Let’s kill the term “lifestyle business” for founder-focused startups

H4160-L83370852Just a rant about venture capital. The industry has a name for startups that are not aiming to be extreme outliers – a lifestyle business. This term is used by venture capitalists to dismiss any business that is not completely focused on becoming the 1 in 10,000 company that will be worth more than a billion dollars (a unicorn).

The term lifestyle business did not originally have such pejoratively connotations. It was coined by William Wetzel to describe any business unlikely to generate economic returns large enough to interest outside investors, but it has now come to be used as a put-down of any startup where the founders are not working towards creating a billion dollar company. The not-too-subtle implication is if a startup is not “shooting for the moon” then it is just some sort of hobby business unworthy of consideration.

While many new companies are true lifestyle businesses (e.g. small home-based consultancies, one-man software businesses, etc), many others are not. These non-venture capital backed startups (which I have termed founder-focused startups) are serious growth businesses run with the aim of maximising returns to the founder(s). The owners of these business work as hard (or even harder) as any VC-funded startup, but they have a totally different focus. The typical features and aims of  founder-focused startups are:

  • Self-funded or bootstrapped
  • Managed to balance risk and reward
  • Substance over hype
  • Sustainable long-term growth
  • Long-term planning

It is my opinion that founder-focused businesses are what all most founders should be starting. As a founder do you want 0.01% chance of making $100 million with a 99.99% chance of making nothing after 10 years (the VC-backed startup model), or a 10% chance of making $20 million with a 40% chance of making $1 million (the founder-focused startup model)? Is your life really going to be that much better if you make $100 million rather than just $20 million? If not, then why take the very real risk of ending up with nothing for all your hard work?

The aim of any startup should be to hit the founder’s personal wealth target(s) (e.g. own equity worth $15 million) with the minimum amount of risk.

The ultimate proof of this proposition is to look at what venture capitalists actually do, not what they tell startups to do. It is an open secret within the VC industry that all the venture capitalists are running the very type of businesses that they are so busy disparaging (i.e. founder-focused businesses). The venture capitalists own businesses are laser-focused on minimising risk by investing in dozen of companies, sustaining long-term growth (the 2+20 model), using long-term planing by locking in the limited partners money for years, and maximising returns for themselves (2+20 again). Don’t believe the venture capital hype that the only “real” startups are those that benefit venture capital – focus on generating real wealth for the founders (yourself) with the minimum of risk.

Does this mean that I think all startups should never accept money from outside investors? No, but you should only do so if it will increase your chances of reaching your personal wealth target. If not, then say no politely and get on with building your business.

One comment on “Let’s kill the term “lifestyle business” for founder-focused startups
  1. I was brought here by a comment on Hacker News. I totally agree — the term is synonymous with a hobby/interest-based venture which will never generate a profit. As the owner of a small self-sustaining (and growing) publishing business, the term rankles.

    The other side of this coin in the tech world is the term indoctrinates successive waves of potential entrepreneurs into the belief that the only businesses worth starting are the investor-backed companies that can generate a 10x return. It leads to “startup theater” and an unending stream of pitch deck promises that can never be realized. What a colossal waste of time, considering many of the people getting involved in “startups” could start great businesses if they could only see the light.

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