This forms a part of my series: The Art of Fundraising.
This isn't a new term I thought up, it was used as far back as 1987, though it's probably worth spending some time trying to re-define it, as this will help you figure out what kind of financing you need; debt or equity. We'll get to that later, but for now let's just understand the difference between Equity Business & Lifestyle Business (for want of a better phrase), for this will determine your definition of success. I'll start with lifestyle business, and you can conclude whether the anti-thesis of this is an equity business.
A Lifestyle Business
A Lifestyle Business, is where the founders are the key persons. I'm not saying these businesses are completely dependent on the founders, how ever they do play an important role, and hence the term ‘key person'. These businesses are driven by their founder's vision/passion and do not seek to grow beyond a particular point.
If it's generating sufficient income for the founders to have the ‘lifestyle' they want and provides the right balance of personal freedom, in terms of financial and time management, they're happy. They're not really focused on scaling, because scaling and growing-too-big-too-fast comes with its own problems. They're cash flow businesses, or at least cash flow positive focused or even better cash cows!
The lifestyle business founders also maintain sufficient control and don't have to report to anyone about how they're doing (they like to be their own boss), they don't worry about hiring too many employees… in most cases they're private and have no intention of going public. The smarter founders will probably ensure that things can run without them, so these businesses become funding vehicles for the founders, so they can have their ‘travel around the world', ‘paid paid vacations', fancy cars, yachts, houses etc in short a desired ‘lifestyle' or at least a ‘desired quality of life'. (This probably explains why ‘lifestyle' comes before ‘business' in the phrase).
But at the end of the day, those founders still add the creative spark and drive that keeps the business going. I like to think of a good lifestyle business as a Ferrari, you know you can get more out of it by hitting the gas, but you're happy just cruising around in something that is cool for you!
If you identify yourself as a lifestyle business owner / founder / entrepreneur. Don't waste time going for venture capital or private equity. Bootstrap. You might do better taking on a little debt (thought I'm totally against that) to spark that highly torqued engine.
An Equity Business
An Equity Business, is where the founders are focused on building assets that are scalable and that can be sold and/or bought (using equity) or at least equate the tangible assets with equity, which is inherently risky as the value of the equity can go up as well as down based on the growth of the business.
The equity business founders put in place business systems that help the business run without them. In short, they could be serial entrepreneurs who like to start a business, grow them and sell them either in part or fully, at one point in time. Their thought process is to have a large share of the small pie and grow the pie to have a smaller share of the larger pie (and in some cases, a larger share of a larger pie, but who's counting).
Success for equity business owners / founders / entrepreneurs is funding for growth, sale of their equity and exit. They give up a certain amount of control (in some cases all of it). I like to call these equity businesses ‘buyer ready' businesses.
P.S. I'm not differentiating either business types as real vs non-real, that's just not fair. Both are businesses in their own rights. Period. But, what happens when the founders retire or die? Does the business come to an end? Is that what defines a ‘real' business, i.e. it can continue as a going concern, without a visionary founder / leader? Can you define a lifestyle business by number of employees or revenue? Is/Was Apple a lifestyle business? What about Accenture, 37 Signals or Renaissance Technologies?