Doug Richard: Why do people hate lifestyle businesses? | Hacker News Reader

Doug Richard: Why do people hate lifestyle businesses?

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62 pointsbensummers45 comments

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.

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!

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.

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.

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.

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 It is really outdated in terms of the search methods (You can use a computer to do searches for information!)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.

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 :-(

"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.

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.

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.

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

I agree 100%! I'm currently in an MBA program, and the focus is always on getting external funding and growing a business for the sake of growing.

You have inspired me today. I'd love to run a business like yours where I could spend more time skiing, hiking, and enjoying the outdoors rather than slaving away for some VCs to make their 500% exit.

Edit: I checked out the site listed in your profile. You have done an incredible job solving problems for a niche market!

Glad to hear and feel free to contact me if you ever want to visit.

As you probably know, being an entrepreneur in an MBA program can be trying as the corporate-minded students and professors look down on your "little business" while your non-MBA friends worry you will become the stereotypical MBA. Having been out several years now, I can say that it was well worth the investment.

Did you do your MBA at A&M? I probably need to contact you sometime in the (semi-) near future; my in-laws have a ranch, and are probably good candidates for your product.

Yes, I graduated in '03 from the MBA program and '99 in INFO. Drop me an email with your contact info (my email is in my profile). If you are around Aggieland, come out and visit us sometime.

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.

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".

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

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.

There's definitely a risk of losing the modest revenue stream that I've had for the last 10 years and hope continues for another 10. It's something that I'm aware and try to prepare for in both my business (branding, continue to innovate, etc) as well as personally (diversified revenue streams).

There's also a risk in losing a business by pushing so hard for a buyout/IPO at the expense of ROI & profit, only to not get that IPO or buyout and be left with nothing. I went down that road several years ago and was fortunately able to get my business back on track before losing it.

You bring up some good points and I think it's helpful for HN'ers to see the interesting discussion on lifestyle vs IPO/buyout businesses.

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.

> 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.

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

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."

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.

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.

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.

Spins both ways:

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

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.

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.

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.

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.

> 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.

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.

I don't understand the fascination people have with comparing how many hours a week they work. Like someone is going to applaud you for working 70+ hours a week? I really don't see how that should be important to anyone but you.

IMHO, the proper definition of a startup should be a business that's starting up. It's fucking ludicrous to decide that there is only one kind of way to start a business that qualifies it as being a "startup".

If you see it as a "slap in the face" that you're working 70+ hours and someone else isn't, the problem isn't them... it's you. Are you jealous that they're get more done in less time than you? Or perhaps jealous that they picked their business model better so that they don't have to do as much as you do? Or maybe you were hoping that somehow other people would be impressed with your "heroic", "macho" levels of work, when in reality, nobody cares how many hours you put in.

So you're suggesting that semantic meaning is not important? :)

Most incubators explicitly state "no lifestyle businesses." I don't think it's that ludicrous since the term startup is often misunderstood, much like the concept of lean.

I agree that working a lot isn't necessarily working smarter, that was not the point.

Just out of interest, why did you leave that business when you only had to work on it 40 hours a week. You probably could have started your second business at the same time.

Client services never end. After I shut it down and moved to LA to focus full-time on a video game startup -- I still had lingering client work and it's a distraction when you're completely absorbed, and creative work is very draining mentally. Programming and designing are not dissimilar in that regard.

Before I moved, I was working on a second business building customizable home theater projection screens but we got stiff armed by our supplier after building a better product on their frame and pissing off their other dealers. I was too inexperienced at the time to know how to handle it.

Aren't you conflating lifestyle businesses with service based businesses? Not every lifestyle business is necessarily a service based business.

In a service based business like ad agencies, web design agencies, you don't get paid unless you're continuing to do the work. I wouldn't really consider them lifestyle businesses either.

But if you're selling a product or software-as-a-service that can scale beyond how much time you are putting into it (e.g. a traditional startup), then you could certainly build that into a lifestyle business by avoiding taking external funding and growing it to profitability.

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.

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"!

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.

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.

20% of all small businesses in the US have only one employee. Why wouldn't you consider somebody operating as a contractor or consultant a small business owner? That's precisely what they are, whether they have an office or a storefront, or not.

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.

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