5 Things You Need to Know Before Starting a Creative Business
This post originally aired as an episode of my podcast, “The Fearless Creative.”
If you’d rather read instead of listen, I’ve included the abridged transcript below.
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Welcome, welcome, welcome to the show everybody. I am so happy to have you all here.
Today is Saturday as I record this episode. Saturday has become farmer’s market day for us, and I’ve really been enjoying the farmer’s market this year. I kind of fell out of the habit of going shortly after we moved to Colorado, and I don’t know why I stopped going…Things are just so much fresher and yummier at the farmer’s market, but I’ve recently learned about the politics of the farmer’s markets here in Colorado Springs…
We have a super-popular farmer’s market in Old Colorado City, but not all of the vendors are farmer/producers from Colorado. Then there’s the Farm and Art Market, which has only Colorado-grown produce. You’d think that would be how they all are, but it’s not. I always say that in Colorado Springs, everyone’s a hustler. Or everyone’s an entrepreneur…It just depends how you look at it.
But let’s go ahead and dive into today’s topic because it’s kind of a meaty one, and I think it’s going to be really helpful if you are a creative person and you want to become a creative entrepreneur. I’ve been thinking about this topic a lot lately as I’ve been testing ideas for my own business…
Today I wanted to talk about the five things you need to know before starting your creative business — or five questions to ask yourself if you are thinking of trying to make money from your art or your writing or really any creative venture.
In this episode we’re going to be focusing a lot on setting up your creative business so that it can turn a profit, so first I think it’s important to talk about the distinction between a hobby and a creative business. With a hobby, it makes no difference whether your art is profitable. In fact, it will probably cost you money, and that’s okay! You can’t take it with you, and it’s better to spend money on the experience of something you enjoy. I have hobbies that will never make me money, and you should, too.
But if you’re looking to turn your creative pursuit into a side hustle or full-blown creative business, then you need to treat it like a business. And that means evaluating it objectively to determine whether it has the potential to be profitable. This is especially important if you ever need to make any big investments in the business or borrow money to scale it up.
Now, a lot of creatives get turned off at the idea of crunching numbers or putting on their “business hat,” but you can kind of think of this as the first big hurdle you need to clear if you’d like to profit from your creative venture.
Last week, I spoke about the idea of dharma and how to know if you are “in dharma” or not. And one of the signs that you are in dharma or on the path of utilizing your unique talents to serve the world is that you are ready to evolve. And expanding how your thinking around your writing or your art is one way of evolving.
I talked about how the passion needs to come before profits, but if you’re listening to this, I’m going to assume that you already love what you do. In fact, you love it so much, you’d like to spend more of your time doing it.
Doing a little reality check on the profitability of your business doesn’t make you greedy or a sellout. It’s a way to ensure that you’ll be able to keep working in your creative venture for the long haul.
So the first thing is…
1. What do you actually need to take your business from hobby to small-business status?
What are the things that are standing in your way? (Maybe things you’re procrastinating on that you need to do in order to move forward.) Perhaps you need to file some forms to obtain a license or incorporate; maybe you need to get some kind of certification or take a class. Maybe there’s a new skill you need to learn.
Once you’ve identified these things, I want you to think about one small step you could take this week to move forward on that.
If you don’t know how to move forward, use your resources. Is there anyone in your social circle who could help you with what you need to accomplish to get to that next step? If not, you may need to look online or do some additional research to see if you can find the help you need.
2. What are your costs?
First, let’s look at the overhead involved in starting your creative business.
Personally, I always get really excited whenever a new little store pops up downtown or in Old Colorado City. I really don’t like going to the big-box stores anymore, but I will go to local shops — especially if they have cute clothes or I’m looking for a gift.
But as a business owner, I always get this feeling of dread whenever I walk into an empty boutique. We just got this cute little women’s clothing store downtown that has such pretty things, but I know what that location costs. So, for example, a storefront on Tejon street costs $16.50 per square foot. That means for a 500-square-foot shop, you’re talking more than eight grand per month. Plus I know this boutique probably has to pay for utilities and liability insurance and renter’s insurance and whatever software they use — not to mention they have to pay their cashiers, sales tax, unemployment tax, healthcare, etc. You have to sell a lot of rompers just to cover your costs.
If me rattling off all of those overhead costs just gave you a heart attack, I want you to think about how you could reduce your overhead. One way to do that is by working in the business. So if you think of a local restaurant you frequent that’s been in business for a long time, the owner of that restaurant is probably there most of the time. Why is he always there?
For one thing, being present means that owner gets to keep a handle on quality control, but it also means he can pick up the slack for servers and hostesses and busboys so that he can pay one less employee.
In a lot of cases, you might conclude that this means not having a physical storefront. This is why a lot of artists sell their work in co-ops or galleries with multiple artists. They lose a large percentage of a sale to be in that gallery, but they don’t have to pay to keep the lights on.
A lot of creative entrepreneurs nowadays sell exclusively online to keep their overhead costs next to nothing. But there are some disadvantages to this, too. You have less visibility locally, and you’re competing online against a lot more sellers, so you’ll probably have to price lower.
This brings me to the next point about cost…
What are your hard costs? In other words, what are the costs that go into making your finished product?
If you don’t know what your product costs to make, you can’t really make an intelligent decision on what you should be charging.
But once you know what cost goes into making your final product, it’s time to look at your markup. Your markup is your selling price minus how much that item costs you to make. It’s a little different than your margin, because your margins have to take into account all of your costs (including labor). So it would be your gross revenue minus the cost of goods sold. Because this is more complicated, I’d look at what your markup is on your product instead. If you do this calculation and you find that your costs are way higher than you thought, it might be a good time to look into wholesale suppliers or consider raising your prices.
So how are you pricing? And how do your prices compare to other comparable products?
As someone who sells e-books in an online retail environment, I have to stay very aware of pricing to make sure that I’m competitive but that I’m maximizing my revenue. This is equally important if you’re selling real goods in a physical retail environment.
For example, a friend of mine has a shop where he sells different blends of birdseed tailored to local birds. I buy all of my seed from him and he likes to say that his prices are cheaper than Walmart. But they shouldn’t be. I’ve been wanting to tell him for a long time that he needs to raise his prices. He’s selling a higher quality seed without fillers. And, chances are if a customer is coming into his store specifically to buy birdseed, that customer isn’t going to walk out if a bag of seed costs $2 more than it does at Walmart.
So you don’t want to undervalue your work, but you also want to price it to sell.
What do I mean “price to sell”? I have another local example for this one. There’s an antique dealer in Old Colorado City who carries a small inventory of antique Native American jewelry. Now there used to be lots of antique stores in Old Colorado City, but this guy is the only antique dealer left in that part of town…so he knows what he’s doing.
The pieces he sells are antiques, and they’re essentially one of a kind. If they were in a store in Taos or Santa Fe where there’s a high demand for Native American jewelry, they’d easily be twice as expensive. But the dealer told me once that he likes to price things to sell. He doesn’t like to see things sit in his shop for six months or a year, so he gets them cheap at pawn shops or in estate sales and prices them competitively.
This is a lesson I think a lot of fine artists selling in galleries need to learn. Whenever I visit a local gallery, I see a lot of paintings that just sit around. Now I’m not an artist myself, but I get it. You put a lot of work into something, and you want to see a good return. But when a relatively unknown artist is pricing their stuff at $800, $1000, or $1200, I have to wonder how many paintings they’re selling.
This is where knowing your market becomes really important. Are you selling art at a destination city like Santa Fe where people come specifically to full their multimillion-dollar homes with art? Or are you selling in a city in Colorado where the tourists are Midwestern families who had to save up all year to take a weeklong vacation? That’s going to determine your pricing.
This brings me to the next big question you need to ask yourself…
3. What is your time investment in the final product?
In the entrepreneurial world, there’s a lot of talk about working in the business versus working on the business. Working in the business is essentially doing the day-to-day grunt work. Working on the business is more high-level strategy…CEO stuff.
But this becomes challenging for writers and artists because, in general, we can’t or don’t want to outsource the daily grunt work of what we do. I’m a writer, so there’s no way I’d ever outsource my writing. That’s the part I like. It’s the part I’m good at. So ask yourself: Are you the only person who can work “in the business”?
If so, knowing how much time you’re spending on a project is so important. Personally, my time investment in the final product is huge. I’ll work on a book for months.
Now if you’re a writer and you’re freelancing…please, please, please raise your rates. Anybody listening who is working on a project-by-project basis for a client probably needs to raise their rates.
For one thing, that client is using you to make his business money. So you need to know what you’re worth. Often freelancers are concerned about raising their rates, but then they do and the client doesn’t bat an eye.
But before you can set your rate or evaluate your existing rate, you need to determine how much time you’re actually spending on each project and make sure your hourly rate is something you can live with. If you’re working for less than $20 an hour and you’re a skilled knowledge worker, this is a huge problem. Not only are you undervaluing yourself, but you’re undervaluing everyone else’s work, which is contributing to a huge problem in the gig economy in general.
You teach people how to treat you, and you also teach people what you’re worth. If you teach your clients that they can get original writing at a rate of $10 or $15 per hour, they’re going to think that’s what good writing costs. But that is simply unsustainable for the industry (and the economy) as a whole. You owe it to yourself and you owe it to your fellow freelancers to demand a higher wage for knowledge work.
Another topic under the umbrella of your personal time investment is to consider how you might be able to scale up your business…even if you’re the only one working “in the business.”
If you’re not familiar with this concept, scaling up essentially means growing your business — making more stuff or serving more people.
Typically, a small business would scale up either by hiring more people to work in the business so they can create more product or serve more customers. Most businesses do this by expanding their existing customer base — sometimes by establishing new locations. So if you think of a restaurant, the restaurant might scale up by hiring more servers and line cooks. It might scale up by moving to a bigger space with more seating. Or it might open up another location.
But if you’re a writer or a visual artist, scaling up doesn’t necessarily mean that you have to create more stuff. It could just mean broadening your reach.
So as an author who sells primarily digital books online, my business is scalable. I have global reach, and I can create my books once and sell them infinite times.
If you’re a painter who makes fine art, you may not think your business is scalable, but it is. I know a lot of fine artists who sell their originals in brick-and-mortar galleries, but they sell prints or reproductions of their work — both online and in the gallery.
There are also websites where artists sell their originals. They aren’t necessarily painting more, but they are expanding their potential customer base. So rather than their painting sitting in a gallery for several months, it gets scooped up online by someone who never would have visited that gallery.
If there’s a big investment that you need to make in order to scale up, start saving now so that you can get there sooner. But you first need to understand exactly what you need to scale and what that’s going to cost in terms of time, money, and energy.
The next question you need to ask yourself is…
4. What’s unique about what you’re offering?
For a writer, no one writes exactly like you do. If you’re a painter, nobody paints like you do. But what if you’re selling something that someone could replicate?
Obviously, if you bake cakes, your cakes either need to be tastier or prettier than the cakes the existing bakery in your city sells. For restauranteurs, the food quality matters, but so does ambiance and service. I can’t tell you how many times I’ve been craving the food offered a specific restaurant, but I didn’t want to deal with the “vibe” of the restaurant or the poor service.
So if you’re starting a creative business where someone could replicate what you’re doing, think about how you can differentiate your business in a way that can’t be imitated. What is your unique value proposition? What is special about your product or business? What’s that little something extra that could tip the consumer to purchase your product instead of your competitors?
And finally, the last question you should ask yourself is:
5. What resources do you have in your community that could help you with this venture?
For a lot of creative entrepreneurs, the community around them is critical to their success. A lot of times these people are well-known in the community, and that community is the lifeblood of their business.
If you’re a creative and you haven’t tapped into your community yet, now might be a good time. What do I mean by tapping into your community? I mean identifying the resources that are available to you for promotion, sales, learning, or collaboration.
One example is the idea of First Fridays. A lot of cities have these events. Basically, the community knows that on the first Friday of every month, there is a special event in a certain part of town showcasing local artists, vendors, and shops. There might be live music. There might be snacks. Essentially, the community knows that there are things going on in their local art district, so people will turn out and make an evening of it.
In downtown Colorado Springs, there’s a chocolate shop where they offer free chocolate tastings and free ballroom dancing on the first Friday of every month. In this case, the shop has partnered with a local ballroom dance instructor, and it brings people in the door. The shop sells more chocolate. The dance instructor gets more visibility. It’s a win-win for both of them.
Even if your city doesn’t host First Fridays, it might have art events, farmer’s markets, or festivals that you’re not even aware of. Or maybe there’s a shop that specializes in local handmade goods or a restaurant that wants to serve locally made bread or desserts.
That birdseed guy I mentioned? He went into business with the orchid ladies. He now shares a location with an orchid shop. This means they’ve both reduced their overhead. They’ve broadened their customer base. And it means that they don’t have to work in their shop seven days a week.
So there are many ways that you can get creative when you’re trying to turn your hobby into a business, but you have to know people. Personal connections matter, which is why I would encourage you to become a regular customer at your local establishments and get to know other creatives and small business owners.
If you know the inventory really well at your local stores, you’ll know where your product might be a good fit. Or if you become friends with restaurateurs and coffee shop owners, you might get to know what they need or where they could use some help.
So if you are thinking of turning your creative passion into a business, this week I want you to take one step in that direction. If there’s a big step you need to take to initiate the next phase in your journey, your homework this week is to take that step.
That’s all I have for you today…I hope you found it helpful. If you enjoyed this episode, please subscribe and leave a written review wherever you get your podcasts. This helps other creatives find their home away from home on the Internet, and I really appreciate them.
As always, you can find me on Instagram @writewithtarah and on the web at www.writewithtarah.com. You can always get in touch with me to let me know what you think of the show or if you have any ideas for future show topics. I am always so happy to hear from listeners.
I’ll see you next time, and happy creating!
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