Lifestyle business FAQ
I love lifestyle businesses. I've started a couple (one failed, one sold), before founding a larger business. Lifestyle businesses are intriguing to people, they sound too good to be true but the reality is they are imminently doable.
Since I get quite a lot of questions regarding lifestyle businesses, I thought it would be useful to answer some of them here.
What is a lifestyle business?
A lifestyle business is a business that is there to support your lifestyle. It earns money for you with little overhead, so you can devote the majority of your time to other pursuits.
Typically a lifestyle business employs just you and perhaps a few contractors. They generally make anything from $100k to a few million annually.
Lifestyle or swing for the fences
There is nothing good or bad about lifestyle businesses versus more ambitious ones. I find it bizarre how some people equate financing methods and ambition and morality. It all depends on what you're trying to optimize for.
Pros of lifestyle businesses:
- Fairly straightforward way to get rich
- Earn while you sleep; escape the 9 to 5 rat race
- Focus on other pursuits, like writing, traveling, family, etc
Cons of lifestyle businesses:
- Unreliable source of income (at least initially)
- Does not force ones self-growth (unlike venture-backed companies)
- Most likely you won't work closely with incredible people (can get boring/lonely).
Those last two cons were behind the reason why I sold my last lifestyle company and started Clearbit. I was bored, felt like I had a huge amount of self-growth to do, and wanted to start something more ambitious in my twenties while I still had energy.
Now naturally you can achieve self-growth through other means than founding large businesses. It just so happens to be my favorite way. Founding a venture-backed company is very hard, and will force you to quickly evolve or die.
You might find that, after a few years of running your lifestyle business, you want to turn it into something bigger. And a early focus on profitability can be a great way to position yourself for a raise. That's fine, but understand that raising capital is usually a one-way street, you can turn a lifestyle business into a venture-backed one, but you can't do the opposite.
To program or not
It's at this point in the conversation that the topic of programming comes up. I'm surprised at the number of people wanting to start a technology company who can't program. Sure, it's possible, but you've just made it ten times harder for yourself.
As a disclaimer, this advice is all geared towards US companies (and none of it is actually advice.... yada yada yada).
C-corps have the advantage of getting that QSBS clock ticking (get up to $10M tax free) and you can perform some accounting tricks to reduce taxes by offsetting losses. However, they're a bit more complicated (and therefore expensive). Plus they can expose you to double-taxation.
So I recommend, at least initially, to use a LLC. You can always convert it to a C-corp later down the road. Stripe Atlas is a quick way of setting this up (and comes with all sorts of freebies and a community to boot).
Loneliness is a real problem in lifestyle businesses (and indeed in the world at large). Indie Hackers is a fantastic community of entrepreneurs running small businesses. Be sure to check out their interviews.
Ultimately, life is all about tradeoffs. You can have anything you want but not everything you want. Lifestyle businesses are fantastic, but they have their tradeoffs. And of course so do their venture-backed siblings.