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Lifestyle Business: Entrepreneurs Don't Have To "Go Big or Go Home"

Lifestyle business is okay versus the go big or go home approachWe like to adapt sports phrases to business. The phrase "go big or go home" had its origins in extreme sports, used by the extreme athletes, who know that winning will require them to absolutely push their physical and mental limits.

It's a perfect description of the type of passion and effort that entrepreneurs need for business success. But, used by the investment community, "go big or go home" has an entirely different meaning.
And, often, just creates "noise" for the entrepreneur
As venture funds have grown ever larger, to be efficient, they need to make bigger and bigger investments in each business in which they invest. Naturally for better leverage, they want to invest in entrepreneurs attacking multi-billion dollar markets who can grow their companies into billion dollar valuations.

So they advocate "go big or go home" either directly or indirectly, by focusing only on businesses with million dollar market potential or trying to convince entrepreneurs to change their business model to fit their investment model.

However, for every Facebook, Twitter or Google, there are hundreds and hundreds of companies who never got off the launch pad in these markets, despite big-time investments in those billion dollar markets.

A lifestyle business is okay

More important, there are thousands and thousands of successful small businesses filling a market need or solving a market problem quite well, while providing themselves a good living and jobs for their community, in markets that total well less than a billion dollars. And, most of them do it alone.

More than 600,000 businesses are started every year in the United States. Last year, while professional investors put $48 billion in entrepreneurial companies, that is, angels, private investors or venture capital funds, less than 70,000 businesses received that funding.

And of those, less than 3,600 got their money from venture capital funds. So while it's a great slogan for effort, "go big or go home" in this context ain't exactly a good odds play for an entrepreneur to go chasing multi-billion dollar markets in hopes of gaining big-time investment, unless that's already the goal of your business model.
"But that doesn't mean you have to be the next Facebook to do it"
Sure, you're ready to "leave everything out on the field," but that doesn't mean you have to be the next Facebook to do it. To keep things in context, here are some guidelines for channeling that "go big or go home" attitude, so it fits you and your model:

If "what you know best" and "what you love most" are the same, that's a great start!

Maybe your small business isn't going to develop the "next big thing" or a cure for a dreaded disease. Maybe it's just a business you believe in, something you're an expert in and something you just love doing that provides a product or service that addresses a unique problem or need in a market. That's a terrific beginning. And, of course, if you can make money at it, then you have the foundation of a real business, no matter what anybody else thinks.

Find a niche you can "own," even if it's not a billion dollar market.

Maybe your small business isn't going to develop the "next big thing" or a cure for a dreaded disease. Maybe it's just a business you believe in, something you're an expert in and something you just love doing that provides a product or service that addresses a unique problem or need in a market.

That's a terrific beginning. And, of course, if you can make money at it, then you have the foundation of a real business, no matter what anybody else thinks.

Find a niche you can "own," even if it's not a billion dollar market.
You may be in a billion dollar market, but it may have a lot of competition. Find the niche that is underserved and with much less competition; and one you can serve well.

Then do everything you can to "own" that niche, using your expertise and your love for the business to create a market position for your product or service and driving to penetrate it.

Even if the niche is only hundreds or even tens of millions, if you can create a unique offering to meet the needs or solve the problems of that niche, you have an excellent opportunity for long-term success.

Your long-term goal doesn't have to be "sell for a jillion dollars!"

Can you say "lifestyle business?" Among the boards, I sit on, are two companies where each CEO/founder has created a business that fits his lifestyle, professionally, financially and personally.

They both worked long and hard in the early going, sacrificing a lot, not taking much out of the company. Now that both companies are pretty successful, the founders now receive very healthy compensation and "perks" from their business, well beyond what might be considered "in line" for companies their size.

All choices they made without the assistance of outside institutional investors. They are nicely profitable, haven't been growing at more than a 10-15% pace for the last few years.
"You have a choice"
Why? Because that was also a choice, they made about how hard they wanted to work at this point in their lives. Nothing wrong with that. Might they sell their companies? Sure, maybe someday. But right now, they're very comfortable, thank you! Take a lesson here. You have a choice.

Figure out "how else" you can fund your business.

Raising outside capital is not a given for success. I've written a previous blog post on this subject. But if you're not going to raise capital from professional investors, know that depending on how much or how fast you intend to grow, you will need additional capital, beyond just cash flow, to do it.

Lifestyle business can grow 25%-40% per year from cash alone

Some good rules of thumb I developed, over the years, is that for most manufacturing-based businesses, you can grow about 25% a year and for services-based businesses about 35-40% per year through just the cash your business generates.

But you'll probably need a credit line to help you through the peaks and valleys of cash flow, especially if you're growing close to my rule of thumb percentages.

Additionally, if your business is at all capital intensive, you'll probably have to look at debt financing. The most important point, here, is that you don't need angels, VCs and the like to make your business successful. But you will need alternatives.

"Go big or go home" is a great catch-phrase, but don't let it dictate anything but your effort. If you are going to chase a big market and big valuations, do it because it fits with your expertise, what you love to do and your long-term goals. Not because somebody says you have to.

"The Entrepreneur's Yoda" knows these things. He's been there. May success be with you!

Do you believe in "go big or go home" in either context?  Please share your thoughts in your comments. It can help another entrepreneur.

If you like this post, by all means, share it with your networks and colleagues.

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2 COMMENT(S)

2014-01-15 13:27:10 by bert

I am a score counselor who has counseled over 1500 clients in the past 3 years. I am concerned that many clients seem possessed with what I call the Zuckerberg, venture capital, or hockey stick approach Specifically; I read about 3 to 5 plans a week and most are simply outrageous because of the growth curves. Everyone thinks are the next billion dollar startup, need to project $ 15-20 million of revenue in a couple years to get funding or are simply unrealistic. This was illustrated recently by the response of a client who I asked the basis of her forecast which showed 15-20 % per week. When I asked her assumptions she said,
"That is what the venture capital firms say they want "
In contrast many studies of entrepreneurs from IDEO to Glad well from are showing slow , but steady , rapid, multiple product development, experience , and testing are the best predictors of success . There are some simple suggestions for executing this strategy:
• Remember venture capital, crowd funding, angel investors, and marketing tools like social media etc. all take lots of work and are not instant solutions. , Shark Tank is really not just entertainment. They frequently ask entrepreneurs how much business has you done and how much money has you made as key criteria for their decisions.
• Do some market research. I cannot tell you many clients discuss the uniqueness of their ideas when there are pages of competitors who are frequently more experienced, cheaper, and even better on Google or Amazon.
• Think small, develop ideas, test and adapt. Think of your false starts as learning experiences and not failures. Even Steve jobs got fired and Edison tried 10, 000 light bulbs before succeeding
• Develop a model that works, you can execute, and makes money before thinking about huge success stories. It is much easier to grow and finance a proven model than support a hockey stick plan with few proven parameters.
• Hire good resources and continue to test, measure and adapt
• Understand and take advantage of the changes in demographics, the economy and your environment. For example large companies are really floundering with innovation and growth especially demographic changes and the growth of mobile devices.
• Be realistic and don't be blinded by what we call "confirmation basis" which says every idea we have must be terrific.
• Have fun

2014-01-15 15:41:17 by Lonnie Sciambi

Bert,

Absolutely terrific advice. Thanks for the great comments. So right on the money!

All the best,
Lonnie

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