This is the Way

Why cash-flow businesses are taking over

Here’s my contrarian opinion: "Lifestyle" businesses will be all the rage within the next year.

We'll look at "VC-backed" startups like banking careers: It was cool decades ago but now you just feel bad for anyone still trapped in it.

And despite that spicy lead, I don't mean any disrespect toward VC backed startups... or banking careers for that matter. But like banking, it has been highly aspirational and prestigious… despite being kind of shitty to actually pursue. In fact, probably in no small part BECAUSE it's shitty to do. 

In A League of Their Own, Tom Hanks’ character Jimmy Dugan drops one of my favorite and most often referenced quotes:

“It’s supposed to be hard. If it wasn’t hard anyone would do it. The hard is what makes it great.”

Founders often have this mindset - which to be fair, is how you have to see it. The hard is not a detractor, but a signal of validation that you are doing something worthwhile and a badge you wear proudly. So the path of raising money, growing at all cost, IPO or bust becomes a feature, not a bug.

Furthermore, it becomes “mid1” or JV to pursue anything else. A small business is “cute” and lifestyle businesses are cited as startups that couldn’t hack it… and accompanied with a condescending “not that there’s anything wrong with that…” 

If you weren’t building a unicorn, you were playing softball while the real talent was playing hardball.

This hard path becomes aspirational and status, reputation, and identity attaches to it.

We started with it being unconventional and counterculture to launch a startup. People think you’re crazy for leaving your six-figure job to start a “dot com” out of your garage. 

Fast forward to guys in All-birds and Teslas name-dropping they’re in a slack group with a Winklevoss. 

Who led your last round and at what valuation becomes how you’re introduced at parties. Not only is it cool, but it’s safe. Not financially, but reputationally2. You’re part of a respectable mainstream. It becomes just how it’s done. I mean, a plot point in Ted Lasso is that a PR firm is VC-backed… and then they take away the money and that dooms the business?3 The idea that any credible or aspiring business on tv has to have a VC attached is ridiculous and I think officially marks the end.

So like everything, the trend runs its course and the cracks start to show.

The reality of the VC model is it relies on the Power Law: 80%+ of their money will come from less than 20% of their companies. 

Which means a lot of the founders who go into this end up working for 5-10 years making $80k only to then have their company sold (with investors getting preference on any distributions) or shut down when it doesn’t become one of the few that break through.

To be fair, this makes perfect sense for a lot of industries and businesses4. My point is not that it’s a bad model or that founders shouldn’t raise VC money. Just that I think the real question of how I should capitalize and build my business got lost in the pursuit of having a VC backed startup with a 9-figure valuation.5 

And just like the counterculture movement that pushed people to leave high paying jobs seeking a better, albeit less popular, way, we’re seeing founders start following alternative paths to startups.

Staring Star Wars GIF by Disney+

It’s already happening. 

There is a growing community of bootstrapped, cash-flow businesses that has been building for years now - Saas, agencies, newsletters, courses, ecommerce. The stories of their success surfaced on podcasts, Twitter, and Reddit as they built small, niche businesses that made life-changing amounts of money on their own terms.

Those few became expanders for others who follow them. At first quietly, maybe a little self-consciously bordering on embarrassed. They would look down and toe the pavement as they explain, "Oh I'm just working on a little thing, it's no big deal, whatever..."

Eventually those “little-no-big-deal” projects started generating $1mm, $5mm, $10mm, $30mm… Completely owned and controlled by the founder and earning real cash profits.

If you’re in that world, it feels like it has already exploded. But if you step outside of it, it’s still a tight, niche club. 

But it’s about to take off.

The community has an all-are-welcome energy and enthusiasm paired with an IYKYK exclusivity. It’s fun. It’s cool. It’s aspirational yet approachable. And it’s addicting.

It just makes too much sense. This is the original spirit of small business and entrepreneurship. We’ll look back and think it was crazy we were so dismissive of *gasp* PROFITABLE businesses!

Higher floor businesses, on your own terms, that generate life-changing money - what’s not to love?

Now to be clear, having a “lifestyle” business doesn’t mean it’s easy or that you’re not trying to grow or improve it. But as we saw above: the hard is what makes it great, and the point is you’re doing what you want with it.

I’m predicting that next year Smallest Viable Market will replace TAM. Profit margins will be the flex rather than valuations. Mastermind groups will take the place of boards.

And we couldn’t be more excited about it.

So if you’re pursuing a moon-shot idea, go for it. Raise money and take a big swing. We need those.

But if you’re building something sustainable, something profitable, something life changing, on your own terms, that’s cool, too. Really cool.

And in that spirit, I want to highlight a few communities that I think are doing a great job of building, supporting, and telling the stories of this group.

So check them out and drop in the comments any communities, groups, blogs, podcasts, or anyone else supporting and building this community.

Also… let’s figure out a proper name for this.

Chase… wait, what’s wrong with softball?… Spenst

Great Communities to check out: