PG Says: "Please don't even use the word startup when describing what you do."
Most of the Silicon Valley startup infrastructure is basically extraneous to a lifestyle business. Incubators, angel investors, VCs, all the other support pieces built for rapid growth -- all of that is geared toward businesses that have a chance of getting huge and IPOing and giving back a huge return to everyone who helped it along.
With a lifestyle business, by contrast, you tend to self-finance, you shepherd your cash and investments carefully, and if you need to expand, you might go talk to your bank about a line of credit and show them your cash flow and consistent returns to date in order to help secure it.
Lifestyle businesses can be great. My dad has a successful retail store, a low-stress environment, a great house, and plenty of time to enjoy it all. We should all be so lucky. They're just not the same thing as startups.
In fact most startups that are not businesses do not have a very good prognosis, though quite a few still get acquired for technology or team.
Considering you're an excellent writer, I figured you must have a reason for employing redundancy. Is there a reason you don't say "starting a business" or "starting a company"?
I think Balsamiq[1] provides an interesting exception to above article as well as many comments.
Peldi's a guy with incredible vision. I would not be surprised in the least if he swings for the fences without VC. Institutional folk have tried courting this boutique " lifestyle " business without success.
[1] - http://balsamiq.com
(My searches didn't reveal this question asked previously - though it must have been. IIRC, YC was more broadly as a company that makes companies, rather than a startup that makes startups.)
It's a lot harder to delay gratification and swing for the fences, not just intellectually harder but emotionally harder. Sometimes I feel like my friends doing lifestyle businesses just don't understand what I'm going through, and other times they give me really bad advice that would be great if I was building a company to operate like their's but doesn't do anything for me at scale.
My family business is a lifestyle business in finance, I worked there from age 14 - 20, and its a totally different animal from a startup. Because it isn't a startup, its a self-sustaining business. Was after 12 months. So it makes me think a lifestyle startup is a myth - these aren't startups, they're small businesses trying to dine out on the glory of the name "startup" without takin the risk. What do you think?
> these aren't startups, they're small businesses trying to
> dine out on the glory of the name "startup" without takin
> the risk
In a more VC-style startup, you're betting most everything up front. Pardon the gambling metaphor, but this allows you to play higher-stakes games, but this also means that when you lose, you lose your whole roll.
They're all businesses, the founders are all entrepreneurs. We're all in this together.
I don't care about the 'glory' of a startup, glory is something you tell stupid 18 year old kids so they feel good about going to die for 60 year old kids.
If you can make money with out risk you're an idiot to go and find a business with lots of risk controlled by someone else.
Don't dig for gold, sell shovels!
Did you know that the people who sell plastic wrap for hard drives have a higher profit margin than those who make hard drives? Think about the ramifications of that for a second.
Laugh inside when you get made fun of for not having the stomach to risk digging for gold. Enjoy your life find your esteem from yourself and not from the opinions of the masses, it's you who has to live your life, not the others commenting on it. If raising VC makes you happy, then raise VC. If a lifestyle biz makes you happy run a lifestyle biz. If being a programmer in a cubefarm at a megacorp makes you happy, do that!
Beautiful :-) But what about passion?
"Did you know that the people who sell plastic wrap for hard drives have a higher profit margin than those who make hard drives? Think about the ramifications of that for a second."
No I didn't, but that's very interesting. Yet I doubt anyone here would be funding a company making new plastic wraps.
Lifestyle startups aren't a myth. They're just working on a different scale of problem than the VC backed startup. I don't know that there's anything inherently better about either, but treating a lifestyle startup as a scalable startup, or vice versa is a mistake. They're separate entities, with different goals. Each has it's pros and cons.
As the cofounder of a bootstrapped business myself, I'm no fan of the shadow we operate in, but I understand it. The story of a company that doesn't have the luxury of positive cash flow to fall back on when things get tough is fundamentally more risky, and therefore exciting. You get larger magnitude successes and a larger number of failures, which is far more dramatic. And narratives with more risk, more reward, and higher drama, are the kind of narratives human beings love.
I love human beings.
If the average person could work 20 hours a week and make $15,000 a month, they'd feel pretty rich. (even at 60 hours a week)
If you want to make somebody else rich, you've got to make a lot more money, particularly if the person is an investor who's already rich.
This is just wrong. Even Google had early minor revenue. Revenue traction is king, it's the best kind of traction. User traction is a higher-risk proxy and thus must be more impressive to result in the same valuation after the risk discount.
Aside: Wanting to start a lifestyle startup does imply, correctly so, less ambition than the swing-for-the-fencers founders. That's why they're easy to pick on, ambition makes for much better stories.
quite a lot of tragedies have ambition as the "fatal flaw" of the main character.
Having revenue or profit also starts to give a point of reference for your valuation if you are raising money, which may or may not be what you'd like.
Agreed - still a good story.
For example think about all the small web development companies with 3-6 people in their teams. That is a lifestyle business. On the other end think of Instagram, 10M users, 6 people. Or Weebly, millions of sites, 3-4 people. Or Craigslist hundreds of million in revenue, 30ish people.
Meaning sometimes even if your business is profitable (like my little business), VC will not invest since it lacks growth potentials.
So business goes like this:
"find business model" -> "optimize business model" -> "scale your business"
Have you ever thought that VCs have a vested interest in perpetuating the idea that to be a "real" business you need to give up equity in order to raise money?
For a while I was fascinated and amazed at projects pursuing absurd mega-goals, attempts to get something off the ground so big it was nigh unto stupid. A floating city configuring an independent libertarian utopia nation. A billion-dollar indoor ski resort just outside Atlanta. A bridge from Spain to Africa sporting a 5 mile suspended span. A world-class [fill in the blank, how much ya got?] facility annex to a super-mall in "why would anyone move there" Syracuse NY. A "fast ferry" across Lake Ontario connecting Toronto with "why would you go there" Rochester NY. And so on, one project after another with big flashing "ain't gonna happen" signs over them.
Then I realized. It wasn't success of the project that was the goal, it was keeping a small team of creatives employed in a perpetual state of promotion and study-funding: find someone with deep enough pockets, and they'll shell out a livable fee to be able to say "hey, look at this..." to other deep pockets. No way that Atlanta ski resort would happen, but the idea was exciting enough to elicit enough funding for studies to pay the bills (at least until the vital-to-snow-making nearby lake almost dried up) for a few people in modest offices. You can make a nice, if modest, living promoting stupid ideas.
And if the stupid idea actually pans out, takes off, and succeeds, well, the possibility of success is awesome enough to keep trying.
Investors/VCs/Angels define "success" as an investment that returns enough cash to not only make a positive return on its own, but also to offset losses from the other "misses" in the portfolio.
That investment return can come directly from profit, or it can be achieved by telling a compelling growth story that allows others to buy out the investor's position and provide an exit for the early investor.
So, the question is really one of audience: do you aspire to provide a good living for yourself, your employees, and your business partners? Or are you swinging for the fences and able to provide returns to the investment community as well?
Whether you consider Google, Groupon, or Joe's Garage to be a success really depends on who your constituents are.
1) VCs who have a vested interest in getting people to give up equity in order to raise money.
2) People who have sold equity in exchange for VC money need to make themselves feel good about their decision so they look down on others who have a business plan solid enough not to need to tap the capital source of last resort.
What can happen is (and this is an amazing thing about the times we live in) that a side project takes off, slowly becomes profitable, allows the founder to quit his job, focus on it full-time and then one day, he looks up and thinks "wow, I could swing for the fences." I guess that could be classified as a "lack of ambition" for not having a vision in the first place. OTOH it could be considered a smart move because the founder has already made something people want.
Mailchimp, Balsamiq, DuckDuckGo to an extent, and in a smaller way, my own "startup" are examples.
From my perspective the companies are the same size, the tech is the same, the risk to personal wealth is if anything greater, and heck sometimes the market is the exact same. Why I can’t talk about these problems with people just 'cause I didn’t take funding mystifies me.
Of course, not for long, as generally the people who make these comments are just rude, and not the kinds of people that I’m going to think too much about. Still in the moment it kinda stings.