Startup vs. Lifestyle Business (a Short Comparison from a Guy Who's Done Both)
I live in a city obsessed with startups.
San Francisco is the undisputed center of the world for technology startups, and I’ve called this great city home for nearly six years.
When I tell people here about the business I run now, I get all kinds of reactions, from blank looks to pity. In a city full of startups and entrepreneurs, the concept of a lifestyle business isn’t the hippest thing to explain.
Then I explain that I’ve already done the “startup thing” before. From 2006 to 2008, I co-founded and ran a venture-backed startup right here in the city.
We built a product, found advisors, got press, raised money, hired employees and raised a little more money, but ultimately were caught with our pants down during the 2008 financial crisis. With no significant revenue and a product in a not-so-sexy space, we couldn’t keep the VC money flowing. Things fell apart and I left after my co-founder and I couldn’t agree on the company’s future.
I’m telling you these details just to say, I’ve been there, done that. I ran a VC-backed startup and experienced nearly the entire lifecycle of a startup. I know what it’s like as an entrepreneur to run a Silicon Valley startup and I also have dozens of other entrepreneur friends who run VC-backed startups as well.
After the startup, I took off on a six-month sabbatical to Mexico to figure out what I wanted to do next. I started blogging a couple of months into the trip and haven’t looked back since.
Instead of starting another typical software startup and hoping to eventually sell or IPO and make millions, my time away helped me realize I wanted to start a business doing something I enjoy that let me live a great life now.
What’s a lifestyle business? Some consider it a patronizing term that the VCs and startup ecosystem use to put down businesses that don’t consume your life.
There’s a debate between entrepreneurs who say chasing swing-for-the-fences startups wastes your life and VCs who call businesses that stay small on purpose “dipshit companies.”
To me, a lifestyle business doesn’t equate to running a tiny business as an alternative to having a job. A lifestyle business doesn’t have to be small at all, either in revenue or employees. The main requirement of a lifestyle business is just that it allows the entrepreneur/owner to live how he or she wants to live now, while running the company.
A funded startup on the other hand has the primary responsibility of becoming big at the (hopefully temporary) expense of the lives of the founders and employees.
A startup’s job is to grow big enough to provide a return to investors. A lifestyle business’s job is to provide a great quality of life to its owners.
In a startup, the founders are taking a big swing with a low probability of success. Startup founders are hoping for a very big outcome (usually a sale or IPO). The pot of gold at the end of the rainbow is fame and fortune, although I know lots of startup entrepreneurs who run VC-backed companies because they really love the process. Even if those entrepreneurs hit a home run, I suspect many of them would jump back into running another startup.
With a lifestyle business, your definition of success is different. You don’t have the burden of needing a hundred-million-dollar exit to get what you want. If you can build a six-figure lifestyle business, chances are you can build a million-dollar business, but only if you want to. How big you build the business is up to you because you’re calling all the shots, for better or worse.
The question between startups and lifestyle businesses doesn’t have one right answer. Some entrepreneurs would be better off going the startup route, and some would be better off running a lifestyle business.
If you’re debating which way to go, the key is to research both sides of the equation. VC money is easier to come by at the moment, but that doesn’t mean you should take it.
When VCs are in your business, your incentives are misaligned with your investors. As an entrepreneur, you might be very happy with $10 million in your pocket, or even $5 million or $2 million. Once you take money from venture capitalists, those latter scenarios are no longer possible.
Venture capital funds work by earning a huge return from a small portion of investments. The rest typically go bust. With VC money in your bank account, you jump on the all-or-nothing train.
If you want to swing for the fences, VC might be a good option. You’ll get money, which can be helpful to some businesses, and you might get some connections and advice. Honestly though, in reality very few VCs provide a whole lot of mentoring or guidance. Typically you’ll have to look elsewhere for direct advice on product development, marketing and the other important parts of getting your business off the ground.
The real question to me is, what do you want from your business, both in the short- and long-term?
Be honest with yourself and remember that the journey is more important than the end goal. Make sure that you plan for the day-to-day ups and downs and not just for the pot of gold.
After you come up with your answer, dig in and get both sides of the equation. Startups are glamorous, so it’s easy to find stories about startups. They’re in the newspapers and on TV. One of the biggest blogs in the world, TechCrunch, is dedicated to startups.
To get details about what’s possible with a lifestyle business you’ll have to do more research. I suggest starting with the guys at 37Signals. They’re essentially heroes of the lifestyle business movement, even though they don’t like to call it that.
After being on both sides of the equation, I’m 110% happier now running my growing business this way. The control I have over my life is nearly ridiculous, and the future of my “lifestyle” business is brighter than 90% of funded startup entrepreneurs will ever achieve.
What do you think about the startup vs. lifestyle business debate?
Please share in the comments. If you have specific questions for me, ask away. I’m happy to help.
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