Anyone who owns a homebased business knows that money tends to come in the door in cycles. When you're experiencing an up cycle, life is great. You're able to pay all your bills on time, run a new ad, even put some money away. But when the cycle turns, keeping your financial ship afloat can be difficult. This is especially true in the first few years of a new business venture, when you don't know what your business cycle even looks like.
The danger in not knowing your business cycle is that at any given time, your homebased business could take a turn for the worse and, if you're not prepared, your business could go under. Then what? You'd be in a worse position than where you started since you'll not only need to find a job and pay your normal bills, but you'll need to pay off your newfound business debts as well.
Fortunately, avoiding this potential scenario isn't difficult. I want to give you some options--probably some you haven't even considered--that will enable you to keep the money coming in, even when your main business is on a slow cycle.
"Main business, you say?" That's right. Consider the possibility that you may need to run more than one business or, at the minimum, have more than one "division" to your business. This is called having "multiple profit centers," a term coined by Barbara J. Winter in her excellent book, Making a Living Without a Job (Bantam Doubleday Dell, $13.95).
Let me give you an example to show why this idea is so important: When I began my homebased law practice, I decided I wanted to specialize in bankruptcy law. So I placed a bankruptcy ad in the paper and before I knew it, the phone started ringing. Business, almost from the start, was brisk. Having opened my business in March, I was in hog heaven by October. Business was booming.
But then November came. I didn't know it at the time, but bankruptcies dramatically fall off in November and December. I was completely unaware and unprepared for this shift in my business cycle. What was I going to do? Fortunately, I had learned the multiple business center concept, and before my November crisis had begun, I had started an alternate profit center: namely, putting on divorce seminars. So when my bankruptcy business dropped off, I began to put on more free seminars. I got a slew of new divorce clients and made it through that crisis. Now I know that November and December are slow in that one part of my business, so I plan accordingly.
A smart stock investor does the same thing. He knows not to buy just one stock. That stock may go up, but it may go down. Having more than one stock ensures that when one stock does go down, the likelihood of taking a big financial hit is remote. Having multiple profit centers offers similar protection for businesses.
Creating Your Profit Centers
There are two ways to create additional profit centers. First, you can create an offshoot of your main business. Second, you may want to create another business altogether, one that you can do at the same time. Let's consider that first idea, generating multiple sources of income from one main business. For example:
- A massage therapist could get a gig working at a local health club. She could also buy a massage table and go to her client's homes. She could set up the table in her spare bedroom. She could get on the list of local hotels that need her services for their customers. She could offer 10-minute massages to corporations with harried executives. Now, instead of only one profit center, she would have five.
- A cleaning service owner can add commercial clients to his or her roster of residential clients.
- An antique dealer who sells antiques from the barn in the back of his house could also sell them at local shows and on eBay.
There are innumerable new things you can do to bring in money from one business if you just get creative. Try this brainstorming exercise: Write down 10 possible new ways to generate income from your homebased business. Jot down any idea that comes to your head; you can edit later. Ask your spouse or a valued friend for any ideas he or she might have. Cross out the ridiculous ideas and see if you don't end up with a few gems.
A Case Study
Stephen Brooks was a great men's clothing salesperson. In fact, he was so good, he was soon managing several upscale clothing stores in and around San Francisco a few short years after getting into that line of work. But clothes were never Brooks' passion; novelty antiques like vintage Coca-Cola machines and Wurlitzer Jukeboxes were. Brooks had amassed quite a collection of these cool items and dreamed of one day turning them into a full-time business (he had sold items on the side since 1973). Finally, fed up with the corporate life, he decided to start a business in a spare bedroom, selling his unique items via mail order.
He soon found that there was indeed a market for his antiques. But he also learned that he didn't make enough money solely selling them by mail order. So he was forced to start a second profit center--a shop, which was also an almost immediate success.
Soon Brooks discovered that a third profit center for his wares was also possible. After selling some items at an antique show, he began to devote more time to that division of his business. Today he sells at more than 40 shows per year. Still in business after 15 years, and still being operated mainly from his home, now in Sacramento, California, Brooks Novelty Antiques & Records and its three profit centers gross between $25,000 and $35,000 per month.
Most businesses do the same thing. Billionaire Richard Branson, owner of the Virgin Group, says that he had the multiple business model in mind from the day he began building what would become an empire. That's why he eventually named his business the Virgin Group. Virgin Music was soon joined by Virgin-Atlantic Airlines and Virgin Cola, among others. Don't think that Branson is so unlike you; he began the Virgin Group with a single record store above a shoe shop in London, and he bartered his rent. Amazon.com began in Jeff Bezos' garage. Now, besides books, Amazon has its hands in an online pharmacy, a pet store and innumerable other profit centers.
I'm not saying that starting a second business will be easy. What it is, however, is important. The risk of putting all your eggs in one basket is simply too great to ignore.
The Challenges of Multiple Profit Centers
However attractive this concept, it doesn't come trouble-free. The major disadvantages to working this way are:
- Becoming overwhelmed. It's possible that you might lose focus trying to do more than one thing at a time. Some people like having several projects going on at once; others don't. The key to successfully running more than one enterprise is organization. You may decide to devote Mondays, Wednesdays and Friday to one endeavor, and Tuesdays and Thursdays to another. Having separate, color-coded file folders for each profit center also helps.
- Juggling. Let's say your main business is a mobile auto-detailing service and you decide to start a car-alarm installation business as a second profit center. Detailing is a client-intensive business, and your clients may not like the fact that you have to juggle your time between enterprises. Or you may get so busy detailing that your alarm business drops. You certainly don't want to alienate clients. The way to avoid that is to learn to juggle your time and resources well. Be professional, make appointments you can honor, and keep that Palm Pilot handy at all times. Organization will be key to successfully creating multiple profit centers.
The best thing about multiple profit centers is not only are they good business sense, they can be fun as well. And it need not be difficult. If other entrepreneurs have figured out how to create multiple profit centers, you can, too. And you'll be glad you did.
Steven D. Strauss, Entrepreneur.com's Ideas & Inspiration Expert, is a nationally recognized lawyer, author and commentator. He is the author of the Ask a Lawyer series of legal advice books geared toward the layman, as well as the author of The Unofficial Guide to Home-Based Businesses. Steven is also a business columnist for USA Today.com.
This story appears in the August 2000 issue of Startups. Subscribe »
