I recently discussed a potential business with an enterprising friend. She wanted to sell handcrafted products on Etsy to make some extra income on the side. I think making income from a side hustle is a great idea. Personally, I am not the kind that discourages any type of income, but I want to highlight some pitfalls that you may face on your income building journey.
The Scalability Issues
I think it is always fun and helpful to visualize the earning potential of a business. In our conversation about her business idea, I asked her how long does it take to create one of her $20 handcrafted item. Her response was about one per hour.
I visualized a scenario where her business does so well that she could sell an unlimited number of this item.
Let’s assume that she can make 12 of these a day, 365 days a year. Her potential income (not profit) is $87,600 a year. Not bad, but I wouldn’t want to work 12 hours a day and 365 days a year…would you?
You may say “so what? $87,600 is not so bad”. There are three problems:
- She’s trading a lot of her time for the money. In this case, her income is basically the same as someone making $20 per hour but without the benefits and overtime pay (not to mention she has to pay for the cost of raw materials).
- It takes away her ability to develop other income sources. As she spends more and more time with this business, it also robs her of time that she could be spending on something else.
- There’s a limit on how much she could earn from this business. The minute you are trading time for money, you are limiting yourself to a finite potential.
As you embark on your income building journey, it’s a useful exercise to imagine yourself being extremely successful at whatever you’re doing and visualize the bottlenecks that could stunt your growth. In this case, it’s time.
The Scalability Solutions
Of course there are several options that my friend could implement to solve her business scalability issue:
- Choose a different business altogether. It’s not the best or the worst option, but it’s an option. She could always find something that is more passive and consumes less time.
- Outsource the work and become the middleman. She could try to outsource to someone who’s willing to work for less. For example, if she could outsource the work for $10 per unit and sell it for $20, that’s a $10 profit margin per unit. Her time investment is now tied to managing the outsourcing relationship, marketing, and sales. Now she’s only limited by how many she could sell and how fast her vendor could produce the widgets.
- Increase her efficiency. If she doesn’t want to outsource or couldn’t find someone to do the work for less, her other option is to find a way to reduce the amount of time it takes for her to create each unit.
Does your income generating activity has a limiting factor? Could you reduce or eliminate the bottleneck?
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.