This article highlights an area of confusion, I think. Of course, any new business is a startup. So, even your aunts diner that is opening soon is a startup.
But when we talk about a "startup" here generally we're talking about a technology startup, or mroe specifically, a web oriented technology startup.
But we're not necessarily talking about: Funding, organization, theoretical growth rates, etc, for that company.
So, I think the term "lifestyle business" should be banned or rejected by this community. Its a derogatory term used to apply to people who are chosing to go a different path, with the implicit assumption that that path is lame (eg: low growth, low chance of getting rich.)
There are certainly a lot of choices that founders have to make with regards to whether they are building a real business or not (EG: something sustainable that will make them rich even if a $10B+ company doesn't buy them in 24 months... rather than something that's a feature built to flip to someone with a real product offering.) ... and funding, location, team size, team composition (eg: when to hire marketing or sales people), etc are all independant of whether you're building a business.
You could bootstrap a company built to flip, or you could use VC money to do it. You can use VC money to build a real business, or you can bootstrap a real business.
But I believe, strongly, that building a real business is the only way to go-- its the most likely path to getting flipped, and its the way you will end up with something more than an adrenaline hangover after 24 months.
I hope this is making sense...
In summary, focusing on the business is the path to success... and recognizing all of these choices (including who to take money from) have advantages and disadvantages for the business case. For instance, one option might make great short term financial sense but be damaging in the long term-- if its a build to flip situation then you don't care about the long term. But in making that choice, you're risking the flip taking longer than expected....
So, build a business.
PS-- Justification for this long post: I was recently talking to a startup, and they are totally focused on being acquired within the next 18 months. Thats their plan. Their only plan. Every decision they make is with that assumption, and they are going to be in a world of pain 24 months from now if they aren't acquired in that time period. Worse, I think that if the followed a the right strategy, between 18 and 48 months from now they'd grow from a $250M business to a $4B business.
Great comment. I'm an engineering student and was enrolled in an entrepreneurship course at the business school here. This kind of bias was evident there as well. Our instructor often made comments about our project having "lifestyle business" potential as if that was a bad thing. If we couldn't grow to "$50 million in five years" then we weren't appropriate for venture capital, and we'd have to seek other types of funding, and apparently that was a big negative to him. It was frustrating and counter-productive, really.
Well, you know what they say-- those that can, do. Those that can't, teach. This goes doubly for entrepreneurship "classes".... though maybe I'm too harsh and that guy had actually started a business.
In terms of the number of millionaires or centi-millionaires in this country-- the vast majority of them got that way with "lifestyle businesses".
I believe, strongly, that building a real business is the only way to go
I agree with you completely.
"Lifestyle" businesses don't get the any of the media glory, VCs and i-bankers won't pursue you, but they'll still be here, long after the current feeding frenzy is gone.
Actually, no, it's not. At least, it's not for me. Several of the businesses I've built in the past are "lifestyle" businesses. They're supporting me, they're paying my way through school, but they're not as much fun as you'd think. That's why I'm here, after all :)
Ask anyone who owns a restaurant, and they'll tell you lifestyle businesses are a lot like working at a 9-5. Only that there's much more to do, and the income isn't guaranteed.
A restaurant is a ton of work, and that's not the kind of business I was thinking of.
There are software businesses which fill specific niches, niches that are too small for the likes of IBM, SAP, and the VC industry to care about, but which can provide a nice living ("nice" meaning generating cash above and beyond just paying school or living expenses).
I think you misunderstood my comment. The point is not the amount of work involved - there are many "lifestyle" businesses that are hardly any work at all. I run an online currency exchange website that takes about 3 hours of my time / day, and does provide a "nice living." I'm not trying to brag - trust me, it's still not fun.
The reason (for me, at least) that lifestyle businesses suck is because they're not focused on growth. They're more about an immediate, positive, cash flow - the low risk alternative.
Contrast that to startups, where you're building something that could potentially be very big, and positively impact a lot of lives. Now that's a pretty good "lifestyle."
"There's a big difference between a restaruant and craigslist."
Awesome point. I'm in the same boat to a degree -- I have several businesses that throw off a combined $3-5k per month in cashflow. Nothing to sneeze at, but you have to start somewhere.
Also just sold one "lifestyle business" (was only putting in 1 hour a month on it, literally) for low to mid five figures.
"Startups" seem to have that Get Big Fast mentality, where you're either the next YouTube in 18 months, or you're a failure. But it doesn't have to be that way...
"Startups" seem to have that Get Big Fast mentality, where you're either the next YouTube in 18 months, or you're a failure. But it doesn't have to be that way...
That's exactly the point I was trying to make; well said.
Who are you to say that lifestyle businesses are not focused on growth? Or that they cant' grow fast and change large numbers of people's lives?
A basic principle of finance is that you can either reinvest profits into your business, to pursue growth, OR you can withdraw profits as dividends. A lifestyle business is one that supports you, paying dividends early on. The owner(s) are withdrawing cash from the company. For a refresher on the definition of a lifestyle business vs. a high growth business, see http://www.indianaventurecenter.org/faqs.asp#7
So the question is - are you interested in growth, or the cash? Personally, I'm interested in growth. I want to build a company that touches as many lives as possible.
It's OK to want to build a company that generates cash, but don't pretend like you can pursue both cash and growth simultaneously. If your pursuing growth, you're spending cash. If you're taking out cash, you're scarifying growth.
But when we talk about a "startup" here generally we're talking about a technology startup, or mroe specifically, a web oriented technology startup.
But we're not necessarily talking about: Funding, organization, theoretical growth rates, etc, for that company.
So, I think the term "lifestyle business" should be banned or rejected by this community. Its a derogatory term used to apply to people who are chosing to go a different path, with the implicit assumption that that path is lame (eg: low growth, low chance of getting rich.)
There are certainly a lot of choices that founders have to make with regards to whether they are building a real business or not (EG: something sustainable that will make them rich even if a $10B+ company doesn't buy them in 24 months... rather than something that's a feature built to flip to someone with a real product offering.) ... and funding, location, team size, team composition (eg: when to hire marketing or sales people), etc are all independant of whether you're building a business.
You could bootstrap a company built to flip, or you could use VC money to do it. You can use VC money to build a real business, or you can bootstrap a real business.
But I believe, strongly, that building a real business is the only way to go-- its the most likely path to getting flipped, and its the way you will end up with something more than an adrenaline hangover after 24 months.
I hope this is making sense...
In summary, focusing on the business is the path to success... and recognizing all of these choices (including who to take money from) have advantages and disadvantages for the business case. For instance, one option might make great short term financial sense but be damaging in the long term-- if its a build to flip situation then you don't care about the long term. But in making that choice, you're risking the flip taking longer than expected....
So, build a business.
PS-- Justification for this long post: I was recently talking to a startup, and they are totally focused on being acquired within the next 18 months. Thats their plan. Their only plan. Every decision they make is with that assumption, and they are going to be in a world of pain 24 months from now if they aren't acquired in that time period. Worse, I think that if the followed a the right strategy, between 18 and 48 months from now they'd grow from a $250M business to a $4B business.