From Hobby to Business: Hobbies cost money, businesses make money

by Jane Button on April 6, 2011

Lots of women start what I call a "side job" or small cottage industry at home. They do everything themselves and It's a way to make extra money either selling online or at craft shows. And for those of us who love being creative it's a terrific way to do what you love and make "some" money. But in the long run it may not be the best model for a fast track profitable product business making "real" money.


When I started my first business I made some really cool, colorful knitted hats for kids and adults. I loved my designs and knew they were better made than you could find in the local stores – so off I went. I participated in exactly three craft fairs at holiday markets. I immediately tired of the "oh, if you only had one in red I would buy it" "don't you have a smaller size?" "Oh I'm going to knit one of those myself – where did you get the pattern?"



That was enough for me. I knew there must be a better way, because even though I sold some products I knew the process in itself was not conducive to profitability. I created inventory before it was sold which cost money and I was selling one item at a time, not significant quantities. 



My purpose was not to have a hobby which costs money, but a business that makes money. So it was on to plan B.


This realization is what changed my life and started me on my entrepreneurial adventure.


I was fortunate to have a mentor who took me by the hand and showed me what I needed to do to sell wholesale directly to stores. I learned how to create a line sheet, a price sheet and an order form. I really knew next to nothing about starting a business. But I did it anyway. I was ready.


Willing to do whatever it took, I did my homework. I knew who my competition was, their price points, their styles, their raw materials, where they were sold, how they were made and how my products were different. So when I landed an appointment with Nordstrom and they asked if I could make sweaters to match my hats I was able to say "yes" and give them a price on the spot.


Walking away with a $40,000 order, I knew I needed to figure out how to make all the sweaters and hats and still run the business, have a life and be able to take care of my family. I knew I needed help – I had gotten exactly what I wanted, now it was time to figure it out.


And I did. I went from that point to just under $5M and sold my company. I had a passion, a purpose and a mindset about why I wanted to be profitable. I started the business for two reasons. Number one – I wanted to make enough money to send my children to private school and number two, I wanted to be able to stay at home with them. 



12 Smart Tips for getting to the next level with a creative product business:


1.    Price your products the right way:  One of the biggest mistakes businesses make in their product pricing is not knowing how. I start from the retail price and work backwards. Doing your research first, knowing what your product should retail for is critical because that will tell you what stores are most likely willing to pay you at the wholesale level. Understand that most retail stores sell at a 60% and up margin. That means that if you have a product you wholesale to them at $10, they would sell it for $25. So if you want to make 50% margin then your cost of goods, including labor, would need to be $5.


2.    Create your core product line:  Creative people tend to have lots of ideas – and too many entrepreneurs come out with too many products. Start with a core line so your customer understands what your company is about. Trying to offer too many styles, categories or products confuses people – and a confused customer does not buy.


3.    Create professional marketing materials:  Stores are always looking for new products, but they are also looking for a business that will deliver a quality product on time. Part of getting stores to know, like, and trust you is having professional marketing materials. Starting with a simple line sheet with style numbers, you will also need to create a price sheet (separate from the line sheet) and possibly an order form. You'll also want to set your terms and delivery dates.


4.    Creative and professional website: There is nothing worse than talking to a potential buyer who goes to your website that is unfinished, poorly designed or does not function correctly. Websites should make it easy for people to see and buy your products and at the very least they need to include great photos or graphics of your products. Your website is a reflection of your business and it needs to create a feeling of security and trust. I strongly suggest using videos to showcase your products and having a location just for wholesale customers. And yes, the website must have your own url.


5.    Find contractors who can help you:  Most product designers do not create each product and become profitable. They design the products then create specification sheets and other systems to work with contractors or factories. In my case I started up a small separate company through my county and we created work for a small group of women purchasing them knitting machines and renting them a space in a church. From there I started a small factory and eventually hired manufacturers both domestically and offshore. The best advice is to start slowly and carefully and inspect what you expect. You need to have a written contract, sign off on counter samples to make sure they are in compliance with your specifications. Don't assume anything with working with a contractor.


6.    Outsource: It's a myth trying to do everything yourself. My rule of thumb is do only what you can do and delegate the rest. Outsource anything you dislike doing or don't know how to do or would give you more time. In addition to contractors (above) these are projects like house cleaning; bookkeeping; website design; photos; customer service; packing & shipping; inventory; administrative tasks. Your job is to be the visionary of the company not to do the "small stuff" and if you are bogged down in the "small stuff" you're not thinking big enough and will not grow.


7.    Hire sales reps: At first I sold products myself directly to stores. I knew my products the best and I wanted to know what stores wanted. When I hired my first sales rep in New York he doubled my sales and I went from $100K to $200K in a season. Hiring the right rep for your products requires research and due diligence. You must agree to commission structures, sample procedures and personally I would never hire a rep without meeting them in person.


8.    Invest your own money to start:  People are always asking about where to find the money to start up a business. The best answer I have is to fund it as long as you can on your own.  Grow slowly if you must or find an income stream to fund your business. Plenty of people start a business on the side while still working a "job" or they create another stream of income to be used for the business. Once of my clients has a lucrative eBay business which funds her newly patented invention start-up. Other people have borrowed from friends and family or taken out a second mortgage on their house.  Down the road when you're looking for a angel investor remember they are not likely to take a risk on your business if you're not willing to take a risk on yourself.


9.    A quality product:  A poorly made product is the kiss of death. Setting up a quality control system before you ship out will insure repeat business and create customer loyalty.


10.Know your competition: Keep track of what is going on in your industry.  Know what the trends are; price points, colors etc. Do this by searching online but also by reading magazines and watching TV. But most important go shopping and attend trade shows whether you're selling your product there or not. Trade events are a great way to see everything at once and also a good place to talk to consumers and sales reps.


11.Create Systems: With my company the best thing we ever did was create systems for everything.  We created a yearly seasonal calendar with all our milestones – we knew all our drop dead dates for product development; sample production; trade shows and production / shipping schedules. Each area of the business had set systems for communicating with vendors, working with contractors; how to ship; customer service; sales and marketing. Once systems were set up the work flow was set and if someone needed to know "how we did things" it was a matter of looking it up in the manual. Yes, it takes time, but long run it is time very well spent and means that procedures are easily duplicated.


12.Publicity can get you noticed: This may not be your first priority; but press releases; being in trade magazines and in news stand magazines; and getting your products in the hands of the "right" people in your industry can help you make huge strides. Even getting written up in your local papers or TV news or talk shows will get your products noticed. Any way you can get the word out – do it. And furthermore it's great when the designer is the spokesperson for the company -people are always curious.



You CAN do it!

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