Passion vs. Reality 

You’ve decided you want to turn a hobby into a business. Perhaps you’ve heard, “Do what you want and the money will follow,” or “Always pursue your passions”. Following those phrases may bring you happiness or they may bring you hassle or even ruin. It’s always best to understand how the world works. Look before you leap.  

The Financial Risk of Starting a Business 

One very real risk to starting a business is you can lose more money than you make. As one of my professors said, if you’re looking to set your own hours, do something you love, or be your own boss, those are terrible reasons to start a business. If the thought of starting with $5000 in your pocket and ending up with $1000 at the end of the year frightens you, then you shouldn’t be starting a business. If those are terrible reasons, then what’s a good reason? You have money you don’t want to put into low risk investments in the stock market. Yes, you heard it correctly. Starting a business is no different than investing in the stock market from an academic point of view. In both cases you can lose all you started with. You shouldn’t invest in anything unless you’re ok with losing it all. Don’t spend your rent money down at the horse racetrack. The same goes for buying stocks or starting a business. Invest only what you can afford to lose. 

Entrepreneurship as an Investment Decision 

Entrepreneurship only makes sense if the expected return compensates for the risks assumed. The reason entrepreneurs assume risk is because the returns in a small business may exceed the stock market. Blue Chips tend to return only a single digit percentage growth, while some small private companies can exceed twice the returns of the S&P 500 index. If you are beginning the entrepreneurial journey, you need to ensure your opportunity cost is in balance. Opportunity cost is about options foregone.  Aside from not hitting the 15% return an S&P 500 index fund would give you, could you invest that money in something else that would grant you a comparative advantage? If your goal is income then investment return, would you be better pursuing a degree or certification, then using your extra income to max out your 401K and IRA? 

Opportunity Cost: Time, Effort, and Control 

In investing you pick something and hope it works out. Those are passive gains. For a lot more effort you can influence the outcomes in your business. That is a big investment in time. Does that meet your criteria in opportunity cost. Will you give up time and effort to see this business grow or do you really want to put money into an investment and occasionally check to see if it’s meeting your benchmarks? 

Concentration Risk and Vertical Integration 

Entrepreneurship represents single concentration risk, also known as all eggs in one basket. You can diversify a stock portfolio at the press of a button. It’s a lot more difficult if you own a business. Study the history of Korean Chaebols and their vertically integrated supply chains and conglomerate operations. Samsung is like GE of the 1980s. They make everything. This is meaningful for a GM since a vertically integrated supply chain would mean writing your own adventures instead of buying them. This includes all the components, cartography, encounter design, art, etc. This has an advantage because all the component parts can be sold separately. If you have good maps sell a map pack. If the adventure scenario is well written, remove game system components and mechanics, then sell the adventure as “system-agnostic” and let the buyer handle encounters and statblocks.  

Knowing When To Quit: Sunk Cost Fallacy 

Sometimes things don’t work out. This is also where you as an investment manager, not a business owner or tradesman, need to understand the sunk cost fallacy. People tend to double down on a failing scenario because of the money and time that was already invested in the venture. Sometimes it’s best to shut your business down, take the tax deduction, then reflect on trying something else. Not every venture works out the first time. Many famous entrepreneurs failed multiple times before finding that “AH HA!” moment. 

Value Creation, Not Craft Quality 

Operating a business is also about value creation. Your customers want value. It doesn’t matter if they are buying home renovations, a car, new clothes, or time with a GM.  

How to Measure Value 

Value = Benefits Received – (Selling Price + Time and Effort to Purchase) 

Choosing Your Customer (Even When It Hurts) 

Always consider the point of view of the buyer. What are the benefits of dealing with your company vs. a different company? We then need to question buyer motivation. What benefits are they looking for? Are those what your company is going to sell to them? It goes beyond install good cabinets in their house or run good games. Different customers may have different motivations and goals. Are you prepared to pick a customer segment and cater to those needs and wants even if they don’t align to what brings you joy? 

Conclusion: A Business Is A Risk You Choose. 

In the end, turning a craft into a business is not a statement about identity, passion, or personal fulfillment. It is a decision about putting capital at risk under uncertain outcomes. The market does not reward enjoyment, effort, or self‑assessment of skill. It rewards the consistent delivery of value to a customer at a price they are willing to pay. That value must be delivered often enough, and with sufficient margin, to justify both the financial risk and the time invested. If you can afford the potential loss, understand the opportunity cost, discipline yourself to serve a defined customer, and accept walking away when the numbers no longer support the decision, then starting a business may be rational. If not, keeping the craft as a craft may be a better investment. 

 Are you ready to push forward? Stay tuned for our next post in the series.