How to Use a Side Hustle to Create an Asset, NOT a Job

Michael QuanAmazon FBA, Contributed, Education, How to, Making Money, Misc, Side Hustles2 Comments

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Side hustles are the perfect complement to FIRE.  They are tiny pops of entrepreneurial energy that almost anyone can do on the way to FIRE, or post-FIRE. 

Today, I’m excited to have a guest post by Jim who’s created side hustles with Amazon FBA and owns other digital assets (i.e. websites).  I was excited to read this and learn, and I think you’ll enjoy it also.  So, without further ado…

When you think about asset allocation for your portfolio, what comes to mind? For most people, it’s usually just a decision between stocks and bonds. Some people might mix in a little real estate/REITs, maybe some gold and silver and since it’s 2018, there might even be some Bitcoin in there.

But what about creating a side hustle that provides cash flow AND can be sold as an asset, just like a business?

In August of this year, I took a side hustle I started 4 years ago and sold it for a little over $40,000. So how’d I do it? Why did I choose to sell?

In this post, I’ll give you some tips for creating a side hustle that can be sold for a multiple of its profit and how to avoid side hustles that are really just low paying jobs in disguise.

My Side Hustle Journey

Getting Online

4 years ago I started selling physical products online. Specifically, I listed them for sale on Amazon.com. There were 2 reasons I chose this channel for sales.

  1. Amazon gets a ton of traffic. If someone is looking to buy a garlic press (the first product I started selling), they usually go to Amazon.com and search for ‘garlic press’. I don’t need to do any marketing or make people aware of my brand. I just list my product with Amazon and it shows up to their huge list of customers.
  2. Amazon handles all of the fulfillment. I have a day job and I don’t want to go to the post office every day to ship out orders. By selling my product through Amazon I was able to hand over all of the customer service and logistics planning. This meant I had freed up my time to spend it with my family and work on other projects.

Growing Revenue

After 4 years of selling products on Amazon, I had gone from $500 per month in sales up to a peak of $40,000 per month during the Christmas shopping season.

As of right now my business does about $8,000 per month in sales and brings in $1,000 in profit on autopilot. I usually spend about 1 hour per month working on the business which means my hourly rate is wayyyy higher than almost any day job out there 🙂

So why did I decide to sell?

Selling & Focusing

The biggest reason I chose to sell my business is to focus my efforts. In addition to running the Amazon physical product business, I have my own personal finance site I run, 2 affiliate sites I acquired for $12k each, an affiliate site I created from scratch earlier this year and a new website I just started a few weeks ago.

Also, I have a regular 9-5 job, 2 kids and a house that is constantly needing work. I just don’t have enough hours in the day to grow all of these businesses and give them the attention that they need.

I listed my business for sale on Empire Flippers and was able to find a buyer after just a few weeks. I’m in the process of transferring the business over to the new owner and bringing him up to speed on everything.

So after 4 years of work and reinvesting the profits into other ventures, I’m going to be getting a lump sum of cash. And the best part is I get to decide how to invest it. With the stock market at all-time highs and returns in the 5-15% range, I’ll probably reinvest it into my own websites. It’s not too hard to achieve 25-50% returns with websites since you can put in the time and create content to increase your earnings which is something you can’t do with stocks and bonds.

Different Types of Side Hustles

The term ‘side hustle’ has exploded in popularity over the last few years. Take a look at this chart from Google trends showing the huge increase in popularity, especially over the last 2 years.

But not all side hustles are created equally. Some of them are nothing more than low paying second jobs while others can be scaled to 6 and 7 figure incomes without requiring huge amounts of time.

So how can you tell the difference between a good side hustle and a bad one? There are 2 tests to apply:

  1. In order to make more money, do I need to spend a proportionately higher amount of time?
  2. Will someone else buy my side hustle like it’s a business?

Whenever I’m looking for a side hustle to start, I’m considering those 2 tests.

Can I double my income without doubling the time I spend on it and will someone else buy this side hustle if I want to stop doing it?

Let’s take a look at each test and see if some commonly recommended side hustles pass the tests.

Example 1: Driving for Uber

Uber and Lyft have exploded in popularity over the last few years and becoming an on-demand driver for hire is a popular side hustle. There’s a wide range of figures on how much Uber drivers actually make but the most commonly cited number is between $10-$25 per hour depending on what area of the country you live in.

Before I go into this mini-rant and bash Uber, I want to say that this is a perfectly valid side hustle. Making $20 per hour in your free time is awesome and if you’re looking for somewhere to start making extra money, Uber can be a fantastic option.

Now that I’ve got that out-of-the-way, let me explain why Uber is just a job and not an asset. Let’s apply each of our tests and see how Uber looks through that lens.

If I want to double my income, do I need to double my hours?

Uber pays you for driving people like a taxi service. If you don’t have people in your car, you aren’t making money. The only way to make more money is to spend more time driving people around.

Uber fails the first test of separating our time for money. This should have been obvious when I mentioned the hourly rate for an Uber driver in the previous paragraph. If you can break the side hustle down into an easily quantifiable $/hr rate, it probably fails this first test.

Let’s take a look at the second test to see if we’re building an asset.

Will someone else buy this side hustle for a multiple of its profit?

This might sound a little abstract but think about when you buy a share of stock. When you buy 1 share of Apple stock, you’re buying a very small fraction of the company. This share of stock is valued at a multiple of the profit (that’s the P/E ratio you always hear about). It also entitles you to receive a share of the profits which are paid in the form of a dividend.

So back to Uber, can you sell this side hustle off like a normal business?

No way. Anyone who wants to drive for Uber would probably just go and sign up themselves. Why would someone pay you for your ‘Uber business’ if they could start their own for free?

Driving for Uber is a fine side hustle but it’s basically the same as getting a second job. It pays about $15 per hour and you can decide how many hours you want to work. For some people, this is perfectly valid and could be a good option. Being able to set your own hours is awesome and $15 per hour isn’t bad.

But when you think about building a scalable asset that can earn passive income and be sold for a big payday, Uber falls flat.

Example 2: Building an Internet Business

Now we’ll take a look at one of my favorite side hustles, building Amazon affiliate websites. More specifically, creating a website that makes money even when I’m not working on it.

If you haven’t heard of this side hustle before, it might sound a little like a late night infomercial. It’s actually 100% real and there are some people out there making a lot of money from it. The best example is a website called The Wirecutter. Here’s how it works:

  1. You want to buy a new laptop but you don’t know anything about them. Then go to Google and search for “best laptop”.
  2. You click on the top search result that isn’t an ad because you want to do some research.
  3. You land on the Wirecutter’s article here. (Go check it out, it’s very well done and a great example).
  4. You read their 5,000 super in-depth guide with real-world, hands-on testing and you decide to buy their top choice, the Dell XPS 13.
  5. You click the link to buy the Dell XPS 13 for $1,175 and end up purchasing the product.
  6. The Wirecutter earns a ~5% commission which is a $59 commission for the Wirecutter.
  7. 20 people per day do the same thing as you and the Wirecutter is making $1,180 per day or $430,700 per year.

That number might sound big but it’s probably not far off from reality. The Wirecutter was acquired by the New York Times for a whopping $30 million in 2016. This means the Wirecutter was making millions of dollars per year from people clicking on links on their website.

So let’s take a look at my 2 criteria and see if an affiliate website passes the tests.

If I want to double my income, do I need to double my hours?

Nope. The way websites make money is by getting people to visit the page. Once an article is created it will continue to bring in traffic and generate revenue without any more work. During August I went on a week long backpacking trip and while I was gone my websites brought in $314 in income from affiliate sales I made through Amazon.

Websites pass my first test, now let’s take a look at the second one.

Will someone else buy this side hustle for a multiple of its profit?

This one is easy. There’s an entire industry of brokers/marketplaces online that exclusively deal in online businesses. I sold my Amazon FBA business through Empire Flippers and you can take a look at all of the businesses currently listed for sale in the marketplace here.

Usually, websites/online businesses will sell for a multiple of 2-3x annual profits. Compare this to companies in the S&P 500 that normally trade for 15-25x annual earnings and you’ll notice that online businesses are much cheaper to acquire compared to shares of public companies.

Final Thoughts

If you want to learn more about building websites or starting side hustles you can check out Jim’s website at AcceleratedFI.com or just shoot Jim an email at jim@acceleratedfi.com.

Readers, what side hustles have you tried (or trying)?  Share your successes and/or failures.  What have you learned?

Michael Quan
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