It’s important to differentiate between a lifestyle business and a startup venture. A lifestyle business is a small business with a slow, gradual growth plan. The business’ purpose is to provide ongoing income for its founders.
Lifestyle businesses make an important contribution to employment and to the economy – but a restaurant in one town, a chain of hairdressers, or even a franchise (e.g. running a McDonald’s restaurant) is not a startup.
In contrast, a startup venture is a high-growth, fast-paced business. Rather than providing a source of employment income, a startup is a growth-based project: entrepreneurs create startups with the intention of growing the venture as quickly as possible. The expectation is to sell (exit) the business or to go public within a specified number of years (generally five to 10). The entrepreneur aims for a substantial profit and is aware of the high-risk nature of the venture.
One of the most significant differences between a lifestyle business and a startup venture is its method of funding.
While most businesses require some form of funding, lifestyle businesses are generally funded with personal funds, small business loans, and loans from friends and family.
A startup venture may begin in the same way, but with the expectation of gaining outside capital from strategic investors. These investments come at various stages throughout the life of the startup, funding the venture’s various stages of growth.
Startups are expected to grow quickly. Achieving growth rates of 5% to 7% per week is good. 10% per week is exceptional.
As a rule of thumb, a startup on the unicorn track will have growth rates in its first 4-years of:
Year 1 – triple (300%+)
Year 2 – triple
Year 3 – double (200%+)
Year 4 – double
Whereas a lifestyle business aims to achieve profitability as soon as possible, typically within 12 to 24 months, a startup venture generally does not become profitable for several years.
The startup entrepreneur is charged with spending the business’ revenue on growth, rather than generating profitability for the business owners or investors. The hope is to receive a return on investment of more than 100x at such time as the venture is sold or goes public (IPO).