There are two broad categories of companies an entrepreneur can choose to start, “lifestyle” and “investor-backed”. Both can be financially and psychologically rewarding, but each has their particular demands.
A lifestyle business is one in which an entrepreneur often supplies the starting capital, which may include “borrowing” funds from family or a bank. Often a lifestyle business will be a smaller business such as franchise or retail shop, or a service business of some type. Typically the business is owned by the operator or a small partnership and does not have a lot of independent outside investors. Sometimes a lifestyle business can grow quite large by reinvesting profits to expand the business. One advantage of lifestyle businesses is that the entrepreneur is truly his or her own boss and while they have responsibilities to employees, customers, and vendors, a lifestyle business owner is free to run the business the way he or she wants, to grow or contract the operations as they wish, and generally not be under pressure to meet any outside demands for growth and liquidity from outside investors.
One of the first businesses I started was a car dealership, and as long as I made my payment to bank, I could run the business in the manner that I wished. There were no demands or expectations from outside investors that I had to grow the business or sell it within a certain period of time to give investors a return. Many lifestyle business owners like to keep their businesses for a long time and ultimately pass down the company to their children. Along the way, the business can provide a bountiful life for many families and play an important part of the community. While all businesses have their challenges, a main advantage of a lifestyle business is that it is yours.
In my next post, l’ll talk about start-ups that raise money from outside investors, including venture capital firms, and what you are signing up for when you finance your company that way.