Half the people I talk to are still looking for a side hustle idea. The other half have too many to choose from.
If you fall in the second camp, how do you pick which to work on? How do you prioritize your limited time for the maximum impact and result?
A reader (who wished to remain anonymous) sent his decision formula recently, and I really liked it.
Here’s how he put it:
“My partner and I keep a running list of potential business ideas, we then baseball score them (single, double, triple, home run) on several criteria.”
For the sake of this exercise, I’ll assign a number score 1-4 for each of those hits, with 4 or home run being the best.
10 Questions to Ask Before You Start a Business
What criteria do you use? Here are the 10 questions to use in your scoring matrix:
- How excited are you about the idea?
- Is there a clear path to your first customers or sales?
- How much time will it realistically take to get off the ground?
- How much capital will it realistically take to get off the ground?
- What’s the revenue potential?
- How easy is it to operate?
- How easy is it to automate or delegate?
- How easy is it to scale?
- How easy is it to stop operations if it’s not working?
- Is the business something I could sell down the road?
Download a blank version of the matrix here. (It’s an Excel file so the link will work best on your desktop.)
You can use these questions and the scoring framework to evaluate any business idea that comes into your head.
Let’s look at a couple examples to help illustrate how this works.
Maybe you’re torn between starting a freelance/consulting business and starting an Amazon FBA business.
Example #1: Evaluating a Freelance Opportunity
Here’s what the matrix looks like for the freelancing business, and I’ll use my freelance book editing business for guidance here:
How excited are you about the idea?
(2.) Editing allows me to use skills I already have, think creatively, and help other authors. But it’s not something I lie awake at night thinking about.
Is there a clear path to your first customers or sales?
(4.) Getting customers for this side hustle turned out to be pretty straightforward. I landed my first gigs on Fiverr, built a reputation in a couple online communities, and formed a “preferred vendor” relationship with someone with a large audience of self-published authors.
How much time will it realistically take to get off the ground?
(4.) Like most freelancing businesses, this took almost no time to start. It was probably less than an hour from the time I took to say “yes, I’m going to try it out” to when I created the Fiverr gig. Of course customers didn’t come immediately, but it didn’t take long either.
How much capital will it realistically take to get off the ground?
(4.) A freelancing or consulting business has almost no startup costs. I eventually did build a website to support the business but even then you’re looking at just a few bucks a month.
What’s the revenue potential?
(1.) In the book editing world, your rate is determined by the length of the document you’re editing, and will generally range from $0.005 to $0.02 per word. That means at the very high end of the spectrum, for a 25,000 word Kindle book, I could bill $500. ($250-$350 was more realistic for me.)
Revenue potential is always a subjective area, and you have to weigh the opportunity cost of your time, especially in a business like this one that required my direct time investment to do the work.
The other consideration is whether or not that revenue is meaningful for you. At the time, the extra few hundred dollars a month I earned from editing definitely was, but as other income streams grew, it became less important and less exciting.
How easy is it to operate?
(3.) Since I rarely took on more than one project at a time, this freelancing operation was a pretty easy one to manage.
How easy is it to automate or delegate?
(2.) Eventually you could turn your freelancing business or consultancy into an agency where you delegate the work to other members of your team, but there’s still a manual labor component to deliver the jobs.
I actually tried to subcontract part of one job as a trial, but wasn’t happy with the quality of the work, so this is easier said than done especially when your name and reputation are on the line.
How easy is it to scale?
(2.) It’s possible to scale a service business, but there are a couple moving targets you have to hit. The first is a steady stream of clients (which were usually for one-off projects in my case) and the second is a qualified and growing team to execute the work.
How easy is it to stop operations if it’s not working?
(4.) This is your escape path. If it turns out to no longer be worthwhile, how easily can you get out? In the case of my editing business, it was as simple as finishing the projects I had, pausing the Fiverr gig, turning down new projects, and finding some other reputable providers to refer prospects to.
Is the business something I could sell down the road?
(2.) The way I built it, it would have been tough to sell. However there are freelancers who built out agencies and effectively remove themselves from the equation. In those cases, buyers are buying your systems, team, and customer base.
Total: 28/40
Example #2: Evaluating an Amazon FBA Opportunity
Now let’s run the FBA business through the same set of questions.
How excited are you about the idea?
(3.) There’s something inherently exciting and futuristic about listing products on the world’s largest store and having Amazon handle all the fulfillment for you.
Is there a clear path to your first customers or sales?
(2.) If you’re going the clearance arbitrage route, then this would probably be a 4, since you can see the sales rank in advance and if you find a fast-moving product, you can almost be assured it will sell as soon as it hits the warehouse.
On the private label front, it’s a little more of a gamble, and you might need to exercise some marketing muscle to get some customers and reviews to your product.
How much time will it realistically take to get off the ground?
(2.) Although you’ll spend some time on product research, negotiating with manufacturers, checking out samples, waiting for a bulk order to arrive, and prepping items for sale, you can be up and running with this business in a matter of weeks, not months or years.
How much capital will it realistically take to get off the ground?
(1.) This is where the private label business loses points against other business models. Of course you can start with whatever level of investment you’re comfortable with, but for your first bulk order you’re probably looking at $500-5000.
On top of that, you may have some marketing expenses for product giveaways and advertising once the products land.
What’s the revenue potential?
(4.) If you find a product that hits, the revenue and profit potential with Amazon FBA is astounding. In fact, you’ll probably struggle to keep a hot-selling item in stock and find yourself reinvesting in more inventory.
How easy is it to operate?
(2.) It’s true that Amazon takes care of a lot of the heavy lifting for you, but if you’re totally new to importing there’s a bit of a learning curve and a lot of moving parts to this business.
Of course it gets easier over time, but expect to spend some time upfront educating yourself on all the different steps in the process.
How easy is it to automate or delegate?
(4.) An entire niche economy has popped up to support Amazon sellers, and since the sales don’t require your direct time input, this one is easier to automate and delegate.
How easy is it to scale?
(4.) Once the Amazon algorithms start to work in your favor, scale happens almost naturally. Of course there’s always going to be risk in expanding your product line, but from the Amazon FBA sellers I’ve talked to, they say it gets easier with each subsequent launch.
How easy is it to stop operations if it’s not working?
(2.) You may find yourself the victim of increased competition, price wars, or a product that just doesn’t have the demand you thought it would. Or Amazon could change the rules of the game at any time.
In that case, you may have to liquidate inventory and hope to breakeven, but it might take a while to fully close down the business.
On top of that you have customers who may need product support and potential warranties to honor.
Is the business something I could sell down the road?
(4.) There is a thriving market for Amazon FBA businesses, as buyers are attracted to the relatively passive cash flow a hit product can provide.
Total: 28/40
Comparing Two or More Business Ideas
You had to know it would end in a tie, right?
To personalize this exercise, you can add in your own questions, or remove ones you don’t care about. For example, selling or shutting down a business might not be important to you.
You can also assign more weight to those questions that are absolutely critical for you, and when you find yourself “massaging” the numbers to make one idea look more favorable, that’s a good sign that’s the one you should tackle first anyway!
Again, you can download a blank version of the matrix here. (It’s an Excel file so the link will work best on your desktop.)
Your Turn
The most important thing is to start something. Picking what’s next doesn’t mean picking what’s forever and you’ll find the best opportunities are only visible once you’re in motion.
Have you used a similar decision matrix to help choose between business ideas? Any other questions or criteria you’d add? Let me know in the comments below!
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Awesome article Nick! Some people have chronic lack of ideas, some seem to have the opposite. But both can be just as paralysing.
I think also having a “personal enjoyment” rating, because I found with my own side hustles there were certain activities that would get very boring very quick (e.g. promotion on pinterest, data entry etc.) Maybe consider previous work experience and think about what kind of activities you enjoyed to give you a rough idea. Although on a side note, those activities could later be outsourced so that’s where all the other ratings would come into play.
With the awesome power of the internet, it’s always a good feeling to know the side hustle is here to stay. It gives hope to aspiring people seeking to go from employee to entrepreneur and take control of their lives financially.
I like asking people “Why do you care about this?” followed by “What do you really want to do?” It seems to always get people to refocus their energy (and time) on what’s most important to them.
I have always wondered about this but I feel like too many people don’t act. Having a nice little roadmap is fine but action is what works.
Not to mention, this is all self based which means certain things are more or less “guesses” until you do.
Good post.
Patrick,
What you just said is very true about people knowing and not acting on the side hustle opportunity. The real reason why people don’t act on the side hustle opportunity is because they’ve become complacent in their cushy jobs. Downright lazy!People get so comfortable that they don’t want to make changes nor get out of their comfort zone.
And then they have the nerve to complain about financial problems when situations arise concerning money. I’m like this. As long as it’s legitimate and requires me to make healthy entrepreneurial changes in order to capitalize from the side hustle business opportunity, I’m game for doing what’s needed to make good things happen in business. Are you getting what I’m trying to tell you and others? :-)
While some of it is true with the above statements, a lot of people do not start businesses because the lack of support. (i.e spouse) and that causes strife within the relationship. if some spouses would support their significant other, you will be amazed of how much confident he or she will have in making their side hustle work.
Very good advices before starting any business.
Article is great, thanks for your ideas
and I tthink you are missing the most important question ;)
From my experience the first question to start with is to figure out WHAT IS THE END goal of that particular side hustle idea/project
I mean thee are million possible answers: just to test, just to earn “first” capital, to go from zero to hero etc and so on. That answer was hugely important for me because it helped to clarify the goals and strategies and TIME I’m willing to invest for that
Thanks again and hope my 2 cents make sense)
Agreed Mike — very important to know what “the point” of it all is!
We chose drop shipping and my wife has been able to grow our ecommerce stores to over 7 figures in revenues and 5 figures in monthly profit all while working around our kids activities. She manages a remote team and the vast bulk of our sales come while we’re asleep.
All this is to say, it can be done! Great stuff Nick!
When I early retired I was already FI so earning money was a secondary consideration. I only wanted to work a couple of days a week or maybe two days spreadout over three or four actual days. I did know me enough to know that if I didn’t make at least $100 per hour then I’d lose interest. I ended up with five side gigs that total about 16-20 hours a week and pay from $100 to $250 per hour that are based on my skill set which is fairly unique. It doesn’t scale at all since there is just one me and I don’t try to market because I don’t want to work more than I already am but it is fun and keeps my withdrawal rate at zero. I know it is outside your target demographic but for slightly early retired guys who can craft a consulting gig that focuses on things they like and find mentally challenging I think what I’m doing is perfect. It is way inferior to what you are teaching because it has an earning ceiling but it is OK for people who aren’t looking to make their fortune because they already have more than enough.
I like to give a weighting to each factor when making a decision, so that the score can be a true reflection of what is important to me!