A Lifestyle Business Makes Investors Jealous
Investors are just jealous of a lifestyle business.
The term “lifestyle business” is used pejoratively to smear businesses that angels or venture capitalists can’t fund, but is really something about having a PROFITABLE business. Investors are just jealous that “lifestyle entrepreneurs” don’t need them.
In the angel/VC model, there is only one focus: the exit. If you can show a 10X return in 5 years, the angel/VC wants to invest in you. If you can’t show these kind of insane returns, they don’t want you.
The term “lifestyle business” is better thought of as a bootstrapped business. Or, as I like to think about it, a PROFITABLE business.
Having done a (failed) angel/VC backed startup, I can attest at how debilitating investors can be to your business. The ever-present specter of the investors can force businesses to do everything possible to show unrealistic success, and distorts any thinking about building a real business that can have legitimate income. The investors’ attitude is very high risk, high reward, and that attitude quickly permeates the company.
A second problem with taking investment is that it sets the bar unattainably high. Each tranche of investment means that the entrepreneur has to exit at an even higher valuation. I visualize this by looking at the poor entrepreneur hauling a heavy load up a hill, while all the investors stand on the side, sipping their drinks with little umbrellas in them. With each round of investment, the hill gets 10x bigger and the burden does, too.
In some cases, a lifestyle business can be a single person consulting business, but there are just as many multi-billion dollar “lifestyle businesses” out there as angel/VC funded businesses.
The biggest challenge of most VC backed companies is figuring out how to grow fast enough. In order to make a 60% return on investment – year over year – the company needs to have astronomical amounts of growth. When these companies have big piles of cash to spend to make that happen, they get super modern workplaces, spend big money on recruiting talent, and are in an eternal treadmill turned up to the max.
The big-growth, go-big-or-go-home business model gets all the press. TechCrunch and Business Insider have gushing stories about how much money some company raised from Big VC Firm. Those people who rode the tiger of a VC-backed company and had a successful exit never tire of telling everyone else about it.
There are not very many stories about the entrepreneur quietly and methodically growing a business idea into something that produces revenue and profit. These are the entrepreneurs who are far, far more wealthy than the average CEO at a startup that has a successful exit, but they tend to toil away in relative anonymity.
The roulette wheel of VC backed startups have far more failures than successes, but these are never discussed.
The sad thing is that real people with real business ideas are often shunted into believing that they cannot do the business without going the venture capital route. The angel groups, accelerators, incubators, coworking spaces, and everyone in the entrepreneur ecosystem will talk about putting lipstick on the pig to sell the idea to investors, then sell the company to Big Co.
But the real part of business is to provide value to someone for less than the cost to produce it. This is where business starts – and where it ends. The sum and substance of it all.
If you can prove the concept of a business by making a small profit, you can probably expand the business by making it more efficient. If you can do this without outside investment, you are much more likely to succeed – and you can do it on your own terms.
BlueIron’s non-dilutive investment helps many bootstrapped – and profitable – companies get affordable patent protection.