Professor William Wetzel, a venture capital expert, is credited as the first person to use the term “lifestyle business.” In these companies, he said, “there’s no upside potential for creating wealth.”
Today, the term “lifestyle business” is oftentimes used dismissively. The companies we respect most – Apple, Google, Amazon, Coca-Cola – are growth companies with untold potential for creating wealth.
If you were to ask 100 business owners if they had lifestyle companies or growth companies, it is likely that upwards of 95 would tell you growth. That’s not because 95 truly do, but because only 5 are willing to admit they don’t.
UNDERSTAND THE CEO STYLES
To many, the “lifestyle” label implies being satisfied with the status quo. It suggests that business is your hobby. In fact, that’s not the case. A lifestyle business – or a business that is created to generate a stable amount of wealth – is a legitimate, fulfilling option for many highly skilled businesspeople. Let’s take a quick look at the differences between the different companies:
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It is vital that business` owners have an accurate picture of where they are today.
LIFESTYLE
This company is based around something the owner enjoys or knows well. The business generates enough profitability to provide income, and aggressive growth-orientation is traded for the comfort and prestige of owning a business. Growth may be capped because revenue depends on a specific skill set and the work of the owner.
The business is centered around the owner and founder.
GROWTH
Instead of running a business to provide sufficient income, the owner wants it to grow dramatically. This doesn’t mean 1 – 5 % growth to keep up with inflation; it means 15 to 100% to satisfy investors and stakeholders. The capacity is constantly adjusting. Unlike in a lifestyle company, the founder needs to separate him/herself from daily operations after the initial growth period.
The business is not centered around the founder; it is centered around filling market niches and exploring new territory.
GREY AREA
Growth is good; this is where the real work is, the real business. Or at least that’s the message continually instilled in us. There is a tremendous amount of social and societal cache for the growth CEO, so much so that some lifestyle CEOs may not admit that their companies don’t aggressively pursue growth. As a result, businesses get stuck in this Grey Area. Their owners may behave in inconsistent ways or make irrational decisions, trying to “live up” to the growth model.
Some companies, and some leaders, are geared towards growth; others are not. This is not a judgment; it is a fact. It’s important to understand your own motivations as the founder or CEO of a business before pursuing growth. Are you doing this to maintain stable income or to get back to your equilibrium point? Are you growing because your potential is uncapped and wealth creation has always been your goal? Or are you trying to grow because you think you should?
