is, until the internet became pervasive.  Suddenly, what was a solid business model became suspect. 

It begs the question for all business people, “How are you protecting your business from suffering the same fate as the Post Office?”  Where are the potential incursions or weaknesses in your business that may prevent the long-term success of your business?

Overlooking The Obvious

In fairness to the U. S. Post Office, they did try to respond as soon as they recognized that web-based delivery and cell phone technology had allowed competition to encroach upon the document delivery business that had been historically owned by the U.S. Post Office.  However, the political process of being part of a governmental agency has proven to get in the way of taking proactive steps to change as needed.  For example:

  1. Studies were done by McKinsey Consulting that pointed out that there were any number of post office locations that were under-utilized and could be closed with minimal disruption to service.  However, no local politician wanted their constituents to have to “lose” their local post office site, so any plan that suggested closing locations was met with political foot dragging.
  2. Rather than try to compete, many have suggested that emails, and other electronic means of communicating should be taxed so as to put those methods at a disadvantage and hopefully artificially bolster the use of the Post Office. Needless to say, that has not been a popular suggestion for most businesses or citizens.

Of course, every business must look to see how technology, changing consumer or customer tastes, and competition are evolving and changing.  After all, most buggy whip manufacturers never saw the automobile coming and demolishing their whole industry; manufacturers of floppy disks and 8-track tape players were slow to see the impact of CD-ROMs, downloadable music, and changing consumer expectations for increased portability of data or entertainment.

While we can all cluck our tongues at the fine mess the Post Office is in, maybe it is time to look at our own businesses and wonder if we are next and what we are doing now to anticipate and/or preventing it.