

Doug Richard: Why do people hate lifestyle businesses? - bensummers
http://www.smarta.com/blog/2010/7/doug-richard-why-do-people-hate-lifestyle-businesses

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soundlab
Anyone who thinks "lifestyle businesses" are a waste of time should look
through some of the very small (in employees) companies for sale on
bizbuysell.com. Yes, the sandwich shops and laundromats are poor earners, but
I have run across 2-3 man operations selling niche products like vintage car
parts that profit $500K-1M/year. I'll take earnings like that over "top tier
VC", ridiculous business plan competitions, self-promoting PR, and dealing
with staff any day.

~~~
jaxn
Thanks for the pointer to bizbuysell.com! I am going to have hours of fun
perusing that one.

Edit: ooooh! Email alerts matching my criteria!

~~~
tocomment
Are you going to buy a business? I've been considering this route as I'd love
to aqquire a passive income stream but can't seem to gain any traction on my
own projects.

~~~
jaxn
It is something I am considering as well. I am a partner in an LLC that owns a
couple of retail stores and am thinking that my future plans will involve
buying existing businesses that I feel are under-performaning and that we have
the skill set necessary to turn around.

For now I am excited about using the site to start evaluating opportunities
for businesses in the areas where we are currently operating, maybe figure out
who they are and do some evaluation so that when I am ready to pull the
trigger I have a good understanding of the market.

~~~
tocomment
That's interesting. How did you get involved in such an LLC.

After perusing that site, I didn't see many businesses that looked much like
passive income. I guess I'll keep looking.

~~~
soundlab
I recommend reading Buying a Small Business <http://amzn.to/bmRz0T>. It is
really outdated in terms of the search methods (You can use a computer to do
searches for information!) but the fundamentals about evaluating financials
and understanding the relationship between buyer and seller haven't changed.
One of the most intriguing aspects is for "lifestyle business" owners, your
credentials and commitment to growing and protecting the seller's baby is
nearly as important as your offer price. Huge caveat is that 99% of Business
Brokers are complete morons and terrible to deal with, give them no insight
into your liquidity, net worth, etc and stick to the type of business criteria
or industry you are interested in.

~~~
tocomment
Thanks. I wonder if I should not expect a real world small business e.g.,
cafe, roofing company, gift shop, to be a passive income source?

I wonder where I else I can look for passive income (Assuming I can't build
something myself :-(

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kbob
"People" don't hate lifestyle businesses. "Investors" (both VC and angel) hate
them, and it's for the obvious reasons: if an entrepreneur doesn't take
outside funding, and doesn't shoot for a big exit in 5-7 years, then there's
no opportunity for a VC to profit.

The early-stage investment community controls the dialog about
entrepreneurship, and they're not entirely unbiased.

~~~
garply
I find people who flock to these investors (YC included) ridiculous. You know
what? Between 5 million and 50 million in the bank, there's not a hell of a
lot of difference in how your quality of life is going to be affected. But
when you choose a business strategy to generate one of those two amounts,
there is going to be a hell of a lot of difference in your probability of
achieving those two targets.

~~~
jon_dahl
_I find people who flock to these investors (YC included) ridiculous._

This is pretty overstated. There are legitimate reasons for "flocking" to
investors. Some (not all) businesses will have a better chance of succeeding
with a large influx of capital, or with the advice, connections, and pressure
provided by an investor.

Just because you don't need an investor to be successful doesn't mean that
people who take investment are ridiculous.

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terrellm
I've owned the same company for 10 years where I've sold software to cattle
ranchers and horse owners in almost 60 countries.

My company started out as lifestyle business. Then after I got my MBA I was
ready to build it to sell so I could become a serial entrepreneur. After my
wife and I had our son 2 years ago, I realized having a moderately passive
income stream that gave us more time for family was what we were looking for
all along.

It reminds me of the old story "The MBA and the Mexican Fisherman" and I was
both... well sort of... an MBA and a Texas Rancher.
<http://www.keepingitrural.com/mba-mexican-fisherman>

~~~
rythie
The risk is, at some point someone will come along and compete and in effect
destroy his business. He's relying on the future income stream where as the
IPO route ends up with money in your pocket, that can't be taken away.

For example, someone runs the local pub that everyone drinks at despite the
expensive beer, because it's the only one in town. Then wetherspoons turns up
with it's cheap beer and aggressive promotions and original local pub
struggles to make a profit anymore.

~~~
theBobMcCormick
Life is never without risks. If he IPO's and takes the "money in his pocket",
he could still get wiped out by a bad investment. IMHO that might even be
_more_ likely since since most entrepreneurs/small business owners already
_knows_ their current line of business quite well, knows the players, the
competitive landscape, etc. At the same time, most of these same
entrepreneurs/small business owners often know jack shit about investing, so I
would think they'd be a lot more likely to make expensive mistakes in
investing than they would be on their "home turf".

~~~
rythie
Your assuming he would reinvest the money rather than just keep it a savings
account (or several).

~~~
jaxn
The point being that there is always risk, and if you currently have the end
result, there isn't much reason to give that up so that you can make a bunch
of money and get back to where you started.

This is somewhat related to one of the best comments in the FU money thread.
If you were happy before the money you will be happy after the money. If you
were miserable before the money you will likely be miserable after the money.

BTW, that IPO isn't a sure thing either. I would guess that a successful IPO
is less likely than a big competitor ruining your business.

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83457
I am actually a software developer of almost 10 years in a small company which
I eventually realized is a lifestyle business. I initially thought that my
boss just couldn't grow the company but later realized that he didn't want the
stress of running a larger company, wanted time with his family, and that
profits were going up so he was probably content once he was pocketing half a
mil a year.

It can be frustrating though as many decisions seem to come down to the fact
that any money spent in the business on employees, marketing, office space,
servers, tools, etc is coming out of his pocket. Even though that is never
stated outright by my boss, it is constantly in the back of my mind any time
the cost of a project is discussed and especially when something is shot down
with no other reason given.

There is also a lot of room for growth and profit in our niche market so
knowing that the company is being artificially limited is frustrating. With
that said, the company itself is relaxed, family friendly and very stable. I
often get annoyed with decisions made but when I think about starting my own
business and put myself in my boss's shoes I can understand many of his
choices.

~~~
detst
> almost 10 years in a small company

> a lot of room for growth and profit in our niche market

> being artificially limited is frustrating

> when I think about starting my own business

Sounds like you have the experience, know a market, want to do something
bigger and have a least thought about going out on your own. So, why not?

Sounds like you would be well-positioned if you wanted to. Are there needs in
the market for you to leave without having to directly compete with your boss?
Maybe you could even complement what he's doing and work together by doing the
things he has no interest in.

~~~
cynical
Why would he do that when it's so much easier to collect a paycheck and
complain about how management is doing everything wrong?

~~~
chc
Which of these is more rational:

• Spend a lot of time and mental energy trying to convince someone to let you
give him more money through your efforts

• Make a reasonable effort to tell him what would be in his best interest, and
if he refuses, let him be

Unless you own a lot of company stock, there's not all that much incentive to
do more than "collect a paycheck and complain about how management is doing
everything wrong."

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HeyLaughingBoy
_as though the ability to raise money equates to the ability to make money. It
doesn't._

Couldn't have said it better myself!

I used to work for a well-run small tech company that was basically an
automatic money machine for the owner: a self-taught engineer. Then he decided
he wanted to sell and take a few years off so he sold it to a group of
"professional businessmen" who were great at raising the cash to buy the
business. Sales began to tank within months and a few years later it was out
of business even though the new owners kept pouring money into it (hint: if
you bought a wildly profitable business, having to inject your own cash to
keep it afloat should be a sign of something wrong!!).

They came up with every excuse in the book at every juncture, but anyone
working there knew the real reason: they didn't have an f'ing clue what the
hell they were doing!

OK, I deleted the rest of the rant :-) The real problem was that these guys
acquired a successful lifestyle business and wanted to to scale it rapidly.
Nothing wrong with that, but the problem was that because they were so well
connected to capital, they completely ignored the point that in their previous
companies, there were entire departments devoted to making good use of that
cash after it was raised. But in this tiny business they had just bought,
_they_ would have to make those decisions or delegate them. Since the only
people they could delegate to were two young engineers (who, of course,
couldn't _possibly_ know more about the business than they did!! - yes this is
sarcasm!) that was simply not going to happen.

So instead we got to watch them make expensive mistake after expensive mistake
until the cash ran out, all the while wondering how people so stupid could
manage to raise so much money.

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far33d
I don't - I just find it frustrating when people confuse scalable startups
with other businesses and try to apply the advice of one to the other. They
are different beasts and have different rules. Talking about one vs. the other
is like arguing about vi vs emacs - you can argue about the strengths and
weaknesses of each all day but trying to pass value judgements is a waste of
time.

------
jteo
A good business is one which is 1\. Profitable 2\. Gives you time to do what
you want. (Including working more at the business)

Everything else is just a matter of fashion, bias, stereotypes and details.

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pclark
Spins both ways:

Why do people hate venture capital funded / don't generate revenue from day 1
companies?

~~~
jasonlotito
As the article says: "Raising money doesn't mean you can make money." All to
often people confusing raising money with success in the business, even if the
business is in the red.

------
pxlpshr
It's not that people hate lifestyle businesses, it's that a lot of people
inappropriately label their lifestyle businesses as "startups". For the people
that have worked 70+ hours a week, took no salary, and have lived through the
pain, blood, tears, sweat in an attempt to build a sustainable business --
it's kind of a slap in the face.

I used to run a lifestyle business (ad agency), worked 40 hours a month and
netted almost a quarter a year. However, I left to that to not just pursue fu
money but more importantly, build a purpose-driven business that hopefully
enabled me to spend my later life dedicated to philanthropy.

~~~
raphaelb
I don't understand why it is inappropriate to label it a startup. By your
definition 37signals is not a startup because they made money early on and
don't work more than 40 hours per week.

It seems like the childish / teenaged measuring stick he talked about
regarding revenue or employee size. Like it isn't a real business/startup if
you don't work 70+ hours per week and earn no money quickly.

~~~
pxlpshr
I don't believe that DHH and Jason work less than 40 hours a week. Maybe they
do now, 10 years later, but I think they've burned plenty of midnight oil that
would put BP to shame.

I don't understand why people who want a relaxed work environment label
themselves a startup. That's like saying you're a marine but have never gone
through bootcamp.

~~~
detst
> I don't understand why people who want a relaxed work environment label
> themselves a startup.

Why not? I know some people want to take claim of the term because they chose
one path that may have had more sacrifices but their way isn't the only way.

Hours worked per week is one of the least significant factors in defining
"startup" for me.

~~~
pxlpshr
I agree it's not the only way but it's by far the majority. More importantly
though, most founders don't consider it "work" so I think that's where we have
a disconnect. Startups are intense, that doesn't mean it's not enjoyable.

<http://www.paulgraham.com/really.html>.

------
Goladus
I haven't personally observed hate for lifestyle businesses, only a prevailing
opinion that lifestyle businesses aren't "startups." The distinction is
probably imprecise in some cases, but growth is probably one of the key
differentiators. Where a profitable lifestyle business might be happy to grow
a few percept per year indefinitely, startups will tend to have a much more
ambitious growth plan.

In any case, the result is that discussion, comments and advice for startups
will sometimes be different than for a lifestyle business, funding being one
of the obvious topics. Another is that yes, size of the business is important.
Profit is not just the bottom line, the other is _influence_ or power.

------
rmah
I don't think it's a matter of "hating" lifestyle businesses. It's just that
most normal people don't see a 1-man operation as a "business". They assume
that if you don't at least have plans to grow, you're just trying to puff
yourself up. My guess is that if you said you were a "contractor" or
"consultant", there would be less antipathy.

That said, why should you care? If you're happy being a 1-man shop, just laugh
at their "hate"!

~~~
BerislavLopac
Sorry, but why should a lifestyle business be a one-man operation? As I see
it, a lifestyle business is a regular company like any other, with employees
and everything -- but with no plans (or even possibilities) for huge growth,
acquisition or IPO. Simply, a business which allows its owner to get a sizable
salary without much work, but would never bring them millions in a liquidity
event.

~~~
byoung2
Exactly. When I think of lifestyle businesses, the examples that come to mind
are dentist offices, hair salons, and family restaurants. Usually the
customers personally know the owner, and the business thrives because of it,
but it's impossible to scale.

------
kemiller
Revenue flow and number of employees is a measure of power. Ability to impact
the lives or others for good or ill. Some people care more about that than the
next tier of wealth.

