Before you embark on the path of startup entrepreneurship that involves days that start at 6:30 in the morning and may not finish until the sun rises, consider the following tips to help define what kind of business best fits your end goal. Eric Ries, the author of the Lean Startup, defines a startup as a "human institution designed to create a new product or service under conditions of extreme uncertainty." Steve Blank, serial entrepreneur, Silicon Valley legend, and one of the forefathers of Lean Startup defines a startup as, "an organization formed to search for a repeatable and scalable business model." With these definitions in mind, we have prepared the following three tips below to help you differentiate then decide between forming a lifestyle company or scaleable business.
1.) Why Do You Want to Start A Business?
If you had the option to have a business that made enough money for you to survive and only have to work ten hours a week, would you take it? If the answer is yes, then having a business that reaches a certain amount of profitability to sustain that lifestyle is more akin to a lifestyle business than a “startup” defined above. Given Blank and Ries' definitions, choosing the path of the startup will demand long hours, high risk, and an aggressive plan for scalability and growth. The reason for this approach is investors who are taking on a high level of risk in a new business expect a return that is often a significant multiple of the original amount.
2.) What's Your End Goal?
If you do not intend on growing your business to the point of selling it, scaling it, or eventually going public, then you may want to reevaluate whether a startup is truly the right path for you. To clarify, you can find lifestyle entrepreneurs who operate as small businesses within the startup space such as freelance developers, designers, and consultants who serve the industry, but operate and dictate their availability and schedule based on what suits them. Alternatively, the founder and other executive leadership in a startup who contract out to these people are more concerned with making progress, achieving milestones, and refining the business model so that their company which is currently worth $1 million eventually becomes worth $500 million.
3.) Where Will Your Capital Come From?
Both lifestyle companies and startups require money to make things happen, but the sources they can pull from vary. Lifestyle businesses may have access to niche grants, small business loans, or the tried and true friends and family or credit cards to fund the business. Alternatively, since startups may not have customers for awhile as they continually refine and modify their offering in the hope they will have a breakthrough and take a significant amount of market share, they will also rely on personally bootstrapped funds. They also have the option to approach individual angel investors and VCs who are looking for a substantial return on investment. Since lifestyle businesses are not built to scale aggressively or quickly, they are unlikely candidates for investment from the same demographic as a startup.
No matter what path you choose, it will be challenging, rewarding, and cause you to wake up in the middle of the night with sudden revelations and epiphanies on how to make things better. By understanding where you want to end up, you can save yourself some headaches and heartache early on by knowing what you are signing up for on your entrepreneurial journey.