Question
One of my mentors has asked me the question 'is my startup a hobby or a business?' My startup is an Australian-based edutech initiative that is one year old and post-revenue.
To answer this he wants me to choose a metric that encapsulates the reality of the opportunity cost of the time spent on my startup.
The background to this stems from my (paraphrased) statements: there's nothing else I need to be doing, I get as much out of this as I put in, etc.
Questions:
Is my mentor asking the right question?
If yes, what metric?
If no, what alternative do you suggest?
Answer
If you take less money out than the fair market value of your time, it's a hobby. If you can pay yourself a fair market wage, you own a job. If your business had profit beyond your fair market wage, it's a business.
There is a section on this in my book; How To Sell My Own Business.
You see, I often direct hobby and job owners to auctioneers when it comes time to sell their 'business.'
Hope that helps to clarify things.
Cheers
Dave
