Peter Belski works on wooden trains in his shop.

Some of the wooden trains Peter Belski of Daisytown, Pa., plans to make and sell full time when he retires in two years.

Create a business plan. Do market research. Arrange financing. These are the usual steps for launching a new business. But that's not the way a lot of hobbyists do it.

Carol Kitchens is a case in point. When a health condition forced the Californian to retire from an office job with the Sonoma County housing department at age 62, she decided it was time to start a home-based business from her weekend hobby: creating stuffed lambs inspired by sheep she raised at her rural home. In 1997, Kitchens launched Especially for Ewe, using a Web site as her primary marketing channel.

In lieu of writing a formal business plan, Kitchens met twice with SCORE, the Service Corps of Retired Executives (www.score.org), a nationwide group of volunteers offering free counseling for businesses, startups and entrepreneurs. The counselors gave her valuable marketing advice: "They said the copy on my Web site read as if I were trying to sell lamb legs for roasting. So I made some changes," said Kitchens.

Then, Kitchens leveraged the power of her own personality to publicize her hand-sewn lambs, sending them to talk show hosts and celebrities in California. She made business cards and toured craft shows. She handled all aspects of the business herself, including her "assembly line" process for sewing and stuffing the lambs. "I jumped in with both feet," explained the 71-year-old entrepreneur.

High failure rate for start-ups

Although Kitchens' good business instincts and high enthusiasm were enough to keep her operation afloat, business experts warn against such an unbusinesslike approach, which is common among hobbyists hoping to turn their diversions into dollars.

There is no hard data on the number of hobbyists who launch businesses, but the majority of small businesses fail in their first five years, according to the US Small Business Association (SBA) The No. 1 reason? Poor planning. Here are some common mistakes that hobbyists-cum-entrepreneurs make:

  • Jumping into a business venture without an understanding of how much it will cost to run the business. Often they under-price their products because they don't figure in their own labor costs.

  • Failing to do market research, mistakenly assuming the public will love their product as much as they do. "People have to be careful not to drink their own bath water," says Lionel Schwartz, a counselor with SCORE. "It's imperative to thoroughly research your potential market."

  • Counting on the Internet alone to do their selling. Although it is easy to start an online business, new entrepreneurs cannot just sit back and wait for the orders to arrive.


Decide what kind of business you want

"Hobbyists need to have goals, and know what they are aiming for when they launch a business," said Ann Barber of the National Craft Association of Rochester, NY, whose mission is to help hobbyists launch businesses. "I tell people that if they treat their business venture as a hobby that brings them a little money, it will stay that way. "Without planning and structure, businesses will either fail or simply not thrive," she says.

Kitchens' business fits this profile; although it is still viable, it has limited growth potential, and product sales volume has decreased over time. Nevertheless, Kitchens is wedded to a freewheeling, inspiration-based business approach. Recently, she launched a second home business inspired by her personal interests: breeding and selling Yorkshire terriers.

"I wouldn't run my businesses any other way," she explains. Her advice to fellow hobbyists who want new careers? "Go for it. If you don't absolutely love what you are doing, you are doomed to fail."

Barber urges would-be entrepreneurs to take a cooler look at their prospects. If a 60- or 65-year-old calls us and says, 'I have this hobby I've been doing for 20 or 25 years. Do you think it will make a good business?'" I urge them to do some planning, says Barber, whose organization offers help with Web site development and a step-by-step kit for organizing, marketing and running a small business. Her organization also co-authored "The Complete Idiot's Guide to Making Money with Your Hobby," which details how to set up shop, trademark products, handle taxes, and ship products. "The book helps you figure out whether you're ready to move from a hobby to a profession," says Barbara Arena, author and craft association co-founder.

Peter Belski of Daisytown, Pa., is a good model for mixing Kitchens' brand of passion with more businesslike planning. His Uncle Pete's Wood Toys are already popular at craft fairs, and the 59-year-old utility worker plans to launch a full-time business selling the toys over the Internet when he retires in two years. To prepare, Belski recently took a community college course on how to run a home-based business, including how to register as a business, keep records, manage inventory, and claim expenses as tax write-offs.

But implementing these business practices comes second to practicing his craft, Belski emphasizes. He does not want to grow a large business, even if there is demand for it. Making high profits is not a priority, either. Belski wants the time to carve each wooden toy by hand. That is how he defines success. "If I had a production plant, that would take the joy out of it," he explains. "I need to be able to touch each piece of wood. All my toys have a stamp with my name on it."

You can do it!

Here are some tips for turning your hobby into a business:

  1. Create a business plan that details every aspect of what you aim to do. Develop one-, two- and five-year goals. Estimate costs and how you will finance the business.

  2. Seek free business counseling from a SCORE (www.score.org) counselor. With offices across the US, SCORE offers expertise in almost every business sector. Counselors help new entrepreneurs develop their business plans.

  3. Take courses for new business owners. Learn about the tax implications of a new business, how to research the demand for your product, and how to document costs and sales. The US Small Business Association also offers free online training courses at its Web site (www.sba.gov/advo).

  4. Learn how to use the Internet as a business tool. The Internet is a crucial channel for selling, marketing, and understanding the competition. It gives you the potential to reach many more people than you could with traditional print and TV advertising. However, it is merely a delivery channel. You still have to figure out an effective way to promote and sell your product.

  5. Seek legal advice if there may be liability issues regarding your product. What if a child injures herself while playing with a toy you made? How would you respond if a customer claimed your homemade jams made him/her sick?

Web sites

Small Business Advisor (http://www.isquare.com/home.cfm): Resources and articles on starting and running a small business.

U.S. Small Business Association (www.sba.gov/advo): SBA's Advocacy Office offers advice and information on starting, financing and managing a small business.

SCORE (www.score.org): Service Corps of Retired Executives is a nationwide group of volunteers offering free counseling for businesses, startups and new entrepreneurs. Web site includes online counseling and support, based on your business needs and location.

National Craft Association (www.craftassoc.com): Nonprofit industry group offers advice, support for turning hobbies into businesses. Members pay annual dues.