The Rise of the Part-time Entrepreneur
It’s never been easier, cheaper, or more important to launch a digital business
Professor Scott Galloway from NYU Stern nailed it when he described the impact of COVID-19 on the global economy as not being a “change agent” but an “accelerant.”
By an accelerant, he means that in 2020, many trends that were already taking place moved forward 10 years in a matter of eight weeks. Some examples include;
- The shift from physical to online retail.
- The shift from going to a movie theater to watching Netflix on our couch.
- Having household items like groceries delivered right to our door.
- Working from home rather than in the office.
None of these trends are new, but the rate at which they have been accepted as the common practice has accelerated faster than most of us thought possible.
As millions of people continue to work from home in 2021, there will be another trend that will accelerate; the rise of the part-time entrepreneur.
In this article, I discuss why it’s never been easier or more important to launch a side business.
The importance of diversifying your income streams
When it comes to investing, anyone who has looked at the evidence would agree that diversifying the investments in your portfolio is a smart idea.
Diversification is simply a way to manage risk. If one investment is losing value, those losses can be offset by another investment that is increasing in value.
Here is a truth you can’t hear often enough; Your income is the most important investment you will ever have.
All other savings and investments are made possible by the income you can generate for yourself.
Economists would call your ability to generate income your “human capital.”
It has always confused me that so many people accept that it’s important to diversify your financial capital, and so few people consider the benefits of diversifying your human capital.
If you only have one source of income, you are putting all of your eggs in one basket. For most people, if they lost their job, it would not be long before they would be unable to pay their bills and begin experiencing financial hardship.
On the other hand, if you had a side hustle that could cover your necessary living expenses, you could lose your job and potentially avoid any significant hardship.
That is another level of financial security.
Two types of side hustles to diversify your income
Broadly speaking, there are two types of side hustles.
- Second jobs.
If you have a side hustle where you trade time for money, that is a second job. Driving for Uber or Lyft would be an example of a second job type of side hustle.
2. Side businesses.
The other type of side hustle is one that has no set hours, and the money you earn is based entirely on the quality of your work and your ability to market that work.
These types of side hustles have scalable income. That simply means there is no cap on the income you could earn. There is also no guarantee you’ll earn any money.
Starting a blog, selling a digital product, or an e-commerce store are examples of side businesses.
Adding some stocks to your portfolio of human capital
So, which type of side hustle should you choose? Here is an easy way to figure that out.
Much like your financial capital, your human capital can be diversified into stocks and bonds.
- If you are a tenured professor, your human capital would be like a bond. The same amount of money hits your bank account each month, with a small chance of getting fired but with a cap on your earnings potential.
- If you own a business or work a 100% commission sales job, your human capital would be stock. There is no limit on the potential returns, but it could also come crashing down to $0 one day.
To balance out and diversify your human capital, choose a side hustle that has the opposite characteristics of your day job.
- If your day job looks like a stock, go with a second job that acts like a bond to provide a predictable and stable source of income.
- If your day job looks like a bond, go with a side business that acts like a stock to provide you with the upside potential for unlimited growth.
The best of both worlds
I have a day job that acts like a bond, so I decided to start a side business. Having that second stream of income has transformed my financial life.
I was able to save quite a bit of money from my paycheck, but since my paycheck looked like a bond coupon, it was unlikely that I could dramatically increase my take-home pay, which put a cap on what I was able to save.
But since my 9–5 job could cover all of my living expenses and more, that meant I could save and invest 100% of the profits from my side business.
I take every penny my side business generates and put it directly into an investment account.
This provides me with both scalable income and scalable wealth.
- As I grow my side business, that means I will have more money to invest.
- Each year I invest more than I did the year before.
- At the same time, the investment gains from previous years begin to compound.
This kind of virtuous cycle acts as a wealth snowball. Each year, the income, savings, and investment gains grow larger than the year before.
If my business continues to scale at the rate it has in the past 12 months; I have put myself on pace to become financially independent within the next four years.
Financial Independence is the ultimate form of financial freedom. It is the point where even if I lost my job and my business failed at the exact same time; I could still pay for all of my living expenses with the income generated from my investments.
If you can paint a better picture of financial security, I would love to see it.
Working from home has torn down the final barrier to part-time entrepreneurship
There have traditionally been two barriers to starting a business, even on a part-time basis.
- The money required to start a business.
- The time commitment required to run a business.
The rise of social media and e-commerce platforms have made it incredibly cheap to start a business. There are many businesses you could start with an investment of a few hundred dollars.
The issue that remained was the time commitment. If your working 40 hours per week plus commuting to and from work every day, you would have precious few hours to run a business on the side.
This forced many people to choose between a 9–5 or starting a business.
The shift to working from home has broken down the time barrier. I used to get up at 6:30 AM, spend an hour getting ready, drive an hour to the office, and start work at 8:30 AM. Then I would spend an hour driving back home at the end of the day.
That’s 3 hours a day or 15 hours a week spent getting to and from work.
In 2020, I could roll out of bed at 8:15 AM, pour a cup of coffee, and walk down the hall to my home office, and get to work.
Except I didn’t get up at 8:15 AM. I continued to get up at 6:30 AM and worked away at my side business until 8:30 AM. Then during the time at the end of the day that I would have spent driving home, I worked again on my side business.
Throw-in an extra 30 minutes at lunch and a few hours each day on the weekend, and I can easily carve out 25 hours per week on my side business.
This is only possible with a digital business
I am able to make this work because I run a digital business with minimal customer service. That means I can start and stop working whenever I need to.
If I ran a physical business like a gym, I would need to be at a particular location during a particular time of the day for a certain number of hours. It would be impossible to make that math work with my 9–5 job.
I believe the work from home trend is here to stay. Most people won’t continue working from home 100% of the time, but I think we are headed to a hybrid model of coming into the office a few days per month and working from home the rest of the time.
That will give us more free time during our most productive hours of the day and open up the path for a new generation of part-time entrepreneurs.
If you want to learn more about the steps to financial freedom, I invite you to enroll in my 4-day free course that blends basic money management with digital entrepreneurship.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.