February 04, 2021
If you need to increase your wealth, there are all sorts of strategies you can take to do so to incrementally create more cash flow, like paying down debt or optimizing investing. But the absolute best and most sustainable way to increase wealth is to increase your income. And to effectively boost cash flow while maintaining your day job, the most reliable tactic is to build a larger stream (or streams) of income.
Often people assume their income is set in stone and they can’t increase it. They don’t want to switch jobs or industries because they’re comfortable, even though they need more funds flowing in to achieve their life goals. That’s when you should look at launching a side hustle.
A small business or stream of income that you can manage outside of your regular work hours can provide you the extra funds you need to go from uncomfortable to comfortable, or comfortable to luxury, or even luxury to wealthy. For most people, one of the worst ideas they could have would be to quit their job and start a business. It’s often a horrible financial decision with disastrous consequences. Starting and running a business is a high risk, high reward game, and that’s true when you have experience. Without any experience, it’s a good way to go broke.
Instead, if you have no business experience, taking a small amount of money and time to learn via a side hustle provides a low-stakes way to gain an understanding of running a company while also, potentially, building your wealth.
In one of my first side hustles, I bought and sold hockey equipment. If I saw a good deal on a piece of equipment marked well below what I thought it should be, I would buy it. Then, while at the rink, I would bring the equipment and offer it for sale. I would make a point of buying equipment that had either large margins or would require regular replacement. For instance, I realized it was very easy to sell hockey sticks because they break all the time. If I was in a store and sticks were marked down 60% or 70% and they were a good quality, I would buy them. When everyone arrived at the rink, I would offer the extra sticks at a price of 40% or 50% off the full retail price. For those that hadn’t gone to the store in a while or broke their stick that day, it became easy money.
It was not a long term way to make money and certainly not a full time business, but it added some valuable cash flow to my finances each month. And I saved my friends and fellow hockey players time and money. It doesn’t seem like much now, but at the time I could easily add a few hundred dollars or more to my income per month, which meant a lot.
As always, the trick to making money quickly was the asymmetric information I had about hockey equipment. Since I played so much hockey, I knew what products players wanted and what price they would buy the equipment for. I made a point of only selling equipment I would recommend or use myself.
You can use that same concept to launch your own side hustle. But you also need to answer how much should you invest? How do you market yourself and your product? And, most importantly, how do you make money? To understand and answer these questions, use this three-step guide to launch your own side hustle.
A side hustle is a fancy term for a very small business venture. It’s a full-fledged business, just not one you fully commit to. And that’s fine because you don’t know if it will work. Also, you need to learn how to run a business before fully committing to something. That’s why I highly recommend against picking a business in an area you know nothing about.
Instead, only start a side hustle in an area you’re already an expert at or in a subject you know much more about than your average customer. This allows you to focus your extra energy on learning the intricacies of running a business over the daunting task of learning a new industry. Remember, this isn’t replacing your full-time job, after all.
What subjects or markets do you have this asymmetric information in? Where can you offer specialized, valuable knowledge that most other people lack? Sharing information you’ve learned over years or a lifetime to sell a service or product becomes way easier because you have an expert opinion already. You might need to tweak the opinion in order to adapt to clients’ tastes, but you already have this built in knowledge base that others will hopefully buy from.
By approaching a side hustle with asymmetric information, it prevents you from suffering from information overload as you learn business skills. It also allows your customer to trust quickly, since you can market your expertise and speak in the necessary lingo without any issue.
The one problem with experts? They always like the best. But the best products aren’t an optimal business offering. Take my hockey equipment side hustle as an example. Selling a brand new, state-of-the-art hockey stick would run about $300 dollars. At the time, this price tag would really limit my customer base. Not only that, but the inventory of these high end products do not get heavily discounted, which hurts my potential margins. I realized the goal wasn’t to sell the ‘best’ solution, but rather the best solution for my customers. When looking for discounted equipment, I wanted to find top products that had come to market a year to three years prior, with very few additional updates since. I knew which products fit this bill because I became deeply attuned to reviews and anecdotal evidence of players around me. This allowed me to resell products that were high quality and buy them discounted.
When you search for your product or service offering you need to find something that you can get sufficient access to and meets the needs of your clients. When I ran clothing stores, buying discounted merchandise from companies was a tell-tale sign that there were no buyers for these products. Even if I got a great deal, I would have to heavily discount it to sell it myself, but I didn’t run a discount store. My clientele wanted in-style clothing. Discounting out-of-style wear was unacceptable and did not sell, so I didn’t take the same tactic I took with hockey equipment to my retail store because the customer changed.
Instead, your goal is to find a product that you know enough about to comfortably sell to your end users because they appreciate your selections, offerings and pricing. This is a difficult game of trial-and-error at times, so focus on what you can control:
Access to products that others do not have
Pricing that reflects a side hustle
In selling hockey equipment I competed directly with the stores I bought from. If the buyers wanted a specific size, or piece of equipment or were willing to pay full price, the stores were a better option. My access to products came from being in the stores often enough to buy newly discounted items. My pricing allowed customers to buy the equipment cheaper than they would get in a store if they went in on an average day. If I tried to compete at full price, people chose the full store experience. In other words, also know your limits when pricing your side hustle since you’re not a big-box retailer.
So you figured out where you’re an expert and you have a product you believe will sell to your customers, so now how do you get the product into their hands? In theory, this should be simple marketing. Simple does not always mean easy. Brands spend millions on Super Bowl ads and billions on building awareness. This isn’t an easy process and your part-time side hustle won’t compete with even the smallest of brands. Instead your goal: Reduce friction points and offer your product or service at the place where it’s easiest for your customer to buy.
For me, selling hockey equipment in the dressing room before practice was simple. I had 1) a captive audience 2) with a high likelihood of need and 3) they had no other way to purchase a replacement immediately.
For a side hustle, you need to find the easiest place to sell to your customer. You have little to no brand, and if you picked this side-hustle correctly, then you really shouldn’t be that interested in long-term growth. Side hustles are temporary businesses you use to test the market or earn extra money. If something can grow into a larger business, then you need to change your strategy.
For now, though, your path to extra income involves reducing resistance points. One of my favourite side hustles I’ve ever seen comes from a fisherman friend of mine. He makes his own lures and bait, selling it on the sides of riverbanks to other fishermen while he fishes. Often he catches more fish, or they run out of bait, or they lose their lure, or they simply want to try something new. If you have truly found where your customer is and have the right solution for them, someone will buy.
This may take some trial-and-error, but people achieve these little businesses all the time. Sometimes, these businesses shed light on a greater need. In such cases, you have learned what works and can now expand in a safer way, rather than quitting your job and building a business from scratch. In the meantime, though, don’t overcomplicate the side hustle. After all, when done right, even with a small side hustle, you’ll still see your wealth grow.
By Timm McLean, MBA |
CEO at WLTH