Three Types of Small Businesses

Three Types of Small Businesses

You have a small business but you’re not making a profit and haven’t in some time. You may have an employee or two, and you pay them before you pay yourself. You either aren’t paying yourself or are paying less than you could make working for someone else. You may be adding your own money to the business to keep it afloat. There is a name for your type of business: a hobby.

How do you turn a “hobby” into a viable business? First you must find the fundamental flaw in the business model. A business model looks like this: You sell _____ to _____ for $_____ amount. Customers hear about it here: _____, and you care for these customers like this _____. The product/service costs _____, which involves resources, money, employees and partnerships. Revenue minus costs yields a profit.

[tweetthis display_mode=”box”]Looking to turn a hobby into a viable #smallbiz? Here are 3 business models to consider:[/tweetthis]

If you have a hobby, the flaw has to involve a kink in one of the elements above: not enough people need/want what you sell, you’re not reaching them, you can’t charge enough to cover all costs and yield a profit, or you can’t sell enough to cover costs and yield a profit. You may be able to fix the flaw(s) to turn the hobby into a real business, but it involves taking a hard, honest look at the model.

The second type of small business makes a profit (most of the time). There may be more than just an employee or two, but your involvement in the day-today operations is crucial. You probably pay yourself a decent salary and may even have a little money left over for growth. You can’t take a vacation (at least a decent one), and your employees, while hard working, rely on you to oversee operations.

You grew for a while but may have stagnated now. You’re making a healthy profit, but not one that allows expansion, and you’re not sure you want to expand anyway because you personally can’t do more than you’re doing now. If only you could find the right people! Let’s face it, this type of business is a job replacement. You have replaced working for someone else with working for yourself.

Some people are happy with a job replacement and can’t see anything else in their future. That’s fine – they have found the perfect job working for themselves. This business isn’t poised for significant growth, though. This business has found a workable business model but doesn’t have systems in place that would allow it to expand and grow. It’s usually a circle: owners can’t break away from day-to-day operations long enough to develop the systems, but without the systems, the owners won’t have time to break away. To move from the job replacement business to the next level, you have to make time to work on the business.

The third type of small business is poised for (or is) growing. This business has a viable model, systems in place to support the growth, and a real plan for growth. These are the businesses that can be duplicated else – where (franchised, licensed) or expanded. The owners of these businesses are truly entrepreneurs.

Can you progress from a hobby to a job replacement? Maybe, if you go back to the drawing board and find a model that works. Can you progress from a job replacement to a growing business? Maybe, if you can let go and take the time to develop the systems for growth. Start with one question for yourself: which one of these are you, and what do you truly want to do?

(Source: Alisa Kirk, Area Director, UGA SBDC at Clayton State University)