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7 Foolish Reasons Why Your Side-Businesses Fail

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I once ran a successful side-business, with a 700% return. “Dude, were you the guy selling safety floats when that boat sank off the pier?” LOL, call it my nose for opportunity. And now it’s my broken nose for opportunity. I’ve got to stop giving away my secrets like that. You on the other hand, better work out why your side-businesses may fail:

 

1. Launched the Business Before Any Research

This should be common sense. But then again, so is checking for toilet paper before you take a dump. People just forget you know. And when it comes to side-businesses, they like to forget the research portion.

You’re supposed to spend about three to four months just researching your customer base, before you launch. You’re supposed to survey how many people would pay for your service, scout out  competitors, and build a list of potential customers.

In other words, check if there’s (1) demand, and if (2) people are willing to pay your prices. If neither condition is met, it won’t matter how good your side-business is.

 

2. No Administrative System

This is, hands down, the most common reason why people give up on a side-business.

A side-business means you have to handle invoicing and receipts, client details, phone calls, advertising, meetings with prospects, etc.  And chances are, you won’t have a secretary to help you do all that. You’re going to have to familiarize yourself with basic book-keeping skills and software like MYOB.

Scribbling things in a notebook suffices for the first three or four clients. Try to handle any more with that method, and I’ll be chuckling at the YouTube video of you ranting at a fire hydrant.

 

3. Fear of Awkward Conversations

If you want to run a side-business, you’d better be ready for some of the most awkward conversations of your life.

How are you going to respond when a customer flinches at your price? When about someone says “My cousin can do it cheaper?” And if you mess up, can you handle a conversation that’s 90% screaming and death threats?

Here’s a general tip:

If you can’t being yourself to ask your boss for a raise, your skin isn’t thick enough to run a side-business. Follow us on Facebook, for more on how to fix this.

 

4. No Differentiation

Some side-businesses are hard to differentiate. If you’re a tutor or baker this isn’t a problem – the difference in quality is obvious. But if you do something like walk people’s dogs or help them proofread mail, it can be harder to tell.

You need to make an effort to differentiate yourself somehow.

For example, offer some design options in addition to proofreading mail (e.g. draw artsy little borders on letters), or offer dog massages in addition to dog walking. That’s totally a real thing.

 

5. Didn’t Work Out the Logistics

If you run an e-commerce site, how are you going to handle payments? Do you know how much payment portals like PayPal charge, and is it factored into your cost?

If you have a tangible product, where are you going to store it? I know someone who tried to run a side-business in self-publishing, and ended up paying more for warehousing than he actually earned.

Poor logistics can stop your product from getting to the customer (or raise your price so high CNB starts checking for hidden cocaine compartments).

Also, do remember that some costs – such as the price of freight forwarding – can fluctuate every month. Bear that in mind when you offer deals like “free shipping.”

 

6. Under Capitalized

To be safe, assume your side-business will run at a loss – or at least at no profit – for the first six months. Do you have enough to sustain that?

And before you say yes, let me stress this next point:

Clients do not always pay on time. Sometimes, they may not pay AT ALL. Clients DO default.

I have personally had a client default on a payment of $12,000+.

It’s a lot easier to bully your side-business, because it hasn’t got the big legal guns of an established company. Also, clients know you’re loathe to sever ties with them, which prompts some of them to use you like an interest-free bank.

And if your side-business involves other parties (e.g. you hire a designer for your web design business), do remember you have to pay them regardless of your client’s lateness.

Make sure you have enough set aside.

 

7. Wouldn’t Let Go of the Wrong People

The average side-business is going to be all carrot, no stick. In other words, anyone who works with you is incentivized to do so. But they’re seldom disincentivized to avoid screwing up.

When you hire someone to be your logistics assistant, for example, you hope the money is enough to persuade them to do a good job. But if they choose not to take that job too seriously (e.g. slack off on football days, work when they feel like it), you don’t have a stick to threaten them with.

And then you can’t focus on doing a good job. Not when 90% of your available time is spent micro-managing the monkey enclosure called “your team”.

The best way to deal with this is to not start a side-business with friends you’d mind losing. And never, ever, start one with relatives. Trust me, no side-business is worth a lifetime of awkward family reunions.

Be ready to drop people from you team, without hesitation or mercy. Side-businesses need to be kept lean.

Ever had a side-business crash? Comment and tell us how!

Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

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