How to create a second source of income
Obtaining a second source of income all starts with an idea, one of the most potent forms of power that exists.
I learnt from a TED-Ed that “power is the ability to have others do what you would have them do”. Is that not what all businesspeople want: the ability to make others buy what they want them to buy?
How do we achieve that? How do we get the power to make people purchase our services and products? Getting the business community to take actions in your favour can happen in a variety of ways. Here are some examples in line with the 6 forms of power that exists:
- Physical force – Well of course you can’t do that. You can’t use violence to enforce sales. That’d be wrong and illegal in so many ways.
- Wealth – There’s a popular saying in Ghana that “money stops nonsense”. Yes, your wealth can buy you sales or the influence to increase sales but if not structured properly, you would be spending more money to make less money.
- State action – I remember buying books when I was in Primary School that was Government-sanctioned. We had no choice but to buy them. A democratic government can ratify and downright guarantee sales for a product or a service. In some cases, the product/service meets the needs of the people. In other cases, experts describe the act as “corruption”, “nepotism”, etc. so… … … you get the point.
- Social Norms – A lot of people do what a lot of people do. That’s how many people confirm that something is ok, not that the majority is always right. Social Norms are powerful and can make people change their minds on what to buy and what not to.
- Numbers – There is power in numbers. This seems close to social norms. Let’s assume it’s not a norm; just numbers; just people coming together as a collective to say “we want what we want!” That’s power!
- Then there’s an idea – An idea is in my opinion the strongest form of power that exists because it catalyses all the other forms of power. It can be highly infectious and make people do what you would have them do, or buy what you would have them buy.
What you need, is a strong idea.
I asked my team at Maxwell Investments Group (MIG) what their version of a strong business idea for passive income is. Dr Abigail T. D. Anyomi, President of MIG, wrote on our group platform, and I quote:
“As the days go by, it becomes increasingly clear that having one source of income is highly insufficient to survive in today’s economic climate. Regular 9 to 5 jobs are simply not going to cut it if you want to live a comfortable life, not to even mention a luxurious one.
The second source of income is not a second job. Passive income, which is when your money is basically working for you without you necessarily having to move a muscle, is the way to go to achieve financial freedom. And the more streams you have, the more money you earn and the more freedom you will have to live your dreams, be it a vacation to the Caribbean or a weekend away at a luxury hotel.”
So, how do you get started on having another income stream? What avenues can we explore?
The aim is to fully maximise and utilise the resources available to you. Here are some pointers to consider when determining what should qualify as a second source of income.
- Flexibility – The last thing you want from a second income source is to have to squeeze time or to feel pressured for time to carry it out. A good second income source should give you the freedom to determine your work hours. Whether you are a nighttime person or a daytime person, you should be able to ‘work’ in your free time and it shouldn’t have to compete with your regular job.
- Sustainability – This is very key. The ideal second source of income should be self-subsistent and be able to function efficiently outside of you or with minimal input from you. It shouldn’t fall apart once you do not have sufficient time to work on or interact with it. It should basically maintain itself.
- Enjoyable – What is the point of another job if it’s just to slave away? The ideal second source of income should be something you enjoy doing. That way, it’s an avenue to destress and won’t add to the high stress levels you may be experiencing in your primary job. Pick something that makes you happy, explore a hobby, ideate around it and monetise it.
- Inexpensive – Your second income source should most definitely not cost you an arm and a leg to get it off your ground.
- Scalability – It should have the potential to grow from a small side hustle into something that can generate significant revenue.
The best side-hustles almost always becomes the new 9 to 5, only that you start working 24hours on it because you begin to enjoy yourself. That is why it is important to ideate properly. It is important to sift through the many ideas that flood in and execute the one that has the highest chance of success, to choose a strong business idea.
Rya G. Kuewor, the CEO of The RIO Corporation, also wrote on our MIG group platform, and I quote:
“The answer isn’t predominantly straightforward, unfortunately. More often than not, an idea, especially a business or a technological one, for instance, is only as good as its patronisers.
We can colour the grey areas by understanding that Facebook’s (or Meta’s) idea of connecting people would never have worked if the people had no desires of being connected to each other, or understanding that Adinkra Pie would not have been successful if Ghanaians had immovable resolutions about eating breakfast they hadn’t made themselves.
Knowing this, we can surmise that a good idea needs to be well-timed, culture or context-appropriate, simple enough that it does not feel like a chore, and appealing enough that it isn’t boring. We can use this formula and practice having more good ideas”.
So now we need a strong business idea.
What makes a business idea “strong”?
The strength of the business idea is a prime factor in attracting business investors. It’s about pitching to them how strong your business model is and how you can multiply their investment. In this article, I’ll discuss the different aspects of a business idea that make it attractive for investors.
These aspects include but are not limited to market size, market share, unique selling proposition, background compatibility, innovation, adequate strategic position, scalability, strong problem statement, your strategic capability, understanding of market dynamics, product position, etc.
Let’s understand the details of these aspects.
Market size and market share
The market size refers to the total size of transactions taking place for the product in your target market. It’s simple science; if your market size of the product is larger, you will be able to earn higher revenue and vice versa.
On the other hand, market share refers to the proportion owned by different companies in the market. Sometimes market share is fragmented, which means different companies are selling the same product as you intend to. Likewise, if market share is concentrated, it means few companies are the main players in the market.
Investors prefer to invest in a market with a larger market size. It’s because of the fact that there is more potential to earn revenue/profit within larger markets. Sometimes, operational feasibility is attached to market size. For instance, if the market size is larger, the business will be able to achieve economies of scale and lead to higher profitability.
Economies of scale – It’s a concept that if you produce in bulk, you will produce at a lower price. That’s because the fixed cost is split among a higher number of units, and volume discount can be claimed on the purchase of material, labour, etc.
An alternate strategy can be to look for a growing market. In fact, it’s comparatively easier to capture market share as new customers are buying new products.
Unique selling proposition – (USP)
A unique selling proposition means why customers should buy your product. Does your product offer something different from your competitor? Investors are always looking to invest in products that offer something different. In fact, USP is one of the favourite areas of any investor, and they are always looking to invest in a business that offers something unique to the customers.
Investors like to check your background compatibility with the business idea. It helps them in understanding your capability to run the business. For instance, if you have a degree in medical science and your business idea is about medicines, investors are more likely to invest in your business idea. It’s because of the trust in your competence and ability to run the business and grow their investment.
Investors love to invest in a business idea based on innovation. It’s expected to enhance business efficiency in terms of cost, quality, marketing, and distribution. Furthermore, it’s about making a product more effective to satisfy consumer demand. In addition to this, these are additional benefits of opting for innovation.
1- Innovation helps to grow your business. It may be centred to enhance the quality of your product or control the manufacturing cost.
2- It helps to keep your company ahead of the competition. It can be done by enhancing market prediction and keeping things in line with the market expectation.
3- Innovation helps to incorporate technology into the business. It leads to higher operational efficiency and process optimization, resulting in a certain competitive advantage.
4- Innovation has led to massive market disruptions and eliminated giant players that did not show flexibility.
Adequate strategic position
It refers to how the market should perceive your product. In other words, it’s about how your product/service will be able to capture the market. There is a strong need to be clear and communicate if you intend to be a cost leader or differentiator. Cost leadership is about getting a higher market share by reducing prices. It’s one of the greatest competitive advantages and helps to capture market share.
On the other hand, differentiation is a strategy that aims to distinguish a company’s products or services from the competition. After all, we all aim to have our products and services stand out so they can outperform the competition.
Scalability refers to the fact that your business idea has sufficient potential to grow. It means your business is able to support required resources when product demand increases. There can be two aspects of scalability: internal and external factors.
Internal factors refer to your competence and resources to grow your business. For instance, if you are able to meet the growing demand of customers, you will be able to source material, equipment, labour, machinery, and production space as and when desired.
External factors refer to the fact that if the market size of your product is large or expected to grow with time. If it’s a small niche market, business scalability has lower chances. On the other hand, if it’s a mass-market, chances of scalability are higher.
Niche market – Niche market is the market where a particular product/service is sold. This market has its own preference and needs. For instance, a business specializing in electric showers is said to be operating in a niche market.
Mass market – Mass market refers to the market with a significant number of end consumers, and goods can be produced at a larger scale. These market producers are expected to enjoy economies of scale and bulk discounts in sourcing their production-related material and labour etc.
Normally, investors look for mass-market as they want to invest in something with the potential to become a big business. However, if your niche has low competition and is expected to produce great financial results, it can still be attractive for investors.
Strength of problem statement
Investors are more likely to invest in the products/services designed to solve customers’ problems. It’s because there are higher chances of success if the product/service effectively solves some problem. So, if the ability of your business to solve a problem is strong, there are higher chances of funds approval and vice versa.
Strategic capability refers to your business managing ability. It’s about making policies to achieve sustained competitive advantage and achieve success. It’s based on your vision and intention to develop business and investors are always looking for clarity in your vision and mission.
It’s important to note that your mission and vision must be clear when pitching to raise finance; otherwise, investors may not be willing to invest in your business idea.
You need to deeply analyze the target market in terms of trends and preferences. It’s about being able to position yourself in terms of cost and product quality. Understanding market dynamics enables you to understand the cost and quality gap. For instance, if the price range of product A in the market is $10 and $30. It means there is a gap, that allows you to launch the product at varying sales prices.
SO WHAT IS A STRONG BUSINESS IDEA?
Your business idea is strong if it is scalable, innovative, problem solver, strategically capable, unique from competitors, and designed with in-depth market understanding, and a couple of other things, like research. Let’s further understand the qualities of attractive start-ups and businesses in terms of investor attraction.
Qualities of start-ups, investors are actively looking for
1- Passionate founder – It’s about the start-up founder’s competence, capability, and capacity. Sometimes, Investors assess on the basis that if you are passionate about what you intend to do – investors sometimes even bet on your capacity to do the business rather than investing in your start-up idea as it stands.
2- Financial feasibility of business operations – It’s about the profitability of business operations in doing business. The cost of operations must be less than the revenue earned. So, your gross and net profit should be higher which will attract investors.
3- Your vision – Vision helps to communicate to investors that the start-up is committed to achieving certain long-term objectives. It helps them to rely on your ability to do business and achieve certain targets.
Qualities of businesses, investors are looking to buy into
1- Larger market share – A larger market share is a great attraction for investors. They feel secure for investing in a business with a track of earning revenue. Further, if market share is higher, the business must be doing something different from competitors to attain and retain customers.
2- Optimized processes – It refers to the optimization and efficiency of business processes. Investors are more likely to invest in a business if operations are disciplined and designed with adequate internal controls.
3- Business approach with customer management – It’s about customer satisfaction with the business. If you have higher customer retention, it predicts business stability and investors like to invest in a business earning customer loyalty.
4- Low competition market – If there are limited players in the market for products/services offered by your business, there seems to be low competition and higher chances of getting a larger market share.
The business community look for given attributes in a business idea and investors look for overall financial feasibility before they invest in your idea. Also, different investors have different preferences to invest. However, the overall approach of the feasibility of your second source of income idea revolves around the discussed factors.
I hope you enjoyed the read. Hit me up and let’s keep the conversation going! I read all the feedback you send me. Also, feel free to throw at me topics you’d like to read or hear my thoughts on. You can always head to my Calendly to schedule a quick chat by going to calendly.com/maxwellampong. Or connect with me your way through my Linktree: https://linktr.ee/themax.
These are all facts. And this has been an opinion piece.
Have a blessed week!