magic mushrooms 17 Oct 05

so… a lifestyle business is one that’s aimed to support ones own lifestyle - ie. a craft shop. something that’s never really going to be a billion dollar business, but one that’s aimed to provide a comfortable lifestyle for the owner?

that’s how i take it, anyhow.

and there’s a name for that already. small businesses. there are millions of them doing just fine and dandy without what, really, sounds like nothing but a condescending name.

Mark Roseman 17 Oct 05

The term “lifestyle business” is fairly common in literature about entrepreneurship (e.g. Jeffrey Timmons’ “New Venture Creation”, a commonly used text, talks about it). While its more of a spectrum rather than an either/or, the emphasis is on whether you’re more concerned with things like location, type of work, etc. instead of simply how large the business grows… in other words, priorities.

If there was a convincing argument that any given business would produce a greater return for investors by doing X (say, switching from doing cool web apps to manufacturing brooms), a strictly “real” business would make that switch because that’s what’s most important to it, whereas a “lifestyle” business most likely wouldn’t.

Darrel 17 Oct 05

You say you’ll gag if you hear ‘lifestyle business’ again but then immediately follow it with ‘web 2.0’

JF 17 Oct 05

Darrel, Web 2.0 was the name of the conference.

Beau Hartshorne 17 Oct 05

Hey Jason — good post. I’m fresh out of Paul Graham’s (well, Y Combinator’s) intense “Startup School”. Throughout the day, three strategies emerged:

1. Two hackers whip up a cool demo, and then get “acquired” by a much larger company. This boils down to efficient recruiting.

2. You get a “small” amount of seed funding from angels (say, one million), and then hunt for at least twenty million (any less is a nuissance to these people) from a good VC. Then you get acquired. Forget about an IPO, among other things they’re just too complicated these days (SOX).

3. I think Stephen Wolfram was the only speaker to assert that you should start a company that’s designed to last more than three or five years. He used his company as an example, and seemed very happy with his life and achievements. And I don’t think Wolfram Research is a “lifestyle” business, by anyone’s standard.

So why is everyone so focused on the acquisition, the exit? Jason, I bet you’ve received dozens of interesting offers for 37s. What keeps you from caving in?

Anil Dash 17 Oct 05

Just for the sake of discussion, here’s another definition of these terms:

A lifestyle business makes money for its founders and, maybe, its employees.

A “real” business makes money for an entire economy, including people who don’t even work for the company.

It’s all a question of who you’re building for.

Don Wilson 17 Oct 05

I would say that a “real business” is one that has it’s main priority is money, where as the “lifestyle business“‘s main priority is enjoyment in the business.

By what degree when you call people “hacks” or “big guns” purely depends on the level your business model is talked about.

kayvaan 17 Oct 05

Anil - since you invited more discussion.. :)

I’m not sure I agree with one possible reading of what you’re saying, which is that lifestyle business do not contribute to the economy. That’s not true.

But if you’re saying that the distinction is that “real” businesses are set up to create value for people *other* than just the owner and perhaps a few employees (i.e. investors), then I’d agree — that’s a pretty common criterion used to distinguish lifestyle businesses.

OF COURSE, VC’s don’t want to fund a business where the goal is to make just enough money to make payroll, grow a little bit over time and feel fulfilled. That wouldn’t earn them the extraordinary return they need to make up for the fact that only 1 in 10 (just guessing) of their companies “make it”. That’s why VC’s tend to take a somewhat condescending tone when they refer to lifestyle businesses. The condescension is masking the fear… >:)

PS - I am NOT anti-VC! ;)

Noam Lovinsky 17 Oct 05

A particularly agitating connotation of the term “lifestyle business” is that it can accomodate a pleasant lifestyle. That is, if you don’t want to work 80hrs a week and you want to spend the afternoons lounging by the pool, you should start a lifestyle business.

In my opinion, it’s typically easier to temper the work hours when you’re working for someone else.

Darrel 17 Oct 05

Darrel, Web 2.0 was the name of the conference.

I know. That was my point. If one attends a conference named after the ‘gaggiest’ of buzzwords, well, expect to gag on some buzzwords.

Benjy 17 Oct 05

A particularly agitating connotation of the term �lifestyle business� is that it can accomodate a pleasant lifestyle. That is, if you don�t want to work 80hrs a week and you want to spend the afternoons lounging by the pool, you should start a lifestyle business.

Aren’t lifestyle businesses ones that are what you’d do in that free afternoon anyway? I imagine lifestyle businesses to be things like the river rafting enthusiast who starts a rafting tour company. Even if he’s working 80 hours a week, he’s spending much of that time rafting, which he’d do in his free time anyway. Or the garder who opens a nursery… sure, there are some non-core tasks like book keeping, but much of the time is spent doing one’s passion.

Scott Johnson 17 Oct 05

While a “real business” would be nice, I know I would certainly be happy with a lifestyle business. Beggars can’t be choosers. :)

Arrogant 17 Oct 05

I’m not normally a hater, but this is a hell of an arrogant post. Nothing wrong with a lifestyle business for the mother who wants to work from home. Or the retired hobbyist. Not everything needs to grow. For goodness sake - - you should know that of all people!

Carson 17 Oct 05

Uh, Arrogant, I think that was Jason’s whole point. Put the finger down buddy you’re arguing the same point.

Arrogant 17 Oct 05

Oh — shoot. I’m a jackass. Yeah, i guess it was. I take it all back.

A. Casalena 18 Oct 05

Do you notice the distinction only matters to people who are interested in investing? They’re just wondering if there’s room for them to make money too — and this seems to be the way to ask it.

If your business is a “lifestyle” business, it won’t (generally) have the growth metric that will let an investor’s dollar truly become worthwhile. You probably don’t care about selling the business. You probably would rather take your time instead of hitting 200% growth from month to month. Etc.

The “other” kind of business is the opposite: It requires money and runs for a big market share. This requires a large number people too, if you want the big market share really fast. These businesses make a lot of money (hopefully) and that means investors can take some home.

Yeah, there are “small” ones that grow fast enough to outpace the investor driven ones in terms of revenues, but I think it’s just much rarer — so if you were a guy trying to put your money on a company where you’re going to get a return, you’re probably going to bet on the traditional “big” model.

Either way, the “investability” component seems to be the key driver for even making this distinction.

I do hate the term “lifestyle” though. It needs to go :(

GonZ[+] 18 Oct 05

I’m with Darrel; If I hear “Web 2.0” again I’m going to hurl.

Andy 18 Oct 05

Gonz - maybe you should stop reading blogs like this then…

I’m a web 2.0 aficionado, so it doesn�t bother me (yet). Roll on web 3.0, I say.

Anonymous Coward 18 Oct 05

Or maybe I should just stop commenting lol - mmm after only 3 posts, good going!

Seriously though I love the technology and sites that are behind the label “web 2.0”. I just don’t like the label.

It might not bother you (yet) but when the shiny suits start bandying it about left, right and centre you’ll probably be chocking too.

Don Schenck 18 Oct 05

This is too funny.

A “lifestyle” business is what you call any other small business that’s not yours. If it’s your business, it’s “my business” or “my company” or “what I do”.

Too funny. So if you love what you do, and do what you love, it’s a looked-down-upon “lifestyle” business, but if you screw the environment and screw the local (and larger) economy and make billions off the backs of the less fortunate, you’re Wal-Mart … er … I mean … a “real” business.

Hilarious. This is as funny as Michael Moore arguing with Rush Limbaugh.

Tory 18 Oct 05

I didn’t realize that Wal-Mart was screwing the economy by giving us lower prices and access to a wider range of goods. Thanks for clearing that up, Don.

anon 18 Oct 05

lifestyle business blah blah blah web 2.0 blah blah blah just more noise….yawn

Mary-Ann 18 Oct 05

I don’t mind “lifestyle business”, I just hate the implication that it’s not a “real business”. The money that pays the mortgage sure is real!

I have one that’s somewhere in between. I love doing it (karting) but the aim is to sell it in a few years and use the cash for a total lifestyle business.

Igor 18 Oct 05

There was an article in Inc. magazine about a couple who did their business from a yacht, they said that they knew they could generate more business by moving a to “proper” office in-land but didn’t care. To me that is a “lifestyle business” approach, if people must use labels. However that buzz word is off, it’s a business like any other. The owner is just making a trade off of oportunity costs, he is maximizing his profit even though he is making less money. That might not make sense to all the fancy-pant web designers at Web 2.0 but it would to any high schooler in Economics class.

Josh Williams 18 Oct 05

For reference (and curiosity sake), I was told once by a prominent VC that a 50 million dollar annual revenue was good for a “lifestyle business,” but that’s not remotely close to what a VC is looking for in the long run.

With that criteria in mind, I might quote Topol, from Fiddler on the Roof: “May the Lord smite me with it. And may I never recover!”

Darrel 18 Oct 05

I didn�t realize that Wal-Mart was screwing the economy by giving us lower prices and access to a wider range of goods.

They’re not. They’re screwing the economy by driving down wages world-wide.

Anonymous Coward 18 Oct 05

They�re screwing the economy by driving down wages world-wide.

Tell that to the people who have jobs now that didn’t have jobs last week. Easy for you to say, Darrel, sitting in your cushy American home.

Wilson 18 Oct 05

the 37signals guys are getting so defensive and negative lately. they used to be so happy freelove change the internet for the better. now they’re all like “you suck”

Darrel 18 Oct 05

When’s Web 2.1b3 coming out?

Anonymous Coward 18 Oct 05

Tell that to the people who have jobs now that didn�t have jobs last week. Easy for you to say, Darrel, sitting in your cushy American home.

My home is far from cushy.

And a shitty job is just that—a shitty job. It just keeps people busy…doesn’t help them actually get anywhere in life.

But that’s not here or there. Wal-Mart is another thread.

Anonymous Coward 18 Oct 05

And a shitty job is just that�a shitty job. It just keeps people busy�doesn�t help them actually get anywhere in life.

Again, tell that to the people who used to “get somewhere in life” by picking through garbage dumps to feed their children in Southeast Asia. This is the alternative.

Benjy 18 Oct 05

I didn�t realize that Wal-Mart was screwing the economy by giving us lower prices and access to a wider range of goods. Thanks for clearing that up, Don.

No, they’re screwing the economy by driving out the locally owned businesses, the middle class lifestyle the shop owners could make, the pride in ownership and their civic involvement in the community. In return, small town America gets a decaying, vacant downtown and $6/hr jobs on the fringe of town by the highway.

Darrel 18 Oct 05

Again, tell that to the people who used to �get somewhere in life� by picking through garbage dumps to feed their children in Southeast Asia. This is the alternative.

Now, that’s just one, rather shitty alternative.

Ross Mayfield 18 Oct 05

Most American business owners have lifestyle businesses, a good thing. There is also something to be said for growing the pie. But there is more to be said about having a business and having a life, no matter how intertwingled.

Bob Marlay Fan 18 Oct 05

Lotta good stuff in this threa.d Darrel and Benjy is totally righ about wal mart hurting the little guy. I no for a fact that they work with Bu$h in order to drive down the price of wages so that people can’t buy gas and then Big Oil makes more money.

Web2.0 Fanatic 18 Oct 05

I love suckin dick

EAW 18 Oct 05

I really hope “…I no for a fact that they work with Bu$h…” is mockery. Otherwise, the Tinfoil Factor is getting dangerously high…

Roger 18 Oct 05

A lifestyle business has steady cashflow that goes into the pockets of the owner. The usual line is that 90+% of millionaires in the US have lifestyle businesses.

A “real” business has to grow at a fast enough rate to satisfy their investors. Think about the return that VC investors are expecting - let’s say 30%, plus only 1 in 10 “make it” if they’re lucky. That means your successful “real” business has to return 300% of the investment if you’re the one that makes it. The most ridiculous examples would be those at the peak of the bubble that had 10x what they asked for shoved down their throats by VCs, followed by expectations of ridiculous returns. Everyone gets rich in the short term on paper, but I’m not sure how much of that wealth gets converted to real money before everything falls apart. (VC’s probably cashed in though)

In contrast, a “lifestyle business”… they may be making the dullest widget you’ve ever seen, have a small staff cranking away… no growth, no international PR, no jet-setting lifestyle. But it generates millions in cashflow each year that goes to support the owner’s lifestyle rather than servicing accumulated debt. Not the sexy thing that MBAs drool over, but once you get it set up, it can support you for quite a while.

Christopher 18 Oct 05

Wal-mart hires illegals this denies poor black people jobs and creates more poverty. Even worse, illegals don’t pay taxes are even paid less than citizens, thus when they use your systems they end up costing taxpayers even more. If only your govt could stop subsidizing business through neglect of the illegals problem you wouldn’t be such a dick sucking whiner.

Anonymous Coward 18 Oct 05

Wal-mart hires illegals this denies poor black people jobs

Interesting. The Wal-mart by my house has a significant number of black employees.

…and creates more poverty

Wal-mart CREATES poverty? Now you’re talking non-sense.

Sam 18 Oct 05

I heard that wal-mart drinks blood. IS THAT TRUE??!1 OMG

Target Employee 18 Oct 05

Walmart is sucking America dry and sending all the benefits to Asia.

Asia doesn’t give a shit about America, so of course ‘Walmart Rocks’ to them.

Blow me all you rice eaters.

Target Employee 18 Oct 05

Oh yeah, ‘Anonymous’ is a Walmart PR Lurker. NOT TO BE BELIEVED!

Shanti Braford 18 Oct 05

Having a lifestyle business & having a real business, are not mutually exclusive, imho.

Which I think was the point…

A few examples:

- JetBlue lets many (most?) of its customer service reps work from home. These are by large Stay-at-home moms who (I’m just guessing here…) love performing their duties from home instead of slugging through a daily commute to a drab cubicle-filled office park.

- See Good to Great by Jim Collins, which has several examples of choices great companies make which are hardly purely profit-oriented (“real business”-like).

- SAS has an overwhelmingly employee friendly company, and is one of (if not the) largest private company in the US.

The net result, in many situations, can be greater profits for the company (its founders, any shareholders, etc).

But yeah, generally, naysayers (who might not subscribe to the above models / examples of corporate governance), will use “lifestyle company” as a negative term for a founder who’s not interested in growing his firm into a multi-million or multi-billion dollar company.

Sometimes, it just takes some time, eh? :)

Ruben 18 Oct 05

kayvaan , I think you have it right, and that speaker at the conference has it wrong. In this case small business owners are the investors and the return is not just money… it’s the satisfaction of getting paid to do something enjoyable. I think the outcome of a biz is directly tied to the owners goals, and as long as the owner meet’s his/her own goals then that’s fine.

Nina 18 Oct 05

Lifestyle business aside, the odds are against most small businesses. Nine out of 10 companies fail in five years. Those that survive the first five, 9 out of 10 of these eventually fail as well. What kind of lifestyle is that? Sounds more like the poor house. I would rather keep my day job and mind my own business of stretching each dollar I earn and making sure it buys something that can produce passive income down the road. That makes for a nice lifestyle.

Stephen 18 Oct 05

kayvaan: You wrote of the costs of pollution, depletion of resources etc not being factured in from an economic perspective. These factors are included and are called externalities.

Cars have the externality of polluting the neighbourhood they drive in, so that neighbourhood can justify taxing them for to pay for the costs that incurrs. In this way these costs are felt by businesses. Too many externalities, like crime (alcohol), pollution (industry), and depletion of natural resources (energy) and you will face regulation. Eg. licensing acts, pollution quotas and subsidies for renewable energy sources.

kayvaan 19 Oct 05

stephen - you sound like a professor of microeconomics… either that or you must be in theatre…. :)

Stephen L 19 Oct 05

People, please, you’re drifting off topic here. Stop all this debate about what exactly constitutes a “lifestyle business” and get back to the task in hand - arguing the economic and social merits (or demerits) of Wal-Mart.

This is turning out to be the most entertaining comment-thread I’ve read in some time :D

Ahorre 19 Oct 05

OK - Here we go

1) Life Style Business = Glorified Hobby. You invest time in your passion, but you reached a point in which you now get compensated.

2) Walmart - The small town residual effect of Walmart openings is similar to what the internet does to your profession. You work from home in your pajamas, and you can provide low ball pricing because of your “LOWER OVERHEAD”.

Found Design 19 Oct 05

I would say that 37s is not necessarily a lifestyle business, offices in Chicago, people on the payroll, etc.

I do think that mine is lifestyle business. 2 hours away from DC & Richmond, live in a ski resort, work mostly from home, no employees, etc. I am not adverse to making a big business, but why would I want to? What quality of life do the big business owners enjoy more than I do?

Darrel 19 Oct 05

How about European businesses? Are they more ‘lifestyle’ based due to their greater focus on family and vacation time?

Chuck McKinnon 19 Oct 05

Steve Pavlina had a great post about this that changed my perspective. In sum: so what if a company fails in five years, or eventually fails after that? If you quit a job to do something different after four years, do you label that a failure? What about after ten or fifteen years? Why should every business be expected to survive in perpetuity? I’ll bet buggy whip manufacturing was a pretty good gig while it lasted. Why do we think it a failure that someone made a living at a business for (say) “only” eight years?