I have a ton of admiration for people who start a business, particularly as a side hustle. Personally, I think it’s highly logical to have multiple income streams. You diversify your asset allocation…why not do the same for your income.
I am not here to tell you how to perfectly launch a side business. I am not remotely qualified to do that having never successfully done this myself. However, as someone that has done a lot of brainstorming recently for side hustle ideas and has advised multiple billion-dollar companies on new products, I can tell you the steps that I am taking when brainstorming and vetting my ideas.
1 – Identify your areas of interest
There is no reason to start a side business if it’s not in something you like. You will need to spend a lot of time here, and it will be incremental to your workday…which can get exhausting. Especially at the beginning, when you compare your hourly rate starting up a side business vs. your regular job, it will probably be a bit depressing.
That’s why it has to be something you intrinsically enjoy…or you’ll likely quit before it reaches success.
Let’s take some things I am interested in as an example: Personal finance, investing, writing, tennis, poker, current events, piano, public speaking, Netflix binging
2 – Identify how to monetize your interests
Most things can be monetized:
- Someone with a good sense of fashion can start a service for helping others pick out their wardrobe
- People who are really good cooks can monetize a cooking class / recipe book / YouTube channel
- People who are very athletic can start a personal training business
- People who are really good at the piano can sell their sheet music covers of songs after developing a YouTube following or start a remote teaching business
The world is your oyster.
I decided to investigate ideas that had to do with personal finance/investing/writing and came up with a couple that likely work in tandem:
- Start a personal finance blog and try and reach scale
- Start a financial coaching business
3 – Narrow down to things that can be scaled
Even if you are initially interested in just supplementing your monthly cash flow, you want to pick something that you could eventually try and scale if you so desired. It gives you a lot of optionality and gives you a path to ‘stepping outside the time-income curve’ (related post). You don’t want to get caught in a position where the only way for you to increase your income is by increasing your time investment, because that ensures you get ensnared in the rat race forever (related post).
Many of the ideas mentioned earlier can also be scaled:
- Once you have some data on what clothes people tend to like, you can come up with your own algorithm to suggest clothing to people based on images they like
- Once you come up with a fitness / wellness regimen you could start to automate it for people who want a less custom approach
This is also why you tend to see so many people turn to social media. Once you have developed something that interests people, you have a captive audience and can more quickly scale and test a lot of things.
Pulling forward my idea – I knew that a blog had limitless potential for scale and I already knew apps like Personal Capital were scaling financial coaching.
4 – Focus on margin and cash flow
This one is not universal, but for me, I value a business that can be cash flow positive very early in its lifecycle and that has low variable costs. I don’t necessarily want to burn a ton of cash up front in something that is supposed to supplement my income and I want to find something where my costs are mostly fixed.
Online businesses are great for this, there are relatively low fixed costs (webhosting, website themes, etc.) and essentially no variable costs.
5 – Check out the competition
Information is so freely available today that it is pretty easy to check out the competition and you can get a lot of data on this. For example, I found out that the average per session pay for financial coaching was ~$250, and that it scaled with licenses, product clarity, and website optimization. Interesting.
It’s also good to know if you are entering a consolidated or fragmented industry. Are there successful smaller players today or is it completely dominated by a few massive players. If the latter is true, it is probably a tough industry to crack.
This is where at least the financial coaching aspect of my idea starts to look a bit dicey. Several competitors (e.g., personal capital, mint, any credit card company) are already trying to automate financial coaching and robo-advisors (e.g., Betterment) are trying to automate investing advice. This is a slam dunk of a move, given how bad traditional education has been at teaching financial literacy. As a result, while I could probably still sell a one-on-one coaching service, I would be fighting an uphill battle if I ever wanted to scale.
6 – Test if there is a market
Instead of spending weeks/months building out a product and perfecting it before reaching out to your market, test if you have an audience that is receptive to your idea first.
Despite the competition, if I could generate a cashflow positive side hustle, I’d still be interested in pursuing financial coaching. I enjoy helping people achieve their financial goals and this would be a fun way to pay some of my business expenses while doing something I enjoyed.
So I sent out a LinkedIn message:
“Would you like your personal financial system to run on autopilot? Do you know if you are saving enough? Wanted to know if there was a market for this as a product. Would you pay $250 for a one-on-one coaching session, a personalized regimen to improve your financial health, and a vetted set of reading materials to get your personal financial system set up & in good shape? (Note: I legally cannot give you investing advice)”
I a/b tested two different versions of this and found the one that led with a question got more engagement.
If you get good engagement, people reach out asking you about it, etc., maybe you have something there.
7 – Price high
Your time and experience are valuable. Don’t sell yourself short. When I was deciding on a price point I almost set it at $100 (well below the average market price). I am not licensed to give investment advice, I don’t have ‘years of experience’ doing this, etc.
That would be a mistake.
I am confident I could add a ton of value in financial coaching and pricing below market would signal that I was delivering a lower quality service.
In addition, not pricing high enough disincentivizes you from putting in 100%. If you undervalue your own time, you will be more willing to prioritize other things, because you aren’t being sufficiently compensated for your level of effort. Think about it like a salary. You are far less likely to put in as much effort into a job that is underpaying you. This is the same, except you are the one setting your own hourly rate.
8 – Identify any additional red flags
While I am a big proponent of diving into something instead of spending forever building it out, it is worth pulling back and analyzing any major red flags.
For example – your company has a policy against having a side business.
In my case, there was a legal straw that broke the camel’s back. The red flag is that without a proper certification, it is illegal to charge for one-on-one coaching that involves any investing advice…and the scope of that advice is insanely broad (e.g., you can’t even really tell someone to invest in the S&P 500 because that indirectly advises them to invest in that group of companies).
After my initial market research, that is also the area where I can see the most potential value creation, so while the other aspects of financial coaching may be useful, I think they will be less impactful.
9 – Try it
Again, instead of building out a full platform, test out the beta version of your idea. See if you can get a single customer and focus all your efforts on making sure they have a great experience. It will start to build your word-of-mouth marketing, will really teach you how much effort it is to implement your business, and will show whether you can really add some meaningful value.
Don’t just do this for friends / family, but find a real, paying customer. Friends / family will usually tell you what you want to hear, and it’s easy to find something valuable if you get it for free. Someone that is paying for your service is going to be a lot more valuable as a data point.
If it works out, great! If it doesn’t, that’s okay.
And that leads me to my last point
10 – Don’t give up
My first idea didn’t hold water. That’s fine. I’m excited to keep trying. Once you have the desire to sell something, to get scrappy, to create, you are set up for success. What’s great about trying ideas with low entry costs both in terms of money and time is that there are very few downsides from failure, but massive upside from success. As a result, I’m not worried about an idea not panning out.
Now the game plan is to head back to the white board, list out another 20 ideas and run down the list again.
Are there any great ideas you are excited to pursue?
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