So you’ve got some useful creative or technical skills, plus a healthy work ethic—now what? Should you work in an established business? Become a freelancer or small business owner selling services to clients? Or invest in developing your own product business?
Put another way, how can you best convert your skills and time into the outcomes you seek in life?
Here’s what I’ve learned after trying out all three approaches. Your conclusions may be different to mine, but hopefully this perspective gets you thinking more broadly about the options you have available.
Time vs Money
The traditional approach to work is to swap your time and skills for money, andthen save that money to invest in assets elsewhere. That’s the fundamental model underpinning employment and freelancing: put your skills to use for the benefit of someone else, and get paid cash in return.
But there’s another alternative: you could use your time and skills to build an asset directly. This is potentially more lucrative than a lifetime of earning and saving, and it’s what successful entrepreneurs do when they create intellectual property, products, and businesses.
It sounds great… when it works. The downside is that new products and businesses are inherently risky. Depending on who you believe and how you define failure, research suggests that 30% to 95% of new products and startups will fail. Choosing between selling your time versus investing it in a product involves some critical trade-offs: near-term income vs long-term wealth, certainty vs risk, and resources vs autonomy.
The Perils of All or Nothing
The “all-or-nothing, burn the boats and go for it” approach that is sometimes glorified in startup culture is actually less common than it seems and can be unwise, particularly if (like most successful entrepreneurs) you’re a bit older and have other commitments like kids and a mortgage.
Given the risk of new products, passion and commitment are necessary but not sufficient. There’s no shortage of failed entrepreneurs whose passion for a product fizzled out as they struggled to get customers to (i) notice it (ii) understand it, (iii) see value in it, and (iv) actually pay for it.
I know people who took that path and backed their new product with their life savings, only to go through the heartache of losing almost everything when the reality fell short of their expectations. Too many people burn through 90% of their resources to discover that they’re only half-way on the journey.
That’s where side projects come in.
A Project on the Side
The alternative approach to all-or-nothing is to invest a small amount of your time and money in a side project. You can do this out of hours, around your day job. Time is short, so you have to be disciplined and focused. By necessity it’s a bare-bones product (an MVP, if you like) but done properly it tests your core beliefs about what customers need and will pay for.
The advantages of a side project are two-fold. First up, the downside is contained and manageable—you’re not betting the ranch on things having to work first time. If it goes pear-shaped, all you’ve lost is some of your spare time… and even then you’ll have learned an enormous amount.
Secondly, as the saying goes, “nothing ventured, nothing gained”. Now you have a ticket to play the game, plus the option to expand your commitment if it makes sense to do so. You won’t be that guy or girl who’s always talking about their big ideas but never acting on them. With a side project, you are making progress on your product idea, so you can adapt and evolve your plans as you learn more about what customers really want. Once you get it right, you can expand your commitment accordingly.
Getting Real With Options
Strategists refer to this approach as real options thinking. As in financial markets, an “option” gives you the right (but not the obligation) to take a particular course of action. There is a cost to acquiring this option, but you get access to the upside for only a fraction of the full investment upfront. Although there is a cost to execute the option and commit to the future action, the advantage is you make that decision later when you have better insights.
This means that options tend to be worth more when they last a long time and are cheap to execute, and when the opportunity is big and the situation is uncertain. This is why option-based thinking is ideal for high risk environments like new products or startup ventures.
Success on the Side
So start thinking of your side project as a real option. It gives you a ticket to play and enables you to learn your way into a real business. Think of the possible outcomes for your side project:
- It starts getting traction: you can call in your option and ramp up your commitment, either with your own money or someone else’s, with a much greater certainty of success.
- It needs major changes: pat yourself on the back for learning something valuable without over-committing to the wrong path. Now ask whether you wish to pay a bit more to extend your option and evolve your product idea, based on your new insights.
- It is fundamentally flawed: cheer yourself up by recognizing that you’ve just saved yourself a lot of wasted effort and pain down the track. Better to know sooner rather than later that it won’t work, because your time is the most scarce and precious resource of all.
In other words, the measure of progress for your side project is not revenue or scale, but useful knowledge gained. As you learn, you reduce the risk of pursuing the core opportunity and make it more likely that you can convert your side project into a compelling and viable product.
Examples of successful side projects include Basecamp, Minecraft, Twitter, Uber, Craigslist, and Gmail. What’s more, research suggests that the simple act of working on creative side projects is good for you, with participants likely to be more helpful, collaborative, productive and relaxed.
What’s Your Side Project?
If you’re here on Tuts+, chances are that you’re someone who is committed to lifelong learning and creating interesting things. You may be happy with selling your skills as an employee or freelancer (or just learning for the pure joy of it) and those are perfectly reasonable paths to take.
But if you are someone who dreams about creating a product or starting a new venture, I hope that this perspective encourages you to think about the relative merits of going all-in at the outset versus starting with a side project and evolving it over time.
I’d love to hear your experiences and thoughts on this, so please feel free to contribute to the conversation by commenting below.