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I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have business

I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.

mathattack 4y ago
Indeed, the majority of businesses don’t have Angel or VC funding. The majority are built on sweat equity.
seibelj 4y ago
Local banks can provide the capital, often collateralized by your house. Also small business loans from the government and accelerator awards can provide 6 figure amounts. I know some "generic" business people who are fairly wealthy and they own things like food franchises and apartment complexes. There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
- esotericimpl 4y ago
- claytonjy 4y ago
  at the risk of stating the obvious, our labor is only so expensive because of that VC money, and the money-printing machines they've funded
- scarface74 4y ago
  My question is why does everyone with the next CRUD SaaS app think they need to hire the “best people”? I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently. And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
  - atentaten 4y ago
    > The average fast food franchise, convenient store averages about $70K a year. Where can I find industry stats to explore this assertion?
    - scarface74 4y ago
      McDonalds is $150K in net profit after investing 2.7 million https://www.mashed.com/178309/how-much-mcdonalds-franchise-owners-really-make-per-year/ https://www.mashed.com/178309/how-much-mcdonalds-franchise-o... 7-11 is between $50-$75K. https://mobile-cuisine.com/franchise/7-eleven-cost/ https://mobile-cuisine.com/franchise/7-eleven-cost/ Subway is about $40K a year https://www.eposnow.com/us/resources/how-much-do-franchise-owners-make/ https://www.eposnow.com/us/resources/how-much-do-franchise-o...
  - treeman79 4y ago
    A 10x programmer can get things off the ground very fast. Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
    - scarface74 4y ago
      I consider myself a “regular guy” (and 80% of drivers think they are above average). But I believe I can go through my LinkedIn profile and find a bunch of “regular guys” that I’ve worked with through the years that if you combine us with a “product guy”, an empty AWS account and a budget. We could put together a standard SaaS app.
- passivate 4y ago
  With the recent emphasis on remote work, you can hire from the global talent pool. The US labor market is indeed very expensive.
boringg 4y ago
Also there was a time when "lifestyle business" was getting shade as if it an inferior product for inferior people. I think that was probably just VC shade being thrown at it because they couldn't do anything with the kind of business. That and platforms probably ate away at their core offerings...
- klaaz0r 4y ago
  Of course, they are on the back foot. If you have a successful indie business, make good money why would you accept VC investment? If you do it's on your terms and that often means worse deals for VC's. I can't blame VC's because their business modal is really different, they need to make a 100x not a value investment.
- ttcbj 4y ago
  As someone who owns a lifestyle business, I think the domain of lifestyle businesses is almost entirely distinct from that of startups. Something that has the potential to be a startup (massive growth), could not be "held back" to remain a lifestyle business. And things that are lifestyle business generally cannot be grown at the pace of a startup. Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large. Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC. That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
  - djhn 4y ago
    What kind of business do you operate? Mobile apps or desktop software? Consumer or business SaaS? Developer tools? Something else entirely?
thanedar 4y ago
I'm trying to split SMB into two categories. Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential. You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
- phamilton 4y ago
  > I'm trying to split SMB into two categories. The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
- mbreese 4y ago
  > top-tier VC returns by building a portfolio of Mittelstand businesses I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M. Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return. You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M) What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
- einarvollset 4y ago
  Hey, I'm the co-founder of TinySeed (and also a YC alumn), would be happy to connect: einar@tinyseed.com
- spitfire 4y ago
  > You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue). Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.
chadash 4y ago
There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business". I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle. I think it's the latter type that the article is referring to.
- xmaayy 4y ago
  I think what you just described is called "A Business"
  - DoubleDerper 4y ago
    Seems more like a lucrative "job" than a "business"
    - wbsss4412 4y ago
      How do you define a “business” then?
- mc32 4y ago
  These are the businesses all up and down I-880 on the bay side from Fremont to Oakland. They’re just businesses.
- rglullis 4y ago
  Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"? Seriously, please get out of the SV bubble.
vmception 4y ago
and you can always just be an investor in a business with simple % ownership and splitting net revenues at any interval you want. no multiple share classes, no liquidity preferences, no need for infinite growth or growth at all all this is still around ya know people act like they just forgot
- deleted 4y ago
  [deleted]
matchagaucho 4y ago
This is where the term "Mittelstand" gets lost in translation, and speaks to the Author's point that the Americanized definition of start-up has become too polarized and absolute. It is neither a lifestyle business nor a shareholder-driven business.
- LosWochosWeek 4y ago
  Mittelstand doesnt even have agreed upon definition here in Germany. I've heard people call everything and anything that lies between your local mom and pop show and Volkswagen "mittelständisch". My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them. Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
julianeon 4y ago
Is Berkshire Hathaway a lifestyle business? Because it started out as one. That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
- bityard 4y ago
  > Is Berkshire Hathaway a lifestyle business? Because it started out as one. My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
  - missedthecue 4y ago
    He raised $105,000 from friends and family and started a hedge fund which became BH.
    - PeterisP 4y ago
      Yes, but why would you say that it was a lifestyle business? I mean, it's not about size or being family-funded, I'd argue that this hedge fund was something entirely different from a lifestyle business since day 1.
marcosdumay 4y ago
It's about financing, not about branding. It's just yelling "hey, people stop ignoring 80% of the market!"

mathattack 4y ago

Indeed, the majority of businesses don’t have Angel or VC funding. The majority are built on sweat equity.

seibelj 4y ago

Local banks can provide the capital, often collateralized by your house. Also small business loans from the government and accelerator awards can provide 6 figure amounts. I know some "generic" business people who are fairly wealthy and they own things like food franchises and apartment complexes. There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.

esotericimpl 4y ago
claytonjy 4y ago
at the risk of stating the obvious, our labor is only so expensive because of that VC money, and the money-printing machines they've funded
scarface74 4y ago
My question is why does everyone with the next CRUD SaaS app think they need to hire the “best people”? I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently. And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
- atentaten 4y ago
  > The average fast food franchise, convenient store averages about $70K a year. Where can I find industry stats to explore this assertion?
  - scarface74 4y ago
    McDonalds is $150K in net profit after investing 2.7 million https://www.mashed.com/178309/how-much-mcdonalds-franchise-owners-really-make-per-year/ https://www.mashed.com/178309/how-much-mcdonalds-franchise-o... 7-11 is between $50-$75K. https://mobile-cuisine.com/franchise/7-eleven-cost/ https://mobile-cuisine.com/franchise/7-eleven-cost/ Subway is about $40K a year https://www.eposnow.com/us/resources/how-much-do-franchise-owners-make/ https://www.eposnow.com/us/resources/how-much-do-franchise-o...
- treeman79 4y ago
  A 10x programmer can get things off the ground very fast. Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
  - scarface74 4y ago
    I consider myself a “regular guy” (and 80% of drivers think they are above average). But I believe I can go through my LinkedIn profile and find a bunch of “regular guys” that I’ve worked with through the years that if you combine us with a “product guy”, an empty AWS account and a budget. We could put together a standard SaaS app.
passivate 4y ago
With the recent emphasis on remote work, you can hire from the global talent pool. The US labor market is indeed very expensive.

boringg 4y ago

Also there was a time when "lifestyle business" was getting shade as if it an inferior product for inferior people. I think that was probably just VC shade being thrown at it because they couldn't do anything with the kind of business. That and platforms probably ate away at their core offerings...

klaaz0r 4y ago
Of course, they are on the back foot. If you have a successful indie business, make good money why would you accept VC investment? If you do it's on your terms and that often means worse deals for VC's. I can't blame VC's because their business modal is really different, they need to make a 100x not a value investment.
ttcbj 4y ago
As someone who owns a lifestyle business, I think the domain of lifestyle businesses is almost entirely distinct from that of startups. Something that has the potential to be a startup (massive growth), could not be "held back" to remain a lifestyle business. And things that are lifestyle business generally cannot be grown at the pace of a startup. Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large. Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC. That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
- djhn 4y ago
  What kind of business do you operate? Mobile apps or desktop software? Consumer or business SaaS? Developer tools? Something else entirely?

thanedar 4y ago

I'm trying to split SMB into two categories. Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential. You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).

phamilton 4y ago
> I'm trying to split SMB into two categories. The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
mbreese 4y ago
> top-tier VC returns by building a portfolio of Mittelstand businesses I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M. Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return. You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M) What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
einarvollset 4y ago
Hey, I'm the co-founder of TinySeed (and also a YC alumn), would be happy to connect: einar@tinyseed.com
spitfire 4y ago
> You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue). Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.

chadash 4y ago

There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business". I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle. I think it's the latter type that the article is referring to.

xmaayy 4y ago
I think what you just described is called "A Business"
- DoubleDerper 4y ago
  Seems more like a lucrative "job" than a "business"
  - wbsss4412 4y ago
    How do you define a “business” then?
mc32 4y ago
These are the businesses all up and down I-880 on the bay side from Fremont to Oakland. They’re just businesses.
rglullis 4y ago
Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"? Seriously, please get out of the SV bubble.

vmception 4y ago

and you can always just be an investor in a business with simple % ownership and splitting net revenues at any interval you want. no multiple share classes, no liquidity preferences, no need for infinite growth or growth at all all this is still around ya know people act like they just forgot

deleted 4y ago
[deleted]

matchagaucho 4y ago

This is where the term "Mittelstand" gets lost in translation, and speaks to the Author's point that the Americanized definition of start-up has become too polarized and absolute. It is neither a lifestyle business nor a shareholder-driven business.

LosWochosWeek 4y ago
Mittelstand doesnt even have agreed upon definition here in Germany. I've heard people call everything and anything that lies between your local mom and pop show and Volkswagen "mittelständisch". My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them. Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.

julianeon 4y ago

Is Berkshire Hathaway a lifestyle business? Because it started out as one. That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.

bityard 4y ago
> Is Berkshire Hathaway a lifestyle business? Because it started out as one. My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
- missedthecue 4y ago
  He raised $105,000 from friends and family and started a hedge fund which became BH.
  - PeterisP 4y ago
    Yes, but why would you say that it was a lifestyle business? I mean, it's not about size or being family-funded, I'd argue that this hedge fund was something entirely different from a lifestyle business since day 1.

marcosdumay 4y ago

It's about financing, not about branding. It's just yelling "hey, people stop ignoring 80% of the market!"