Bootstrapping vs. Venture Funding?

http://www.markpeterdavis.com/getventure/2009/11/bootstrapping-vs-venture-funding.html

by markpeterdavis • 17 years ago

26 13 17 years ago

tom_rath• 17 years ago

A business which "...generates single-digit or low double-digit millions in revenue..." is "a lifestyle business"?!?!

I thought lifestyle businesses were small craft or bespoke software development shops which allowed an individual to earn modest revenue while following their lifestyle of choice.

A few million dollars per year in revenue provides one awesome lifestyle!

swombat• 17 years ago

"Lifestyle business" doesn't have to mean "cheap lifestyle".

Also, a business that generates a few million a year doesn't necessarily have 100% profit margins (in fact, I think it's safe to say that most don't).

MicahWedemeyer2• 17 years ago

Yeah, I'm spinning up a startup that will require about $2M in yearly sales in order for us to make a decent living off it. But, it's a marketplace app where we take a commission on each sale, so our margins are very low compared to (hopefully) what the actual sellers are making.

tptacek5• 17 years ago

As I've come to understand it --- and the term is used very often in the professional services world --- lifestyle businesses make the founders comfortably wealthy over the long run, but do little else. Most consultancies with employees do much more than $1MM/yr.

So, no, "lifestyle company" definitely doesn't mean "poor".

bobbyi• 17 years ago

Yes, that's pretty much the standard lifestyle business. It puts you in a similar situation to someone owning a local store or restaurant. You will be able to live a solid middle class life (or a little better), but you aren't going to retire to a tropical island any time soon.

If you were instead doing $100k a year in revenue at (say) a 20% margin, that would mean you take home $20k a year (assuming you revinvest nothing in the business), which would be more of a "hobby" than a "lifestyle".

tptacek5• 17 years ago

I know I'm repeating myself, but: I think this is exactly not the idea of a standard lifestyle business.

Distilled: a lifestyle business is one that makes choices to optimize the lifestyle of its owners rather than the success of the business.

For that reason, "lifestyle business" owners are more likely to drive Porsches than startup owners.

tptacek5• 17 years ago

An acid test for presentations like this: does it ignore the elephant in the room? The real breakdown is, "go for VC, or actually start a company?"

The overwhelming majority of people who "go out for VC" will never get it, no matter how good their idea, no matter how good their technical execution. The people who execute well enough as a business to get funded without a track record are, it seems to me, already committing to bootstrapping their company.

skmurphy• 17 years ago

Exactly! This the real choice: start a company or seek VC funding. The real reason to bootstrap, if your product/market permits it (e.g. doesn't require millions in up front investment), is that it preserves your options. You can seek VC money later if your business--not just your plan or your team--can justify it, and often at more favorable terms. And bootstrapping has a much higher chance of success than the 1 in 200 seeking venture funding gives you.

credo• 17 years ago

imo "lifestyle business" is a silly label used in vc circles (to describe people who don't want their money)

A venture-funded business supports VC lifestyles as well as founder lifestyles, while a bootstrapped startup doesn't impact vc lifestyles (unless it competes with a vc-funded business).

vc-funding and bootstrapping are both legitimate options, but to describe the latter as a "lifestyle business" and the former as something else is absurd.

tptacek5• 17 years ago

"Lifestyle business" is also a dismissive term used by financiers to describe the early stages of bootstrapped companies, but the nice thing about not needing VC money is: you don't need to care what financiers think about you.

Look at it this way: 5 years ago, investment bankers were laughing at all of us. Did we care? Where do you think venture capitalists come from?

delano• 17 years ago

They laughed when I spoke about my lifestyle business, but when I started to turn a profit!

Bootstrapping vs. Venture Funding?

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