How Do Best Home Based Businesses Fail? Transforming Your Business Into a Hobby or Charity Work

In a previous article “Why Some of the Best Home Based Businesses Fail – Small Sweet Spot” we discussed the foundation relationship between basic business elements of Compensation, Qualification, and Gratification. What happens when one factor is missing and two are present? In this article we discuss one of the delusions resulting from having two of the pieces, gratification and qualification but lacking compensation.

If you are qualified and gratified, but not compensated, you should acknowledge that your “home business” pursuit may be a hobby or perhaps charity work, but it is not a business. Even non-profit businesses must receive sufficient financial resources from sales or donors to support the operations and staff compensation for business continuity. If this is true for “non-profits” then certainly a “for-profit” home business must make more money than it costs to operate. That includes paying you for your time investment. Abundance of love for the “business” is not enough. Money is the life blood of business.

Don’t delude yourself by calling your hobby a business or vice versa. Be realistic, does it make money, or cost?
Indeed, many people have successfully converted hobbies into viable businesses. However, the transition between the two is uphill work and requires functional knowledge of, and adherence to, sound business principles. It is not enough to be the best pie maker at the county fair. Running a business is less about making pies and more about making money.

Don’t confuse the two. Hobbies don’t require a financial payback to exist. With a hobby you are free to spend as much resource (effort, time, money, enthusiasm toward perfection, etc.) as you are comfortable without expectation of compensation. You may find pleasure in your hobbies and charity work without the expectation of profitability which should be a prerequisite for a home business. The hobby-to-business conversion requires a bottom line approach and business discipline for financial sustainability. For example, your hobby might be cooking and your guests may rave about your secret hamburger recipe and suggest you ought to “take it on the road” because it’s better than “_____ “(you name the fast food restaurant). Intuitively, anyone can make a better tasting hamburger than the host of major fast food franchises, but it is their business system, training, cash flow requirements and management, product consistency, quality control, and other fundamental business practices that distinguish the success of the “big ones” from your new business – Awesome Burger Inc.

Being novel isn’t enough either. Unique products and services come and go. Your brilliant invention will consume a tremendous amount of money and time taking it to market with substantial risk. And, because a single sale is not enough, business sustainability requires the sale of one or more products or services to a demanding market on a regular basis.

Continuous sales, and even better repeat sales, are the fountain springs of cash flow and are the fuel that keeps the business thriving. The failure to recognize the importance of positive cash flow (adequate compensation) will inevitability lead to failure of the business. If a hobby is mistakenly believed to be a business, the irrational response, will be to infuse more money to keep it going when the fundamental model of compensation is flawed. If cash flow is unreliable, the business will fail regardless of the skill. The cold hard fact is, business without cash flow = bankruptcy. Moreover, if you are unable to pay yourself and all the money goes to keeping the business alive with no reasonable hope of change, perhaps it should fail.

As often as the hobby to home business conversion ends in failure, despite the sincerity of the owner, perhaps more heartbreaking is the reverse situation, a viable home business that through neglect or indifference declines on a path to a hobby, then “bankruptcy”. A hobby is very friendly and accommodating. It does not impose expectations of performance. It allows you to show up when you want, participate with as much or little attention or commitment as you want, and achieve the level of quality you please and because there is “no skin” in the game and no requirement to be “successful” or profitable there is no accountability. People, who have a home business without the basic discipline and commitment to run it like a business, have deluded themselves and effectively convert a potentially profitable venture into a hobby. Those who treat their business like a hobby will soon find that it has made the transition.

Tragically, people often make the mistake of unintentionally converting a business into a hobby after they have made substantial investments of time, finance, or personal and emotional commitments to a home “business” with the expectation of return on those investments. Due to “neglect” they soon see their “capital” erode, lose their investment, as well as damage their relationships, certainly their confidence, and then blame the business and finally wonder, “Where did it go wrong?” From the beginning, it was their failure to discriminate their hopes from aspirations, their dreams from actions, and a hobby or charity work from a the needs of a business. It pays for you to be honest with yourself. Is this a business or just a hobby? Know the difference and make the right choice. Mind your own business! No one else will.

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