Human beings love binary categorizations: progressive or conservative. White or Ethnic. Carnivore or Vegetarian. My tribe, or “others.” With me or against me.
And so it is in entrepreneurship: Lifestyle Business or Startup.
Binary categorization of young businesses really, really irritates me. It does a great disservice to at least 90% of all businesses, and displays utter ignorance about the multi-dimensional spectrum of entrepreneurial motivation.
I’ve been on many sides of the entrepreneurship spectrum and seen lots of companies somewhere in the middle, or operating in another dimension.
For 11 years in the early days of venture firm Accel Partners I saw lots of what people now call startups: young companies aspiring to be very large and disruptive in tech and healthcare. And as an angel investor I’ve put money into a bunch of startups.
Then I moved to Maine and built a business around my passion of a cappella music, which no doubt would be viewed by many in the Lifestyle category. And I’ll own the fact that a better lifestyle was indeed one of my motivations. I have no regrets that my kids spent time in Maine versus New Jersey.
But, lifestyle was not the only motivation. I was also on a mission to spread a cappella singing far and wide. Which we did! I owned the business the first Pitch Perfect movie is centered on, and now a cappella is globally cool. Mission accomplished!
More generally there are lots of motivations that spur entrepreneurs to start new businesses. These include:
- Income – a major purpose of the new company is to generate current income for the founders, and possibly other family members, friends, and neighbors.
- Mission – the company founders want to accomplish something, solve a problem. Sometimes they want to make the world better through their work, sometimes it’s just to prove a point.
- Wealth – they want to generate wealth for themselves through creating a valuable enterprise.
- Lifestyle – founders imagine their quality of life in terms of work enjoyment and life balance will be significantly better in the company they start.
And then at some point, some entrepreneurs add on this motivation:
- Capital Appreciation – turning their own, but more likely other people’s capital investment into a larger pile of money.
Tragically, top business schools often teach that Capital Appreciation – “serving stockholders” – is the only reason for every business to exist. By implication anything else is selfishly a Lifestyle business. This is a false choice!
There’s More To Business Than Serving Stockholders
That narrow viewpoint does a disservice to the business my grandfather started, originally Gooding Simpson and Mackes, now GSM. From a classic bootstrapped startup it grew to become a large industrial roofing company in Lancaster County Pennsylvania. It generated significant income for my grandfather – the son of poor Ohio farmers – as well as for my uncle, then my cousins, as well as hundreds of employees along the way.
Creating GSM had nothing to do with Lifestyle – the motivation was to support a family, create good paying jobs and give back to the community. That’s Income and Mission. There was no exit strategy to maximize Wealth through Capital Appreciation, but the founders’ and owners’ broad interests, that included non-financial goals, have been very well served.
There are lots of entrepreneurs like my grandfather who mix Mission with Income.
The narrow minded dichotomy of Lifestyle versus Startup does a disservice to Kepware. They are a highly successful global software company in Portland Maine. Founder Corky Ellis bootstrapped the company, took it through a major pivot, and created a 100+ employee company that dominated a global niche in industrial communications software, aka the Internet of Things.
Corky continually turned down offers of private equity and growth venture capital. He was growing, and became highly profitable, but maybe wasn’t growing quite as fast as a venture capital firm would demand. Instead he used internal cash to grow the company at a very respectable clip, create great jobs for Portland Maine, offer college scholarships to attract and grow talent, and became a benefactor of Missions that are meaningful to him and his team.
And when the business was sold in 2016 for $120 million he didn’t have to share with investors. Plenty of Wealth there without serving outside Capital.
Humans are complex. So are the motivations for the companies and other organizations they create.
So the next time someone tells you that your income generating, jobs creating, mission fulfilling, growing business is a Lifestyle business because you aren’t on the equity path to Unicorn-Or-Bust, do me a favor.
Call them an ignorant snob.
UPDATE December 2017
Some smart Silicon Valley investors now see great opportunity in the “tweeners.” They call them Real Businesses. They have been operating a fund that focuses on profitable growing businesses that don’t necessarily need a lot of their cash. We wish them well!
And we’ll be calling these companies Real Businesses as well going forward.