Lifestyle Companies

torstaina, maaliskuuta 20, 2008

A friend was talking to me about his job and how things are progressing. Rather, not progressing. Things haven't changed in terms of investments, staffing, customers nor product roadmap development. The company is trudging forward with no real worries of succeeding or failing but certainly not growing and no apparent idea where it is going.
I grinned at his story and asked whether the founders had made it big on a previous startup, were independently wealthy, were investing significantly in the company, had taken no outside money and were acting as the CEO or some other C-level position. He had a look of surprise and answered that all of it was true. Lifestyle companies almost always have very little growth and do it with the founders' own money. My friend is a little bored and worried that things will never get off the ground. His worries are very reasonable too.
Being in a lifestyle company can be great during certain times of your life. There is absolutely nothing wrong with going to a lifestyle company provided that the company is profitable to the point where it is self-sustaining or has slight growth. Negative growth (AKA decline) can be dangerous for any company depending upon the wealth of its founders, the income from their other investments and their willingness to write checks.
Founders create lifestyle companies to have work that matches their lifestyle. Yes, sometimes the obvious is true! These companies are not reserved for the uber-rich trying to avoid boredom. A friend of the family runs a boat engine repair shop where he works about 4 hours a day. He owns his house through inheritance, makes very little money and he's a little too happy about life. He earns below the US poverty line but his house is paid for so he can live cheap and happy.
Lifestyle software companies are fascinating as they are often started by people who have previously made it big, or huge, and have limited motivation to do it again beyond to show that they can or to have something to do. Wealth doesn't make a person happy or busy. So they start a new company and try to make a go of it.
Boredom after huge wealth sounds crazy. It would seem like you could travel all the time, play golf, go back to school or blow stuff up on your new island. How could you be bored with all those new opportunities to goof off? Being independently wealthy may mean that you are making around $120,000 gross on your investments per year, which is obviously enough for most of us to retire on, but it isn’t enough to go on a spending spree since you may still have a mortgage, kids in school or college, all the old bills and you have new costs, like health insurance. Most of the time we hear about the people that make it huge, but there are plenty of people that suddenly find themselves with $3 or $4 million in the bank after a good exit. They have enough money to quit but maybe not enough income to do all the whacky stuff.
Let’s say that you make it moderately big and have $10 million in the bank. You have very few financial concerns at this point beyond being pretty well diversified, which someone is probably managing for you anyway. You are squarely looking at the problem of avoiding boredom. I think everyone agrees that it is a great problem to have. You may goof off for a year or so and then simply be bored and need something interesting to do every day that actually matters. Your job mattered before and now you have to do something that matters again. Finding ways to goof off is not usually a good strategy for finding a new purpose in life. Especially when most of our lives are guided by some kind of work.
As mentioned earlier, a founder may start a company just to avoid boredom but may not want to have the enormous workload they had in the startup that made them wealthy.
Some founders create a lifestyle company where the staff shares some measure of the lifestyle: the staff comes in, does some work, plays some ping-pong or darts, does some more work and then goes home. Other companies are about the founder, which means that the founder has a great life and the staff works pretty hard. However, lifestyle companies usually don't have a lot of growth. Growth means lots of work, lots of difficult challenges and stress. The former situation means that everyone enjoys the rewards of a highly successful individual while the latter means that the staff works hard, but with limited hope of significant gain that would come with a traditional startup or small company.
Startups and small companies usually have a goal or an exit planned since the inception. They know where they want to go though they may not know how to get there. Its normal not to know how to get there and to change directions along the way too. Lifestyle companies usually don't have a clear goal or make little effort to attain those goals.
I used to work in an incubator type space that had cube walls separating companies of 3 to 10 employees. It was nearly impossible to tune out the conversations from the other startups. I was parked next to a lifestyle company and I was often mind-boggled by it. First, I couldn't figure out why anyone would bother paying or even using their service. This thought is common though since many startups are doing something bleeding edge and so it is hard to judge the merit of something until it is deeply explained or adopted by the world. You may even be scratching your head about why anyone would use the product your own company produces.
Second, every Friday, at around 4:30, the founder would come over to his staff and tell them about his plans for the weekend, talk about the Mercedes and how it was failing to meet expectations for some trivial reason and then assign three more hours of work that needed to be ready Monday morning. Third, their customer base only grew in the single digits on a monthly basis. Fourth, he spent most of his time writing travel blogs, which was completely unrelated to his line of business. Fifth, he left early very often while the staff worked late.
This is an example of a lifestyle company which is about the founder. The staff works very hard while the founder is goofing off. The founder has a hobby and you get to work on it with little hope of a big pay-out at the end. What is worse is that you are at risk that the founder will become bored and want a new hobby.
Another company was built around some really good software development tools founded by some guys who had made a lot of money on a previous venture. The company had excellent engineers and they worked on difficult problems and played a lot of Guitar Hero. They may work a 40 or a 50 hour week depending upon needs, but often it was left to the developer how many hours he worked. They weren't making very much money but they were doing something difficult and interesting. The staff and founders alike were happy and the staff had a good stake in the equity of the company. The company goes on and on doing development work but has limited motivation to make it big, so it doesn’t. So it cruises forward on the strength of the founders investments and again has no clear exit or plan to become more than a lifestyle company.
The underlying problem with both kinds of lifestyle companies mentioned here is that they are more like hobbies than actual businesses. The founders needed a way to keep from being bored and so they founded something. One company worked on challenging problems while the other was just challenging. Whether either company will be successful is hard to say since the metrics are different. The founders may be perfectly satisfied with how things are going. The staff could look back on it is a happy time too.
Let's say you are interviewing at a lifestyle company and you know its a good one. You may ask yourself if it is wise to take the job? Non-lifestyle companies have goals and set expectations and you have to meet them. You are measured, challenged and groomed for later positions in and out of the company. Startups are often like pressure-cookers and force you to learn and do so much more in a short period that you grow professionally very quickly. Lifestyle companies may not be so driven and so your career or skills, like the company, may stagnate. It falls on your shoulders to grow for you to continue to succeed beyond the current job. Good and bad lifestyle companies can put you in a position where the technological world passes you by.
Good lifestyle companies can be incredibly good for your quality of life though. Let's say that you came out of a couple of really brutal startups and you are wound-up and tired. That euphoric kind of feeling where you feel a sense of urgency all the time even when there is nothing to do. It comes from always worrying about the next demo, the stability of a server, the scalability of the last commit and that the new feature has a couple of embarrassing bugs in it that will cause a conversation with the dev manager. Living with those thoughts for a few months or years is going to make you a little tense. A good lifestyle company can ease you back to a point where you can enjoy living rather than just working. They are the rest and relaxation job that you may need after a gut-wrenching personal event or overly stressful gig. Think of it as therapy.
The next issue is knowing when to leave. A lifestyle company may pay less than a startup it also may be less challenging and eventually boring. Too easy a job will cause your skills to atrophy and make it terribly hard to get a good job in the future. Further, if the founders get bored or lose too much money then they may close up shop. At some point you'll have to leave, just be sure to leave on your terms.

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