Don't let your small business ruin your passion

Image courtesy of Flickr user mac.rj

Many entrepreneurs start a small business to follow a passion, do what they love and live a dream. Many, but certainly not all, also hope to get rich.

There's nothing wrong with wanting to be rich, but unless doing what you love will generate a significant income, it's often impossible to accomplish both goals.

The problem lies in scale.

Say you've always dreamed of being a chef and you open a 30-table restaurant. You get to do what you love, but in simple terms the prices you can charge and the number of meals you can serve naturally caps the financial returns possible. You can be successful -- but only to a point. (Again, that's okay, as long as your goal isn't to become rich.)

The same is true if you are a service provider, and especially if you are a solo practitioner. Your income will eventually be capped by the number of clients you can serve and the fees you can charge. Billable hours will limit your earnings.

Once you hit those inherent caps, the only way to generate more income is to expand: Add more locations, add employees, add to your investment...add more of everything.

And then you get to do less of what you love because more of your time will be spent working on your business, not working in it. If you're a cabinetmaker and you love working with wood, growing your business and earnings will mean spending a lot less time in the shop and a lot more time with employees and clients.

Here's an example. Say you love landscaping, want to open a landscaping business, and want to make $500,000 a year. According to Payscale.com an owner/operator of a landscaping business earns between $30,000 and $85,000 a year. (That's just an estimate, of course, and certainly some owners make more and some make less, but absent a fairly unique approach, your income will probably fall somewhere within that range.)

Now $85,000 is a great income, but it's also well short of your $500,000 target. Unless you're in a densely populated area and also land a number of commercial accounts, to reach your income goal you'll need to establish multiple locations in multiple markets. Either way, you'll get to do a lot less landscape design and implementation than you hoped, since your primary focus will have to be on running the business.

Then you're left with a choice: Do more of what you love and earn less than you hope, or scale up, do less of what you love -- and make more money. Only in rare cases do entrepreneurs get to have it both ways.

Take a step back and think about your goals. If you will enjoy the satisfaction of doing what you love and will be happy with the income you can realistically expect to earn, then scale doesn't matter. But if the income potential of doing what you love isn't sufficient, start planning now to scale up. Set a financial target and work to build a business of sufficient scale to achieve that target.

Either choice is great, as long as it's the choice that works best for you.

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    Jeff Haden learned much of what he knows about business from managing a 250-employee book manufacturing plant. Everything else he picked up from ghostwriting books for some of the smartest CEOs and leaders in business. He has written more than 30 non-fiction books, including four Business and Investing titles that reached #1 on Amazon's bestseller list. Follow him on Twitter at @Jeff_Haden.