EF Staff

October 29, 2015

Whether you’re willing to admit it or not, there is a lot of ego in the business world.

For the latest generation of entrepreneurs in particular, there is a grand divide between venture capital-backed (VC-backed) startups and those who choose the lifestyle business path.

Here’s the deal. I originally started this post with the intention of shaming VC-backed startups for negatively defining what it is we’re doing. I realized, however, that in doing so I would essentially be bowing to their definition of what it is I do—and I’m not willing to do that.

Instead, I would rather share some of my thoughts on the Lifestyle / VC-backed startup debate and encourage you to follow your own entrepreneurial route, whichever path that leads you down. So how will you know if being a VC-backed startup or a lifestyle business is right for you?

What Is a VC-Backed Startup?

Basically, a VC-backed startup is an early stage or emerging business funded by venture capitalists, or “VCs” as they are commonly referred to. In exchange for money, VCs often secure a substantial chunk of ownership in the fledgling company, which is where they intend to make a high return on investment down the line.

Traditionally speaking, the goal of these startups is to grow large enough that not only do they provide a high return for their investors, but they also go IPO and make millions, if not billions.

No pressure!

What Is a Lifestyle Business?

Unlike a startup, which is intended to continuously grow, a lifestyle business is designed to focus on the founders’ talents and generate enough revenue that it supports their desired lifestyle.

This can mean something different for everyone. For example, you may want to live in a million-dollar beach house with plenty of toys, so you would need to build a business that supports that. Alternatively, you might prefer to bootstrap it and travel the world with only a backup, so living off 2k per month is more than enough. The choice is yours.

Some of the Greatest Misconceptions

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There are plenty of misconceptions fueling the war of egos between these business paths. Perhaps most notable is that the startup world—oh, let’s be honest… the rest of the world too—believes that lifestyle business owners are coconut-sipping, beach-lounging, laptop-carrying backpackers who are lazy and on a perpetual vacation.

As someone who travels and runs a seven-figure business, I can tell you this is not the case. Most lifestyle business owners I know put in the hard work and long hours too. And we certainly don’t work from the beach (sand and laptops don’t exactly go together).

On the flip side, lifestyle business owners look at VC-backed startups as people who are simply chasing big money and a pipe dream. Why? Because statistics show that  nine out of ten  startups fail.

The cold hard truth? Lifestyle businesses are just as likely as startups to fail, and both are working towards living a life they love—so why the beef?

Weighing in the Pros and Cons

VC-Backed Startup

Let’s be real, having funding while getting your business off the ground would definitely make life a little easier. Having financial funding allows you to put all your time and energy into your new business, and it reduces the stress that most of us feel when we’re trying to work and still provide for ourselves.

Financial funding is also incredibly easy to come by these days, as there seems to be a never-ending stream of investors looking to build out their portfolios.

Depending on who backs your startup, you may receive guidance and business advice that could prove invaluable. On the other hand, a lot of evidence shows that most VCs offer next to no value and end up being just another cook in the kitchen.

Perhaps the biggest downside of a VC-backed startup is that they exist in an “all or nothing” scenario. This places a disproportionate amount of pressure on the founder and their workers to provide big results. It’s not enough for the business to be profitable—it has to have an incredible amount of growth, profits be damned.

Lifestyle Business

Among the many benefits of growing your own lifestyle business is the fact that you can choose how and where you run your business. You aren’t required to put on a suit and show up at an office every day.

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Lifestyle businesses are grown to support your quality of life. Some prefer to keep it small with only themselves and a small team, while others go big. Again, it is solely dependent on your personal preferences.

These businesses also tend to be built on the founders’ interests or talents, which leads to improved self-efficacy.

One of the pitfalls of lifestyle businesses is that they also require capital to get off the ground, and if you have to provide for, let’s say, yourself and a family, this can be tough. I know plenty of business owners who worked a traditional nine-to-five,then came home to work evenings and weekends on their businesses until they took off, just to make ends meet.

How Can We Meet in the Middle?

First of all, I want to call bullshit on this debate.

As entrepreneurs—VC-backed or lifestyle—we are all working towards the same goal: to create, build, and profit off our ideas and expertise.

Part of the reason we at Empire Flippers chose not to become a traditional nine-to-five business was because we wanted to work outside of the box. So why stunt that creative thinking by trying to box in our fellow entrepreneurs with definitions?

Maybe the real problem is that “lifestyle business” has quite a few negative connotations, thanks to the many get-rich-quick scammers online, so what we really need to do is find a new way to define what we do.

What do you think? Can we bridge the gap between VC-backed startups and lifestyle businesses? If a new term for lifestyle businesses makes the difference, what are your suggestions? We want to hear your thoughts, so share them below with a comment.


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Discussion
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  1. David says:

    VCs have no right to call you names. You all know the stats, that only a few are really successful. The “institutional imperative” is very strong in this industry. What they use is a cookie-cutter approach and nothing else, so most VCs actually chase the same deals with the same predictable result.

  2. Andrew says:

    Most people don’t know what they want, so their life turns out to be a tail chase. The VC backed guys might think they want big money, but in reality most need fame to gratify their ego.

  3. A great subject to think about…

    I am from software dev world and often attend and participate in start-up related events (here, in Montreal, Canada we have a thriving start-up community). Many friends of mine keep asking me (half-jokingly) when I am going to fund my own start-up.

    I have given it many thoughts… and in the end I realized I do not want to have a start-up. What I want is a freedom to do the stuff I like and to be responsible only to myself. thus – I want to have a lifestyle business.

    Maybe in the end a lifestyle business and a VC-backed one are the same thing, but I want to belive there is more freedom in the first one :)

  4. Josh Kelly says:

    Great post Justin! Now that I’m living in San Francisco, but working full time on my bootstrapped business I feel right in the middle of both these worlds.

    I think there is a significant difference between these two types of businesses, but which is better depends on what your goals.

    If you want to join the three comma club, or compete at the cutting edge of certain industries than VC funding is a no-brainer. You’re not gonna compete with Uber without a big team of developers, and at least a few rounds of VC funding – probably at least a few years without actually making any significant profits.

    You give up a lot to do that though, both personally and in terms of what the business will eventually become (see the story of MakerBot). At the moment I much prefer the freedom to build the type of business I want to build, instead of the one that VCs want me to build. And I like being able to celebrate 5 or 6 figure earnings as a big win, instead of the relatively low ROI that they might be considered in the VC world.

  5. Chris says:

    Pretty much *every* small business is a lifestyle business that reflects the personality and dreams of the owner. VCs invest other people’s money for a living (including people who might not even realize it’s invested when institutional funds are involved). The goals are entirely different with zero overlap between the sets of priorities.

    Most employees would LOVE to have a lifestyle business. That’s not what you get after raising several million in outside capital. I’m quite happy with spending my days with family and friends instead of employees.

  6. Peter says:

    An interesting topic to bring up..

    I mainly tend to say “F it, who cares how other people define what I do. I’m happy. End of story.”

    But I’ll admit, I grow tired of the endless VC blab about much ‘X’ person raised, and how folks hulk praise on that aspect versus actually building a sustainable business.

    In regards to a new term, I’ve always seen my niche as a ‘Flex Business’. I can weave in and out of niches. I can test and iterate infinitely faster than competitors. I can create unfair advantages that allow me – as a solo – to compete with companies 10x or 100x my size.

    And the end of the day, though, it’s all just noise.

    my 2 cents : )

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