Defining the Hobby Business vs a True Business
-
There are loads of reasons why people make hobby businesses and there is absolutely nothing wrong with them. Many times, though, the people who own them (or even work for them) don't like it exposed that they are hobbies, because it doesn't sound impressive like working for a real business. This is unfortunate because it generally makes them far less favourable environments than they could be if they were honest with themselves and embraced (and stated) whatever their goals are.
Common reasons that we see companies choose the path of hobby over business:
- It's just easier. Actually trying to be a solid business takes effort, and not everyone who owns a business wants to put in that effort.
- Hanging out with friends is a priority.
- Looking impressive is a priority.
- Tax Shelter.
- Company formed to keep a spouse or child occupied.
- Hubris.
- The work is fun.
- Owning a restaurant/hotel/bar/pool hall/arcade/whatever is just fun.
In all of the cases, the fact that there is a business formed is really just a structure to allow for the hobby and/or to reduce the cost of it. In points 7 & 8, it's really common for it to be a true everyday hobby where someone just wanted a way to write off the expenses of the hobby.
-
IT gets dragged into this more than any other department, because everything that we do depends on understanding if who we serve is a business, or a hobby. Because IT is a pure business function, every action we do is determined by its context in the business. If the goals of the company are not profits, how do we make decisions? We have to know the goals in order to do our jobs, at all. We don't even know what are jobs are until we know this.
As a business consultant to loads of companies, this is one of the very first things we have to understand about any customer. There's nothing wrong with doing work for, or working for, or owning, a hobby business. Nothing at all. But a hobby business that pretends it is not is going to have natural conflicts. You can't talk properly to your IT, to your CPA, to vendors, to anyone until everyone is being honest. Otherwise, people are stuck working at cross purposes.
-
I'll give a great example for myself... I have a hobby, making travel videos. It'll never make a lot of money, it will never pay the bills. But I enjoy it. If I just do it as a traditional hobby, it costs X. If, instead, I do it as a hobby business, then suddenly the cost of cameras, computers, storage, software, hosting, etc. because tax deductible. Plus I can bring in partners to work with me and we are all covered under the company umbrella. It's a legal business, but the goal is the fun of making travel videos, not profits. Legally, it's a business. But if I told someone that it was a real business, I'd be absolutely lying. It's a hobby, incorporated as a business.
-
There is also the "work" business.
The purpose of the "work" business is to generate work (for the owner and employees) while the purpose of a true business is to generate profit.
It's not a hobby, but it's not a true business either. It's hard work, incorporated as a business.
A telltale sign is that the business owner works in the business and not on the business.
-
@Pete-S said in Defining the Hobby Business vs a True Business:
There is also the "work" business.
The purpose of the "work" business is to generate work (for the owner and employees) while the purpose of a true business is to generate profit.
It's not a hobby, but it's not a true business either. It's hard work, incorporated as a business.
A telltale sign is that the business owner works in the business and not on the business.
And @scottalanmiller seems to lump those in with hobby.
-
My uncle ran a successful hardware distribution business employing dozens of people for over 30 years. His motivation was to generate work, security, and happiness, for owner and employees. He could have been more profitable, but chose not to.
I'll have to tell him he spent his life devoted to a hobby
But then he was a socialist. Maybe we just think about business differently in Europe? Scott likes to label things, but I'm not sure it makes any difference.
-
@Carnival-Boy said in Defining the Hobby Business vs a True Business:
My uncle ran a successful hardware distribution business employing dozens of people for over 30 years. His motivation was to generate work, security, and happiness, for owner and employees. He could have been more profitable, but chose not to.
I'll have to tell him he spent his life devoted to a hobby
But then he was a socialist. Maybe we just think about business differently in Europe? Scott likes to label things, but I'm not sure it makes any difference.
It does, to the point Scott as trying to make, though the posts were long so perhaps you missed it. IT is a Business Tool, as such when in a "business" as Scott would call it - it's pretty easy to know what to do - IT does what it takes to make the business the money money. When you're running a "something else business" (really hate the hobby term, it's pretty demeaning), IT doesn't actually have a cut a dry clear goal... now it has to fall to the whim of those in charge.
-
@Carnival-Boy said in Defining the Hobby Business vs a True Business:
My uncle ran a successful hardware distribution business employing dozens of people for over 30 years. His motivation was to generate work, security, and happiness, for owner and employees. He could have been more profitable, but chose not to.
I'll have to tell him he spent his life devoted to a hobbyThis is exactly what NTG does, and we are 100% a hobby. We couldn't possibly say we were a true business because we put our people ahead of profits (and were founded with that purpose.) We couldn't operate honestly if we tried to pretend that business processes came before our people, because they just don't, and were never meant to.
Being a hobby isn't a bad thing. Pretending something isn't a hobby when it is, though, creates conflict.
-
@Carnival-Boy said in Defining the Hobby Business vs a True Business:
Scott likes to label things, but I'm not sure it makes any difference.
Scott likes to make people admit the truth. It's not about labels, it's about honesty. Companies claim that they are all about business decisions, then do something else. That lack of honesty leads to politics, deceit, anger, sabotage, and just general unhappiness.
We see it every day... IT struggling, often getting fired for trying to do what they are hired to do, and the real problem was just a lack of transparency. Someone running a business, but hiring someone to run it as a business, then being upset at the conflict of goals. You don't need labels to have good communications, but communicating a false label is bad communications.
-
@Dashrender said in Defining the Hobby Business vs a True Business:
@Carnival-Boy said in Defining the Hobby Business vs a True Business:
My uncle ran a successful hardware distribution business employing dozens of people for over 30 years. His motivation was to generate work, security, and happiness, for owner and employees. He could have been more profitable, but chose not to.
I'll have to tell him he spent his life devoted to a hobby
But then he was a socialist. Maybe we just think about business differently in Europe? Scott likes to label things, but I'm not sure it makes any difference.
It does, to the point Scott as trying to make, though the posts were long so perhaps you missed it. IT is a Business Tool, as such when in a "business" as Scott would call it - it's pretty easy to know what to do - IT does what it takes to make the business the money money. When you're running a "something else business" (really hate the hobby term, it's pretty demeaning), IT doesn't actually have a cut a dry clear goal... now it has to fall to the whim of those in charge.
So the real question becomes.... why would anyone find the term "hobby" demeaning? Hobbies are what we love to do. Hobbies are the important things in our lives. Hobby is not demeaning or negative. It's just honest. It's only demeaning if the hobby itself is embarrassing.
