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May 10

The “Lifestyle” Company

Posted by: Phil Reed        

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.

Your thoughts?


6 Responses to “The “Lifestyle” Company”

  1. avatar tacanderson says:

    With as much hype as VC backed companies get, it's the 'lifestyle' company that is still the back bone of the country. There's definitely a lot to be said for someone that can bootstrap and build a sustainable company over a very long time horizon. In some ways I'd say it's harder to do than running a VC backed startup.

    • avatar philreed says:

      Thanks for your comment, Tac, and you raise a good point about the importance of "lifestyle" companies to our country's economy. A few years ago I checked INC Magazine's Top 100 Fastest Growing Companies list, and some 95 of the top 100 private companies were not recipients of capital from venture capital firms.

  2. avatar Rick Ritter says:

    Considering that VCs only invest in one in 3,000 companies and angels do about twice that I think it is clear that the majority of companies who are successful are not venture backed. And many of those companies are not "lifestyle" companies. Idaho, at one time, was home to a number of companies that were extremely successful in the hands of their original founders and most of those were founded prior to VCs. Successful "growth" companies can be built without "investment" and even become public owned. I think that would suggest that there is lots space between the two broad categories you suggested and that it may not be as simple as your post makes it out to be. As I explain to many of our client/customers VCs and angels are, for the most part, about making money not about building "growth" companies.

    • avatar Joe Daltoso says:

      Rick, although I am sure there are exceptions, it has been my experience that "investors" of all types are about the building growth companies precisely because those companies not only reduce the investment risk but are also the best vehicles to "make money."

      Long term successful companies come in all shapes and sizes - and with all types of investor classes.

      As to your point about a lot of space between the two categories, there is no question that is correct - although in this day and age I think you would have a difficult time finding a recently successful company in the US with more than just a local/regional reach that did not have some sort of angel/VC investment behind it in the formative or expansion stages.

  3. avatar PhilSugar says:

    "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"….that's a negative sterotype.

    You see you might even have stronger demands from all the founders…..if you've got a bunch of hard charging people they don't want to sit around and not make money…that's more pressure than listening to a vc whine.

    I think the key is saying, there are some businesses that can leverage outside capital and there are some that can't.

    That doesn't mean you can't have a high leverage business. Look at that must be one hell of a high leverage business.

    People love high tech because of the leverage. Its hard to leverage things like consulting or selling cars, but you can leverage technology when you have gross margins exceeding 90%.

    I'd also say Highway12 defines a lifestyle business.

    Now if you took offense to that like many vc's do when I say that you have to admit you've put a negative connotation to the phrase "lifestyle business". But think about it, you can't go raise a mega-fund and be successful. And many of the current woes I hear in the vc industry are because more vc's didn't sit back and do what a good entrepreneur should do…..match capital with the ability to leverage it.

  4. avatar Frymaster says:

    I found the post doing research about this phrase. In a meeting regarding attempts to attract VC money from another area to a mid-sized city, someone said, "They see us as a lifestyle market."

    Is that true? Do VCs see various cities as more 'investable' than others?

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