Growth or LifeStyle
Before you start determining your company type, let's stipulate that we are not recommending one kind of business over the other. This decision is one that you have to make on your own. It would be best to make this decision before starting a business. At times, those starting a business believe they will spend less time in an "Owned Business" and make more money. The truth is that owning a business is more unforgiving with your time than if you are working for someone else. Sometimes your company will demand more of you than you feel you bargained for when you first started. For this reason, it is crucial to understand the type of business you are building and your business goals for the future.
To determine whether you will create a lifestyle or a growth business, ask yourself the questions below.
Questions To Ask of Yourself
Is the most important thing about being an entrepreneur that you are your own boss and make your hours?
Is your business plan in your head?
Do you regularly ensure you have time to attend to family or personal matters during business hours?
Do you have multiple family members or friends on your payroll?
Do you have assets on your books that are used for personal consumption: cars, boats, cottages?
Does your business pay for your golf or other recreational memberships?
Does the business pay for parts of your family vacation?
Do you borrow money from the business periodically?
Have you made decisions in your business based on your personal situation?
Do you maximize your dividends at the end of every year?
Do you avoid trying to work overtime in your business? (More than 40 hours)?
Do you shut down the business while on vacation?
Is having a budget for your business too constraining?
If you answered Yes to most of these questions, chances are you are in a lifestyle business.
There is nothing wrong with developing a lifestyle business. Still, you do need to recognize that fact and not set unrealistic expectations for yourself. It usually starts with the goals you want for the business and why you created the business in the first place. Suppose you are starting the business just for income for you and your family, and it is something you can do, and you get to decide what time you spend in the business. In that case, you are developing a lifestyle business for yourself.
Often in a lifestyle business, the business strategy is in the business owner's head. At times, the owner feels they are the only ones that can execute the plan. In most cases, they have yet to communicate this to their team, which can be a problem, as employees cannot buy into something they don't know. Because of this, employees usually do not perform up to the owner's expectations, as they are unaware of their actual role in the business. In many cases, employees do not have a job description and perform their job based on a task list. When this occurs, it creates a struggle to grow and generate more income. The owner must focus more on the business and invest more time. Any business can flounder and affect the lifestyle you have. Since most lifestyle businesses rely on the owner, one could wait too late to turn things around because there needs to be a commonly understood strategy.
Lifestyle businesses are harder to sell; if they do sell, the owner never receives the valuation they expect. The company has been deprived of the cash it needs to keep the business current through dividends, personal loans, and other aspects such as high salaries for owners and family members. Doing this takes away from the value of your business when you plan to sell it. When the business owner performs the business strategy and a majority of functions, the true value of the business is the owner. When employees do not have defined roles where they work independently and provide value, they will not be transferable and will also reduce the value.
The positive side of a lifestyle business is (often found, but only sometimes) the increased loyalty factor to the employees and a culture where people will work and stay for years. Unlike a growth business, a lifestyle business can sometimes come out of a downturn due to the family-like environment. They have not laid people off and do not have to rebuild. In many cases, the business owner will forgo or take a reduced salary to keep the employees. Customers are loyal to the owner and tend to stick. And finally, a lifestyle business provides a less risky and more stable environment for the owner and their family.
In most cases, those building a growth business are passionate about what they are doing and are all in. Owners often put their own assets at risk when it comes to the business. They are usually risk-takers willing to do whatever it takes to make their business successful. They tend to start with a business strategy, invest themselves, and then look for outside funding through lenders or investors to fund the business adequately to get it off on the right foot.
Those that start growth businesses look to build a winning team for their business and surround themselves with those with strengths that they do not. Usually, they are type "A" personalities and put everything into building the proper foundation to help the business grow. The goal for them is for the business to be able to run without them, so if they are away, they have others to rely on, and the business continues to prosper.
Their owners understand that the business and themselves personally are two different entities, and they do not make business decisions based on personal situations, personal goals or emotions. They make purely business decisions. In many cases, there are multiple shareholders or investors, so the business owner answers to a Board of Directors and sometimes has to make hard decisions. The downside is that these decisions are focused on short-term gains as those shareholders or Board members are looking for quarterly ROIs. Employees' salaries and unnecessary expenses are the first to go when they are in a financial downturn. For this reason, there is usually less loyalty from employees and turnover is higher than in a lifestyle business.
Though the business owner of a growth business may still have a hard time stepping away from the business when it is time, it is essential to them that the business is sustainable without them. They can hand it over to someone else in their family, take it public, or sell the business and get the value of what they expected.
There is no right or wrong answer for this decision. Plenty of lifestyle businesses make enough money to satisfy the owner and allow them to live the life they want. On the other hand, if you want to build a growth business for yourself, you need to be willing to sacrifice, give up your time and efforts, and take risks to succeed. It is short-term pain for long-term gain. If you are not the person who can do that, you need to know that before starting your business.