Entrepreneurs are by nature an optimistic group. How else could you do something as crazy and potentially risky as starting a business? Sure, there is less security at corporate now – but there often isn’t much more when you run your own business.
It is really important to know what kind of business you have and what you are trying to build. If you are new, maybe you have a “jobbie.” Our host Carol Roth says,
“I have coined jobbie as the term for a hobby disguised as a job or business. Let me be clear, there is nothing wrong with a hobby that makes money. I personally find it preferable to a hobby that sucks up all of your money like golf, collecting Disney figurines or shopping. However, even if you have a business entity like a corporation, if you are doing it on the side, making less than the minimum wage on an hourly basis or less than 5-figures a year and there is not a great chance of that changing any time in the future, you have a jobbie.
You might be thinking, “What’s so bad about that?” The short answer is nothing – as long as you acknowledge the fact so you don’t throw stupid amounts of money at it. A jobbie most likely will not generate a good return on a big investment. If you are spending more than a small part of your discretionary income on it, you might be getting yourself into trouble down the road.
The jobbie on steroids or the hybrid model, if you desire, between a jobbie and a bona fide business is the “job business.” Carol says,
“The job business is smack in the middle of the business spectrum. A job business is just that – a business that is really just a job. Self-employed people and small businesses with few employees can fall into this category. You may be earning a legitimate salary each year (or you may not, 60% of business entities don’t earn a profit over their lifetime), but you are the business. If you get hit by a bus, the business doesn’t exist anymore. While this may be an OK option for some people, in many cases it doesn’t justify the risk of giving up a salary PLUS investing your own money. And you may be working more hours, having even more stress and doing less of what you love (and more of things you don’t like so much, like marketing and bookkeeping) for virtually the same financial outcome.“
Now I clearly have a job business but that is what I am trying to build, and I like my business just the way it is. However, I know what it is and admit that I have created a company to provide a job for moi.
Then there is the “bona fide business.” About the bona fide business Carol says,
”This is an entity that sells goods or services that is not dependent upon any one person for its existence (if the owner gets hit by a bus in a business, it may take a toll but the business still exists). … This means the owner can take a vacation, can scale the business and may eventually be able to get a return on everything he has invested in the business by selling it.
However, here is a chilling statistic from Carol’s book: 21 million+ entities in the U.S. call themselves businesses, but don’t fit the above definition. These are jobbies and job businesses.
Carol would urge you to consider creating a bona fide business. Why? She says,
“Creating a bona fide business means that you are creating an entity that has value apart from you, providing you with a means to actually capture a financial return on the investment you made in creating the business in the first place. Knowing where you are on the business spectrum is the first step in you assessing your business goals for the future. … So, to make the trade-off pay off, you need to take your job-business to the far end of the spectrum, the bona fide business. This is no easy task, given that so many businesses fail, and which is probably why only 20% of small businesses fall in this category.”
Carol makes a great point because if you don’t know the type of business you have and what you are hoping to create, you can’t make the right decisions that will lead to your success.
Over to you
So what type of business do you have now? Are you happy with it or trying to build something different? Please share your goals for your business in the comments below. Maybe we can help you!