This is the age-old question.  Do you have to love what you do to make money?  Several bloggers weighed in on this issue in the Shifting Careers column at NYTimes.com, writing that it depends on the circumstances.  For instance, Problogger and Grammergirl both question this premise, noting that you can be passionate about something that won’t necessarily translate into a successful business.  J.D. of Getrichslowly also doubts this notion, pointing out that he knows many people who are passionate and poor as well as miserable people who make a ton of money.

I think this premise is a bit more complicated than just “you have to like what you do to make money.”  As a recovering lawyer, I have seen a lot of lawyers make six-figure incomes, but are more miserable than a drowning rat.  But then I also see a lot of entrepreneurs who make a lot of money and absolutely love what they do.  Even Warren Buffet, the richest man on this planet, says that he skips to work everyday and would do what he does now even if he weren’t being paid for it.  So what is the distinction?  Here are my two cents.

• Misery loves company:  It’s a lot easier to be miserable at a job - you show up, your boss overloads you with work, you go home miserable, BUT at the end of the day, you still get a paycheck for your troubles.  After awhile, you show signs of zombie-ism (is that a word?) at work.
• Like a marathon, you crave the pain:  In contrast, if you’re an entrepreneur, you have to create your own workplace - whether it be going door to door hawking electronic encyclopedias or selling organic pizza to corporate clients.  The difference between this and a high-paying job is that there is no guarantee that you will ever get paid any significant sum for your troubles.  When you become an entrepreneur, you get a crash course in Murphy’s law, like a dearth of capital, maxed out credit cards, negative cash flow, lazy employees, skyrocketing health insurance costs, and slow-paying customers.   Given all this, it’s pretty obvious why you need to like some aspect of the work - otherwise, why put up with all of the headaches?  If you like the fundamental business - e.g., brewing tea, teaching yoga, making wine - you’re more likely to put up with all the other stuff to keep at it.

Of course, there are those entrepreneurs who don’t necessarily like their work, but have started the business because they find that it is the only way to make a decent living.  Some of them do become quite wealthy.  However, they eventually become burned out after decades of grueling hours in labor intensive businesses like restaurants or convenience stores. 

So what’s the bottom line here?  If you are content working for the man, make sure it is something that you can tolerate or even like once in a while.  Life is really too short for a job that you end up working at 80 hours a week but keel over before you’ve even had an opportunity to enjoy the fruits of your labor.  If you want to become an entrepreneur, try to pick a field that you are passionate about, with the caveat that it will not be all rosy all the time.  But remember the payoff - you are building something for yourself, for the present and the future.

Starting your own business is a real nail biter by itself, to say nothing of doing so in this “economic slowdown” (as characterized by the Prez).  But a looming recession should be no deterrent to pursuing your entrepreneurial dreams.  According to Inc. magazine’s May 2008 edition, iconic companies like Coors Brewing, Herman Miller, General Motors, and Microsoft, to name a few, were started during past recessions.  But how do you figure out whether you are even cut out for the self-employed world?  Moreover, how do you maximize your chances of business success (or minimize headaches)?  Remember those tests you had to take in high school to assess what you should be when you grow up (nurse, doctor, firefighter, professional wrestler)?  Well, the Small Business Administration has something similar for business wannabes; it’s called the “Small Business Assessment Readiness Tool.”  Styled like those high school career questionnaires, the SBA “Readiness Tool” asks both general questions about your aptitude and willingness to be self-employed as well as specific questions like whether you know the tax requirements for your business.   Starting a business presents all sorts of huge challenges and requires massive amounts of homework and dedication.  But this SBA tool is a nice place to start, if just to give you a general framework for many of the issues that you should consider before taking the entrepreneurial plunge.

Have you ever dreamed about working from home?  Wouldn’t it be nice to sit out on endless meetings that drone on and on.  You don’t have to get up at the crack of dawn just to make your three-hour train ride into the city.  You even get to sit in your home office in your Charlie Brown pajamas, with your stylish bedhead hair.  Well, I hate to admit it, but the reality is much different than the fantasy.  Being on maternity leave for the past two months, I actually miss the 9 to 5 (or 6) routine and the social interaction with my co-workers.  Being able to bounce ideas off of others at work is an oft-overlooked benefit of going to the office.  It’s also sad to say, but going to work and wanting to leave work on time motivated me to accomplish more while I was at work.  At home, there are simply too many distracting nonwork-related tasks.  Nonetheless, the situation is only temporary - I return to work in about a month.  But what if you are a one woman startup who can’t afford fancy office digs or any office for that matter?  Ahh, one solution might be coworking.

What is coworking?  Dan Fost of the New York Times defines it as a community workplace for solo entrepreneurs.  Fost’s recent article on coworking discusses the recent increase in coworking sites, where someone sets up an office and rents out desks and conference rooms to other people.  The setup can be very casual or quite formal, depending on the place.  You could drop in and take a place at a large table or have your very own temporary desk/cubicle space reserved just for you.  What are the benefits?  For one, it’s cheaper than setting up your own office, particularly when you are just starting out and cash is tight.  But, as Fost points out, the ability to connect socially and share ideas with others is the key benefit for those who hate toiling away at home alone.

Fost also profiled Ingoodcompany, a business consulting and community workplace specifically targeted towards female entrepreneurs.  Recently opened in the Flatiron district of Manhattan, Ingoodcompany combines workplace, community, and learning.  Members who signup and pay an annual fee can rent a conference room to meet clients or a lease a desk for their daily work routine.  Ingoodcompany also holds workshop seminars and networking events and offers opportunities for members to consult with the company’s founders, Amy Abrams and Adelaide Fives.  Because it’s more than a mere office space to park yourself during the day, Ingoodcompany sounds like a business incubator of sorts, where you can testdrive ideas with other “coworkers” as well as business experts like Abrams and Fives.  Fost’s article, however, smartly recommends out that you should only sign up if you are truly interested in growing your business, not just if you merely want a place to hang out or people to chit chat with during the workday.  I agree - it’s probably cheaper just to go to Starbucks. 

What separates successful entrepreneurs from the rest of the pack?  Why do some people spot the lucrative opportunities that others miss?  Here are some offhand thoughts on these questions.

• Entrepreneurs are not afraid of failure.  They are not the people that refuse to try anything “risky” or give up something after the first attempt.  They try, they fail, they try again.  Eventually they hit on something big.  A family friend, Uncle Bill, is a very successful real estate investor.  When he started investing, he bought a rundown duplex apartment.  The tenants didn’t pay the rent and eventually skipped town.  When Uncle Bill checked out the apartment, he discovered that they had trashed the place, complete with rotting groceries and ripped furniture.  Uncle Bill could have thrown in the towel at that point, as he had a full-time job with the government.  But he cleaned the place up, found more reliable tenants, and continued to invest through the years in cash-flow positive properties, eventually moving on to commercial real estate.  He made money, either through appreciation or rental income, on nearly all of his real estate deals, including the trashed duplex.  If Uncle Bill had become discouraged and quit after the first try, he might still be a civil servant, probably bored out of his mind. 

• They don’t waste precious weekend hours watching the Simpsons TV show marathon on cable.  Don’t get me wrong - some downtime over the weekend is needed after a long week at the office.  However, in my desire to become self-employed, I find that my free time is better spent working and progressing on my goals rather than lounging on the couch.  Ross Perot apparently worked as a consultant for IBM while he was getting his business, Electronic Data Systems, off the ground.  Do you think he spent hours watching “I Love Lucy?”  How much time do you waste watching the tube?

• They are not “penny wise, pound foolish.”  In other words, they don’t waste their energy and time on business ideas that cannot turn into a sustainable business or will only make pennies for them.  Several years ago, my husband and I joined a friend to sell used wares at a local flea market.  We split the cost of renting our little booth and sold stuff that we wanted to get rid of, like clothing, books, an old microwave, etc.  We never made more than $75 for several hours of usually hard labor.  When we told Uncle Bill about our efforts, he sensibly said “nobody ever got rich hawking a few dusty, used items out of the trunk of one’s car.”  He told us to make better use of our time and come up with a business idea that would make real money.  Lesson learned.

So, these are just a few thoughts on what successful entrepreneurs might be thinking.  Is there anything that you would add to this list?

Do you ever dismiss an idea to do something for whatever reason because it seems too far-fetched or pie in the sky?  Well, listen to this story.  Inc. Magazine profiled Laurel Touby, a writer and creator of www.mediabistro.com in its March 2008 edition.  Touby’s website contained job listings for professional writers but also served as an online community, with advice on health insurance and resume posting.  What I found to be really interesting about Touby’s story was that her business sprang from her simple desire to meet more people in New York City.  Touby, a contract writer and editor for Glamour magazine, worked from home.  Because of this, she felt lonely and isolated (working from home, I can relate to that!) and started hanging out in local cafes.  Eventually, Touby decided to take advantage of her natural affinity for hosting parties and began putting on “media salons” at local bars, where she would invite members of the media community, like senior writers or successful freelancers.  Touby’s idea caught on fire, and her parties became bigger and bigger.  Touby was thrilled with the fact that she now had a social life with a minimal outlay for postage and invitations.  The attendees bought their own drinks.

Touby then moved to e-mail for her invitations and in 1996, created the mediabistro website.  After she saw that www.monster.com was charging for job listings, Touby began to do the same.  Touby’s site worked its way up to several thousand job listings each month at $279 a pop, and it eventually caught the attention of Jupitermedia, which bought the site in 2007 for a cool $23 million!

Touby’s story is an inspiration for budding entrepreneurs.  Many people, myself included, come up with dozens of ideas but fail to act on any one of them because we’re afraid that it won’t work.  Or we just try too hard.  Sometimes, when you do something just because you like it, the opportunities will come.

Remember during the height of the housing bubble, when some real estate investors vowed to jump in like vultures and scoop up properties when the market turned south?  The Wall Street Journal (”WSJ”) recently chronicled this bottom-feeding in “Florida Bust Spawns Vulture Culture” by Jeff P. Opdyke.  Home buyers and investors have flocked to Florida sifting through the glut of housing properties looking for a deal.  In Miami-Dade county alone, there are 25,000 condos available for sale.

With those numbers, you would think that a good deal is a no-brainer.  Prices indeed have dropped drastically.  According to the WSJ, prices in Miami have falled as much as 40 percent.  However, reading another article in today’s WSJ (”Open Season for Bargain Hunters”), I noticed an interesting statistic.  In spite of the large drop in prices, housing prices in Miami still remain about 64 percent higher than they were in December 2002.  Is the 40 percent off condo still considered cheap?  It’s like going to what you think is a fabulous sale at your favorite clothing store and snapping up an outfit at 40 percent off that was marked up four times by the retailer.

Price drops by themselves don’t mean that a property is a good deal.  My husband’s company stock reached an all-time high of $160.00 during the tech boom.  A 40 percent drop in the stock would yield a price of $96.00 per share.  Guess what the stock ended up trading at, when the smoke cleared?  A $1.50 per share.  Ouch!

So, as an investor, how do you narrow the field to determine what might be a good deal?  My rule of thumb - can you rent it out at a monthly rent of at least one percent of the purchase price?  This rent would need to cover your mortgage, real estate taxes, insurance, homeowners’ fees, maintenance and repairs, as well as tenant vacancies.  This rule eliminates a lot of potential deals, but it saves you a lot of pain, particularly when you have to hold on to a property for a long time, perhaps several years before seeing an appreciable gain in the price.  After you have weeded out the overpriced deals, ask the following questions.

• Is the rental market strong in the area?  If it is Miami-Dade county, probably not.  Ideally, you’d like to buy a property with a tenant lined up already, unless the price is rock-bottom, or you have sufficient cash reserves to carry the property for several months.
• What is your financing cost going to be?  If your mortgage payment is at least 90 percent of your expected monthly rent, it’s probably too close for comfort.
• What is the price history of the property and surrounding properties? 
• How much intrinsic value does the property have?  Is it located in an area with limited housing stock or in an area like Miami-Dade, where housing stock is virtually unlimited.  This question goes to how much appreciation you might see in the property’s value.

Obviously, I’ve only skimmed the surface of questions that you should answer before entering into a deal.  Buying real estate is not a transaction that should be done on a whim.  The key to investing success is doing your research, knowing your market, and looking at everything with a healthy dose of skepticism.

Remember when you diligently trudged to your college bookstore to acquire the multiple hardback textbooks and softcover workbooks for your classes at the beginning of the semester?  Remember the migrane when you realized how much of your precious student aid would have to go towards paying for the textbooks?  It is no overstatement to say that the cost is astronomical.  I took an accounting class at a local community college a couple of years ago and was stunned to learn that the cost of the textbooks for the class was almost $200.00.  Come on!  These publishers think we’re rich or something?  I had to laugh when I overheard the head honcho of my department complaining about his college freshman son spending over $500.00 on textbooks.  He thought his son had inflated the bill to nab some extra spending money.  Several co-workers, more recent college grads, piped in that the huge cost was no joke - indeed that is what it costs to buy books these days.  Oh yeah, forget about recouping any of the costs of your textbooks.  If you tried to see it back to your college bookstore, you were likely to only net pennies on the dollar. 

While the rest of us were complaining, a business student at Santa Clara University spied an opportunity here and started the textbook version of Netflix.  Colin Barceloux’s business, which was profiled in www.entrepreneur.com, is called www.bookrenter.com and rents textbooks for up to 75 percent off the retail price for a specified period.  Students return the books by printing out a free UPS label.  They can also request an extension or even buy the books outright, with the initial rental fee going towards the price of the book.  Taking advantage of the fact that his business reuses books and thus saves trees, Barceloux also had it certified as a “green business.”  This is a pretty ingenious idea.  For those geeks out there, there is a downside.  You can’t write in or highlight text.  But I view that restriction as a small inconvenience when compared to the vast savings achieved.  Moreover, you don’t need to deal with the hassle of hauling a growing collection of textbooks from dorm to dorm as you ascend the college ladder.

This business is just one example of how business ideas pop up frequently in our everyday lives.  Barceloux is only 26 years old, but he clearly has the guts and the wherewithall to act on his business idea.   

I went to a local store today to buy an infant mattress.  This local store also has an online store that is run out of the same location.  The particular mattress that I wanted cost $100 online, but $120 in the store.  The $20 discount off the normal price was only available online.  I asked one of the store employees who turned out to be a manager about getting the online price in the store.  She reiterated that the online price was only available online.  After I asked for the online price again, she asked me where I live.  I only live about 10 miles from the store.  She did a quick mental calculation and realized that if I went home and ordered the mattress online, she would collect $100 plus tax from me.  Orders $100 and more get free shipping.  That means that she would then have to eat the shipping cost.  If she sold me the mattress right now, she would save the shipping cost.  We would both win.  I would get the mattress instantly at the price I wanted, and she would maximize her profit.  What I admired about the manager was that she wasn’t being rigid in her policies.  She saw an opportunity to maximize her profit, please a customer, and most importantly, make a sale.  This type of flexibility and common sense thinking is crucial for small business owners.  Consumers should also realize that everything’s negotiable, especially in today’s tough times.  Retailers are hungry for business.  If there is a way that both the business and consumer can both win, then smart business owners will jump at the opportunity.

I was reading the January 7, 2008 post of “I will teach you to be rich.”  I agree with Ramit that buying your first home is a huge step and should not be taken lightly, especially in high-cost areas like San Francisco, where buying an average residence can run over a million dollars.  However, there is a distinction drawn between your personal residence and investment real estate.  Purchasing a home has many benefits: it puts a roof over your head, you can deduct mortgage interest, and you are building home equity (hopefully with a traditional mortgage).  However, too many people view a personal residence as an investment property, when it really is for personal consumption.  Bankers, when reviewing a person’s net worth, typically exclude the value of the primary residence.  Why?  Because your home is the roof over your head; it is not a liquid investment or a cash-generating investment property. 

Unfortunately, a lot of people failed to take this into account in the recent real estate bubble.  Several of my friends made very costly renovations to their homes.  One older couple sunk over $200,000 drawn from their home equity line of credit to expand their living room and add another bedroom.  They didn’t need the space, but wanted to make the home improvements in order to sell their home for a premium amount when they retired.  Of course, the real estate agent that they invited over convinced them that they could command such a high selling price with the renovations.  Needless to say, since that time, the market has softened considerably, and it is highly doubtful that they will reach that desired selling price before retiring in the next 3 years.  Another friend, with her then-husband, spent large sums of money, partially financed by credit cards and a home equity line of credit, to convert their townhouse into a “smart house” complete with an array of electronic voices that greet you upon entry.  Basically, they overimproved the property for the neighborhood.  Although my friend is getting the home in the divorce settlement, she is “house poor,” with a lot of equity but little liquid savings.

 Contrast a personal residence home with investment real estate.  Although many of the so-called real estate gurus on those endless infomercials (e,g, Carlton Sheets), oversimplify matters, investing in real estate can be very profitable IF you choose the right deal, i.e., you buy a property with a high rate of return, positive cash flow to you and a steady tenant.  Real estate markets are regional: buying commercial property in most parts of California will yield far less in return than properties in parts of the South or Midwest.  However, with the help of commercial real estate websites like www.loopnet.com and national real estate brokerage firms like Marcus and Millchap, an investor in California can find a nice strip mall in Tennessee or a warehouse in North Carolina yielding 8 to 10 percent.  I do not live in the South but have had good luck with several commercial properties in Tennessee and Alabama, not only with the positive cash flow but also the ultimate selling price.  In future posts, I will talk more about commercial real estate investing. 

Starting a small business can be a complex, stressful process.  The homework that I have done so far has been limited to talking to other businesspeople and seeking out potential mentors.  However, there are plenty of other resources available at your fingertips.  A May 2, 2007, Article in the New York Times, “Small Business 101: How to Get Started” by Barbara Whitaker, provides some good advice for the budding entrepreneur.  A sobering statistic: a new business only has a 50-50 percent chance of surviving 5 years.   So, how do you start a successful new business?  Whitaker has simple advice from the experts: education, careful planning and adequate cash flow.  She recommends checking out the following websites for advice on operations, business plans, start-up costs, and understanding of your particular industry:

• www.sba.gov (Small Business Administration )
• www.work.com (how-to segments on issues facing small businesses)
• www.e-venturing.com (topics ranging from finance/accounting to humand resources and operations)
• www.startupNation.com (video segments and entrepreneur forums)
• www.bplans.com (has over 100 sample business plans).

Whitaker also recommends going to the Census Bureau and Fedstats for business plan information on demographics, income, and economic indicators in the area where you plan to open your business.  The overall advice: plan, plan, plan in order to maximize your chances that your business will succeed.