What is a lifestyle business? How is it different from a small business and a startup?

To the public, the lines can sometimes blur between a lifestyle business, a small business, and a startup. But not for an investor. Investors will run as far away as they can from a lifestyle business and a small business (and if we’re being honest, from most startups as well).

Investors want to see hockey stick growth in a startup. They are deploying capital that could otherwise be invested elsewhere for the potential greater return on capital compared to their other investments. For example, the stock market historically returns 7-10% on average. Real estate might be a bit more because it is a riskier asset. In venture capital, investors want to see 35%+ growth and return across their portfolios. If they do not see the growth they are looking for, they may shut the business down no matter how profitable it is. Your dreams and years of hard work go down the drain.

Venture capitalists are not in your business for the long term. They want explosive and exponential growth, and they want to exit within 5 years (exceptions apply). If your business is one that cannot scale or would take a long time to scale and grow, it is a lifestyle business. If you are looking to build a profitable business that can sustain your lifestyle, help you pay rent, etc., it is a lifestyle business. If you want to keep your business in the family and pass it down to the next generation, it is a lifestyle business.

There is nothing wrong with building a lifestyle business. However, investors avoid these companies like the plague. If you desire to build a lifestyle business, you should avoid investors right back. Consider getting a bank loan instead. There is no glory in taking investor money if your interests are not aligned.

Build a product or a service that you believe in first, and then consider what kind of capital your business needs. Some of the most successful businesses in the world grew without venture backing. Here are 35 examples of successful businesses that started with little to no money. Two non-VC backed companies I love to follow are The Laundress and Cocokind. The Laundress was acquired by Unilever for $100 million dollars last year and remained privately owned by its co-founders until its exit. Cocokind is a skincare company based in California that has not and has no plans to take outside funding. Yet you can find its products on the shelves of Whole Foods and Target.

In case you are like me and want to do a deeper dive into the topic, here is a good place to start: https://fizzle.co/sparkline/startup-vs-lifestyle-business.