Don’t Let Lifestyle Entrepreneurs Be a Dying Breed

Until the recent recession, market research indicated that as many as 90 percent of the roughly 20 million American small business owners were motivated more by lifestyle than growth and money. Since 2008, the desire for profits has trumped passion in 54 percent of new startups, according to a recent study. It seems that everyone wants to make a quick buck these days.

Being called a lifestyle entrepreneur should be a point of pride, not an insult. The term applies to anyone who places passion before profit, and intends to combine personal interests and talent with the ability to earn a living. This usually means not taking money from equity investors, since investors want fast growth, high profits, and an exit event, to allow investments to be recouped.

Of course, even lifestyle entrepreneurs want to be happy, and want their business to be “successful.” According to a recent book by William R. Cobb and M. L. Johnson, “Business Alchemy: Turning Ideas Into Gold,” these different success expectations are what separates a lifestyle entrepreneur from a growth entrepreneur:

• Owner is the only one “in charge.” Every lifestyle entrepreneur starts their business to be their own boss and follow their passion, so they don’t even think about having investors, a board of directors, or going public. If you think corporate bosses are tough, wait till you start spending investor money, or try satisfying Wall Street and stockholders.

• Insist on being engaged at the transaction level. If you are living your passion, you want to interact with customers, and “touch and feel” the product every day. Growth entrepreneurs find that this fun world quickly changes to managing personnel problems, tuning organizational structures, and dealing with testy investors.

• Income generated is part of the owner’s personal income. The legal structure of these startups is usually a sole proprietorship, a Limited Liability Corporation (LLC), or a sub-chapter “S” Corporation. Under all of these, net income flows easily into your personal income. Corporate versus personal growth really becomes a lifestyle decision.

• Startup funding comes from personal savings and family. There is no free lunch for money. Non-equity funding has to come from personal sources, or government grants, or bank loans. Of course, that doesn’t dilute the owner’s equity, but it may well limit you to organic growth, versus international rollouts and acquisition options.

• Business model to maintain lifestyle is the primary driver. The lifestyle entrepreneur chooses a business model to make a long-term, sustainable and viable living, working in a field where they have a particular interest, passion, and talent. They operate the business to sustain a minimal level of cash flow necessary to support the lifestyle.

• Maximizes owner personal tax privileges. This means that owners can look for every opportunity to get a personal tax advantage from the business, like charging vehicle operating costs to the business, renting facilities from themselves, or managing business and personal travel.

• Enjoy being visible and active in the local community. Lifestyle business owners usually benefit and enjoy being a part of the local Chamber of Commerce, Rotary, and other civic organizations. These can become part of balancing your lifestyle, rather than part of the stress of business-driven networking.

• No exit planned until retirement. A lifestyle business becomes an integral part of an entrepreneur’s identity and their life. If, and when, the time should come to “exit” from the business, they will often seek to transfer it to a family member, or simply close it down.

In my view, lifestyle entrepreneurship should be growing in popularity, rather than shrinking, as technology provides startups with the cheap digital platforms needed to reach a large global market. Also, more women have been jumping into entrepreneurship, and they have long wanted to make their business and personal lives and aspirations work more in harmony.

Younger Gen-Y entrepreneurs also tend to be more passionate, idealistic and not driven by money, so I would expect to see them trend up in lifestyle entrepreneurship. I’m told that Mark Zuckerberg of Facebook started out as a lifestyle entrepreneur. I’m betting that about now he wishes he had stayed on that path. What do you think?

Marty Zwilling

Martin Zwilling is the Founder and CEO of Startup Professionals, a company that provides services to startup founders around the world. See more details at www.startupprofessionals.com