Noah Kagan's Side Hustle Advice vs. Small Biz Reality

Key Takeaways

• Starting a side hustle without a dedicated Employer Identification Number (EIN) can mix your personal and professional liabilities, making tax time a nightmare.
• Focusing on 'growth' before you have a single paying customer is a top reason why 20% of new businesses fail within their first year.
• A side hustle only becomes a business once you move from casual income to a structured entity like an LLC that protects your personal assets.

Conventional wisdom says you should spend months planning and perfecting (plus branding) your product before you ever ask for a dollar. Here's why that's wrong for most small owners: If you haven't proven someone will pay you, you don't have a business, you have an expensive hobby.

Noah Kagan, founder of AppSumo, recently doubled down on this 'action-first' mindset. In a recent post, he asked his audience what they wanted to know about starting and growing (plus managing) a side hustle, noting that most people only hear his ideas on podcasts but rarely see the execution phase. Kagan is known for his 'Million Dollar Weekend' philosophy, which forces entrepreneurs to get their first customer in 48 hours.

For a solo operator, this means ditching the fancy logo and focusing on the transaction.

Say you want to start a mobile detailing business in your neighborhood. Instead of spending $500 on a website and $200 on business cards, you should go knock on five doors and see if anyone will pay you $50 to wash their car today. The math is simple. If you can't get one person to say yes in person, a website won't save you.

The Legal Bridge You Can't Ignore

Kagan's advice focuses on the hustle, but the Small Business Administration (SBA) reminds us that once you start making money, the government cares about the structure. You can start as a sole proprietorship, which is the simplest form. You and the business are one and the same for tax purposes.

However, if your 'hustle' involves physical labor or high-priced contracts, you should look into an LLC (Limited Liability Company). This creates a wall between your house and your business debt. Without it, a single slip-and-fall at a job site could put your personal savings at risk. You can learn more about how to set this up by checking out our guide on how to Stop Chasing Super Cars and Fix Your First Invoice.

• Get an EIN early. Even if you don't have employees, an EIN (Employer Identification Number) lets you open a business bank account without using your Social Security number.
• Open a separate checking account. Mixing groceries and business supplies in one account makes it impossible to claim the home office deduction or equipment costs later.
• Track every mile. If you use your car for the hustle, the Internal Revenue Service (IRS) allows you to deduct a set amount per mile. For 2024, that's 67 cents per mile.

Why Growth is a Trap

Kagan often talks about 'growing' the business, but for a 2-person team or a solo pro, growth often looks like a trap. If you're a freelance bookkeeper and you double your clients, you might also double your stress and your overhead without actually increasing your take-home pay. This is where Gary Vee Hustle vs. Reality for Main Street comes into play. You don't need to be everywhere; you just need to be profitable.

Think about a local landscaping crew. They could buy a second truck and hire two more guys to 'grow.' But after paying for the truck loan, the insurance, and the workers' compensation, the owner might actually make less money than they did when they were working solo with one truck. Growth for growth's sake is a Silicon Valley metric, not a Main Street one.

Frequently Asked Questions

Q: Do I really need to register my side hustle right away?

A: Technically, the moment you make $400 or more, the IRS considers you self-employed. You don't need a formal LLC to start, but you do need to report the income on your Schedule C. Registering early helps you look professional to bigger clients who might ask for a Form W-9 before they pay you.

Q: How much should I set aside for taxes?

A: A good rule of thumb for side hustlers is 25% to 30% of your profit. Since no one is withholding taxes from your paycheck, you're responsible for both the employee and employer portions of Social Security and Medicare. Setting this money aside in a high-yield account like Live Oak Business Savings keeps you from getting hit with a surprise bill in April.

What's one task you've been putting off because you wanted it to be 'perfect' before you launched?

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📋 Disclaimer

This article is for informational purposes only and does not constitute legal, tax, financial, or professional advice. Laws and regulations change frequently, and the information presented may not reflect the most current legal developments. Always consult with a qualified professional (CPA, attorney, financial advisor) before making business decisions based on this content. MyBizNerd may receive compensation through affiliate links, but this never influences our recommendations.

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