Again and again, people try to distinguish between two kinds of startups: growth and lifestyle. Broadly speaking, here’s how people categorize these startups:
Growth Startup
- Raises VC or angel capital
- Aggressive hockey-stick like growth
- Laser focused on an “exit-event” (acquisition, IPO, etc.)
- Focus on revenue (not profits) or other growth metrics
Lifestyle Startup
- Bootstrapped of Self-funded
- Slow growth or no growth at all
- No exit strategy per se as the business is part of founders’ lifestyles
- Focus on profits at all times (as they don’t have external capital)
With Visual Website Optimizer, many people have asked me to clarify whether it’s a growth business or a lifestyle business. I’m always baffled with this question because these two categories seem narrow and I don’t see my startup getting pigeon-holed into one of them. It is true that we haven’t yet raised any VC or angel funding. But does it really disqualify us from being a growth business? What if I tell you that our revenues (and profits) have been growing by 10-15% every month. We are actively hiring but we’re not in a rush to expand the team aggressively (sacrificing quality). We’re happy with the slow but quality growth in team and product features. Does it make us a lifestyle business?
Why should there be a difference at all?
Why can’t a business qualify both categories: lifestyle and growth? Growth businesses typically take years before an exit event happens (if at all). What does the founding team do during that time? Raise multiple rounds of funding to stay afloat hoping to find the elusive exit event. Wouldn’t it be much better if a business has profit mindset of a lifestyle business but an ambition to become a large company like a growth business?
I don’t see any incompatibility between these two ambitions and in fact most great non-Internet businesses had started that way (McDonald’s, Walmart, etc). These companies became behemoths not in 5-10 years but over course of many years while always keeping profitability in mind. You wouldn’t call McDonald’s as a lifestyle business, would you? With most Internet and technology startups, there is such a rush to grow big at expense of profitability. Why can’t it be a slow but steady growth over a period of many years?
I hear the pain friend 🙂 … tell them to fuck off when you next meet people with that question.
I think the whole separation of lifestyle vs. growth is often rather silly. Of course there are entrepreneurs who specifically choose to set themselves up strictly as a lifestyle business in a pursuit to do what they want with their time. No problem there. They may choose to work 3 hours: a day, a week, a month and that is entirely fine as it is their life & business. Great for them but to segment and say a company is a “lifestyle” business if they are not a “growth” business is absolutely non-sensical.
Many among us believe that the path of “growth” as defined above is the holy grail – it is not always the case! Sometimes the growth path makes sense. Sometimes it doesn’t.
Growth in many cases defers profit and is heavily focused on the top line. Sometimes this path wins, other times you lose but choosing not to take this avenue is usually not for “lifestyle” reasons. What is their revenue? This is a question we all too often hear yet the all important profit is given little regard. If you are not careful, growth can be the grim reaper in disguise.
Let’s think about it for a moment. Founders typically pour sweat, heart, and soul into building a business, and sometimes it is so awesome customers are telling prospects, and growth is occurring organically. Maybe not rapid growth, but it is moving in a positive dirction. The business is appreciating while generating income to the point it is cash positive and the company can prudently hire strategically and efficiently, and best of all – on their terms. Taking on extra money can be counter productive to the business. Companies can take on money but at what cost? Vulture (not all) capitalists come in with demanding terms that can quickly alter the DNA and pulse of the business risking customer loyalty and the founders very own positions are often at stake. There are examples where the choice to oust founders makes sense, however one of the most idiotic decisions was giving Steve Jobs the boot. Here is a current master of five technological segments (computers, phones, tablets, movies, and music) and the guy got kicked out of his own company that he started. It all worked out in the end but it opens itself up to another debate given the capital intensiveness of the computer industry and Apple probably had little choice not to get funding.
This may be an extreme point, but seeking external money often demands external control so founders run a risk of losing their grip. Companies are in the business of growing. Whether it is a lifestyle business or not is irrelevant – the speed of growth is what should be of question and how founders want to approach their gas peddle!
@JaretManuel
I feel the difference is as you said in this post
http://paraschopra.com/blog/entrepreneurship/what-exactly-makes-entrepreneurship-so-har.htm
“Lack of a Boss”
If you got investing then investor indirectly becomes your Boss so It cant be a lifestyle business. If you don’t need fund you become your own Boss and that is lifestyle business. A lifestyle business founder can live where he wants , do whatever he/she wants whenever he/she wants Which makes the other people jealous so they always want to give undervalue to the lifestyle business 🙂
BTW @paraschopra How many team members Wingify have now ?
@GK: Thanks for your comment. We are 7 people now!
Well, I think you hit on the difference in your post:
Growth companies are lifestyle companies that sacrifice profits for additional growth, and the lack of profits is usually supplemented by funding.
As to why companies go for growth over lifestyle, I can think of a number of good reasons:
– Being in growth mode gives you a competitive advantage in speed of execution. That’s just the reality of having more people.
– Growth companies get a ton of press and hype, which feels great and attracts talent.
– Growth companies, if they succeed, tend to be really successful and have returns for everybody involved to be a magnitude higher than lifestyle companies.
– Some people really thrive in a high stakes environment.
Not to say that lifestyle companies are bad, and obviously, all companies ought to be growing in *some* fashion to remain in business, but it’s a pretty natural association from startups to “growth companies” from these characteristics.
Hi Paras, well i came across about these two things for the first time and I really don’t feel that there should be any discrimination.If you have a product/service you are going to work for it and ur hard work will get u benefits in a longer run. and the point you mentioned that one can be profitable and still grow steadily over the years without VC funding. so for me its more about why you do, what and how rather than these jargons 🙂
It’s actually quite simple why there’s a distinction:
If you’re in a market large enough to grow into a huge company, then there is an incentive for a VC firm to invest in a company that plays in the space in order to give them a competitive advantage and try to lock up the market.
If the market is so big, then there’s a risk that a VC will invest in a competitor of yours, thus game theory dictates that you should take investment as well to maximize your chances of success (even if it’s not a zero sum game).
The reason the brick-and-mortar business behemoths like McDonald’s and WalMart grew slowly was because they were businesses built on brick-and-mortar. Things move faster on the Internet because there are less regulations to deal with and far fewer things to worry about. There’s simply no excuse for things to take that long for a web-based company.
Finally, high-growth doesn’t always mean low quality, but poor management does.
This distinction is really immaterial. And I am glad to see that you as a very young entrepreneur is able to question it, challenge it and be able to see through the perception of vast majority. This is the maturity that would help you provide thought leadership to your venture. It helps to be grounded and realistic. Especially in the times to come when dynamics are changing at very faster pace in general and more so for IT start ups.
Probably the genesis of this kind of distinction lies in Tech Boom in the USA and fast evolving new business models within IT ventures. Also my personal belief is that they are perfect personification of culture and capitalist ideology of the USA.
what happened to my comment?!