Lifestyle business vs. equity business
Just a month ago, I was at an event were this dilemma arose: lifestyle business or equity business? The discussions soon became heated, each founder defending their business style. Although I consider this to be just as much a dilemma as “potatoes vs. tomatoes” is, let’s dissect the issue a little further.
Lifestyle business refers to a self-sustainable business, one which usually doesn’t require investors’ money. At the opposite pole, we have equity businesses or VC backed businesses, which are run on investors’ money and, as a consequence, are focused on rapid growth and multi-million dollars exits.
Since each of these business styles influence strategies and planning, it’s not a bad idea to know right from the start where you stand. But let’s first see some pros and cons.
Equity businesses have constraints, that’s a fact. You have to:
- grow fast, which usually means operating with high costs
- focus on getting new rounds of investment rather then reaching break-even
- expect (and hope for) an exit within 5 years, and not a business to leave to your children.
On the other hand, a lifestyle business means:
- the only investment your company gets is your own money. If you’re lucky, you might also get the 3F’s money: family, friends and fools.
- there will be a lot of bootstrapping involved
- you will probably grow slower and your revenues will not sky rocket right from the beginning. Well, they will if you are 37signals.
So which business style is the one for you?
Unfortunately, you are the only who can answer this question.
If you hate being told what to do, if you like taking things slowly and not answering to anyone, perhaps you should consider a lifestyle business.
If you’re more into milestones, rapid growth, frantic pace, multi-million dollars, team doubling every few months, user booms crashing your servers, basically, if you want it all, and you want it yesterday, go VC style.
If you want to dig depend into the subject, you can check Andrew Chen’s blog post on Building lifestyle companies versus VC-backable startups as well as some inside info from a successful lifestyle businesses: 37 signals and The lifestyle business bullshit.
