Strong Words
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Strong Words

Real Businesses

There I was, minding my own business on Sunday afternoon, when someone decides to rope (and by default, me), into the work hard/work smart fracus unfolding across VC Twitter. I don’t have much to add to that discussion. To each their own. Let your results in life, love and business speak for the paths you choose.

But this whole “life style” business thing…

According to the tweeter a life style business is defined by someone looking to maintain the status quo by exerting as little energy as possible. Sounds like a recipe for success.

Setting aside whether or not these kinds of founders and businesses are, in fact, the kinds of founders and businesses is designed to fund, I think it’s worthwhile to share our views on how we parse lifestyle businesses, businesses best suited for VC and the space in between those two that we refer to as real businesses.

In his book Small Giants, Bo Burlingham posits the clearest definition of a lifestyle business I’ve read anywhere:

Lifestyle Business (/līfˌstīl/ˈbiznəs/): Companies whose primary purpose is to provide the owners with a comfortable lifestyle outside of the business. These companies can’t grow beyond a certain size without undermining their reason for being.

Nowhere in this definition does it minimize the owner’s desire to change a status quo or exert their own energy; rather, it frames business as a tool for funding one’s OTHER interests. Does that mean that these businesses are easy to start and run? Or that they can’t generate meaningful returns, through cashflow or liquidity events, to the owners?

I assure you there are founders out raising money right now in the hopes of building a business so they can flip it, make millions, and fund their own comfortable “post financial” lifestyle. Of course, they would never frame it that way; so let’s be clear, if your pitch deck has an “exit strategy” slide you are pitching a lifestyle business.

Defining a startup best suited for VC funding can be even trickier. The cynic might define these startups as any company whose business model is fundraising. Or, any business started by ex-Facebook or Google engineers.

The less cynical observer might note that there are really 2 distinct scenarios where VC funding is the optimal approach to building a business.

First, tackling tortuously technical and defiantly difficult problems that will require significant upfront capital to develop and deploy. These businesses tend to create deep competitive moats and commensurate high margins that remain durable for a very long time. Rockets? Sure. Robots? Sure. E-commerce sites? Not so much.

Second, competing in winner take most/all markets where an ability to out run or outspend competitors has the potential to lead to long term, monopolistic network effects. Laugh all you want at Uber for X or another stupid social app, but when and if someone wins one of these categories, they will dominate for a very long time. And the numbers two and three will hardly register.

In both cases the term Unicorn is correctly applied. The timing and markets to build these kinds of businesses have been, and remain, extremely rare. With incumbents, and their bottomless balance sheets, becoming better equipped to operationalize around these emerging opportunities startup winners will be even fewer and further between.

If you are somewhere between a lifestyle business and a VC funded monopoly, you should reconsider your funding strategy and try building a real business instead. Despite what the tweeter above believes, these are the types of companies is most excited to back.

From our website:

Real businesses make products and sell them for a profit. They focus on customers, revenue and profitability not investors, valuations and the next fundable milestone. Real businesses prioritize their customer’s needs over their customer’s eyeballs. They have a functioning business model, not a believable financial model. Real businesses want to stay in business, not run for the exit. They create their own source of funding and don’t have to ask anyone for permission to exist. We believe real businesses make really great investments.

We’ll trade slower, thoughtful, compounding growth over scaling fast and failing fast every time. Scaling a business through happy customers and revenue is no harder than breaking the addiction of spending other people’s money. The freedom and benefits of that focus are manifest in every aspect of a company’s culture. Startups bleed red, real businesses bleed black.

The work of supporting founders building real businesses has been the most rewarding work of my 16 year career as a VC. These founders are every bit as ambitious, energetic and their businesses every bit as scalable as any I’ve worked with.

If your focus is on building a monopoly, this path may not be for you. If you’re looking to flip your company or pull as much cash out of it as possible, this path may not be for you either. And if you’re building anything like what that tweeter above was describing, it is definitely not the right path for you!

For all others, you could save yourself a lot of heartache, brain damage and distraction by committing to building a real business.




Independent Thinking for Independent Businesses

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Bryce Roberts

Bryce Roberts

VC, Dad

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