What’s the difference between a side hustle and a start-up?
A side hustle is about you as an individual.
On the other hand, if you are part of a start-up or scale-up, you are usually part of a team of financially committed partners whose objective is to create and market a new product or service.
So, what are the differences from your point of view:
A side hustle usually has far less risk because
- You are employed – which means you are not initially relying on your start-up as your main source of income.
- The need for capital investment is usually much smaller because your start-up can start very small and gradually scale.
- Start-ups and scale-ups often seek debt or equity funding to get their venture off the ground quickly.
- However, many businesses fail and those that have provided financial guarantees may lose assets (such as their homes).
In a side hustle, you only have yourself to argue with!
- This may be a lot more significant than you realise!
- In a start-up or scale-up, there are often vastly differing opinions about strategy, level of borrowings, the number of hours each partner is prepared to invest and so on. Such differing opinions often create stress and discontent – especially when the results are not going according to the original plan.
Urgency and stress
- You’ll often hear the terms “rate of cash burn” or “length of runway” in a discussion about a start-up. In other words, how long before this venture needs to make money before it either “goes bust” or needs to do another round of “capital raising” (usually also associated with a further dilution in the equity of the founders).
- This accounts for the stress that the Founders of many start-ups experience.
- In general, this is not usually a major stress for most side hustles.
Reward
- It is often thought that in order to achieve outstanding rewards, you need to be prepared to take great risks.
- Nothing could be further from the truth!
- The first thing to remember here is that when you are a side hustle, you keep all the rewards.
- Also, you can collaborate over time with many others giving you great leverage (especially when you proactively engage in building your network).
- If you start with the objective of ensuring your side hustle creates “increasing income with decreasing amounts of time required to earn that income”, you may well develop a side hustle that more than replaces your income over a 4-5 year period. In this case, you may be able to scale it further and/or sell your side hustle for a significant amount.
- In other words, your personal reward may well be much higher than that associated with your share of a successful side hustle (which may difficult to liquidate).
Entrepreneurial Attitude
- While both side hustles and startups involve entrepreneurship and working outside of a traditional 9-5 job, they usually differ in terms of their scope, goals and level of risk.