All businesses start with an idea, and eventually, a business plan.
Yet before you dive into the intricacies of planning business operations and logistics, you should identify what type of business you want to start: growth or lifestyle.
Making this decision before you get into the weeds of business planning will help guide your company’s structure, your mission and will likely play a big role in your funding options (more on that shortly).
To help you determine which type of business is best for your vision, let’s briefly examine both growth and lifestyle businesses. Then, we’ll offer some considerations that will help guide your decision-making.
GROWTH AND LIFESTYLE BUSINESSES EXPLAINED
As the name implies, growth businesses (also referred to as high-growth, equity or scalable businesses) are focused on growth —the faster, the better. According to the University of Tennessee-Knoxville’s Anderson Center for Entrepreneurship and Innovation, “A growth business focuses on a marketplace with potential for rapid and robust growth over the coming years. There may be technological innovations that spawn rapid development of new products, or there may be changing customer dynamics that create new market needs.”
Although it’s likely that technology will play a role in a growth business, these types of businesses aren’t specific to one industry. Rather than sharing a market niche or product vertical, growth businesses instead are typically united by a common outcome: increasing the value of the business and, in many cases, eventually selling the company at considerable profit.
Lifestyle businesses, on the other hand, are intended to support an entrepreneur’s lifestyle. You might see lifestyle businesses also referred to as “mom and pop shops,” but this can be an unintentionally narrow view of the market segment.
Profitability is a focus for lifestyle businesses, but there’s typically much less emphasis on rapid growth in favor of slower, more incremental growth. That isn’t to say that lifestyle businesses can’t generate seven-figure profits (or more). Yet where the essential focus for growth businesses is, well, growth, lifestyle businesses as a whole take a less aggressive approach to profitability, especially if the business owner is maintaining his or her preferred lifestyle.
WHICH TYPE IS RIGHT FOR YOU?
Yet before you make a final decision and continue working toward launch, let’s look at two considerations that highlight some of the key differences between the two.
If you’ll need capital to start your business or to keep it running in the early stages, you’re definitely not alone. Growth businesses tend to attract investors more easily than lifestyle businesses, although this certainly isn’t a hard-and-fast rule.
Because growth businesses are so hyper-focused on growth, business owners will typically include in a business plan a detailed projection of the next few years’ of revenue. And depending on the specifics of the business, growth entrepreneurs may find they need outside investment help to meet aggressive goals (and ideally would later reward investors with a significant reward on their investment, especially in the event of a sale).
That said, growth businesses are sometimes categorized as risky, so you’ll want to ensure you have a sound business plan (and financial projections) before you approach potential investors. One tip: business planning and projections are a time to dream big, but not too big. Delivering unrealistic projections to potential investors is one of the fastest ways to make them run in the opposite direction.
Does that mean you couldn’t get financing for a lifestyle business? Not at all, but be prepared for it to be more difficult. Rather than supporting growth through outside investments, lifestyle businesses typically increase their capital with debt financing. This can be tricky to secure, especially through traditional lending channels, but the rise of alternative financing methods such as crowdfunding platforms has given entrepreneurs a variety of options to explore.
This is the prime time to do a little soul-searching. As you prepare to launch your business, you certainly want to set business goals to guide your company’s evolution. Yet what about your personal goals? Knowing what you want to accomplish is an important factor in deciding between a growth and lifestyle business.
For one thing, growth businesses are demanding. They require a significant commitment of both your time and resources. To achieve accelerated growth, especially in a rapidly changing market landscape, you’ll likely make several sacrifices to stay on track, most notably your quality of life, including time off and ability to disconnect from the business.
Lifestyle businesses, on the other hand, are aptly named because a primary goal is helping an entrepreneur maintain a comfortable lifestyle. Profits may be less than a growth business, but the quality of life is typically higher, allowing more of a work-life balance and the ability to simultaneously pursue other interests, like travel.
Again, keep in mind these aren’t hard and fast rules. Starting a growth business, for example, doesn’t necessarily mean you’ll never again take a vacation. And conversely, a lifestyle business may prove more demanding than initially expected, especially in the early days. There’s no doubt you’ll forge your own path as an entrepreneur, but it’s important to consider the collective experiences of business owners who have gone before you so that you can properly structure your business — and your expectations — from the beginning.
YOU’VE DECIDED – NOW WHAT?
Once you’ve made a decision on whether to pursue a growth or lifestyle business, you’ll want to develop a business plan, understand your market, determine startup costs, identify your customers and create a brand message, just to start.
The time before you launch your business is also an ideal time to register for Kauffman FastTrac, a free online course that will give you the insight and framework to develop your business idea and prepare for launch.
Whether you opt to start a growth or a lifestyle business, FastTrac will help you prepare for what’s ahead with topics that include:
- Setting realistic financial goals.
- Managing business functions.
- Determining the steps to profitability.
Register today and you can start the course anytime.
Oh, and one last thing? Congratulations! Deciding what type of business you want to start is an important step toward launching that business. We can’t wait to see what you do next!