Lifestyle Business (#396)

Having a business that complements a full life should be desirable. So why are "lifestyle" businesses treated with derision?

In 2008, Basecamp co-founder and programmer David Heinemeier Hansson delivered one of my favorite speeches of all time. Heinemeier Hansson, commonly known as DHH, was speaking at an event called Startup School, organized by the legendary incubator Y Combinator.

In what I imagine was a shock for the organizers, DHH’s speech poked fun at the culture of venture capital—including big-money investors and many of the founders they back. He took this group to task for believing that hyper-growth, VC-backed businesses are inherently superior to what are pejoratively called “lifestyle businesses.”

A “lifestyle business” is a label often applied to businesses where the founders are not primarily interested in wooing outside investors to achieve rapid scale. In championing the positives of this model, DHH spoke from experience. Basecamp, which DHH founded with Jason Fried in 1999, has bucked most software company conventions. They haven’t raised money, they haven’t expanded far past their core product, and they’ve kept a small, nimble team that is fully remote. The result is a customer base of over 15 million people and a business that’s profitable year after year.

In his Startup School speech, DHH noted that profit in business comes from selling the right product for the right price. He added that while hypergrowth businesses often nail the product, they often ignore the price component.

Basecamp has always charged for its core product, despite being in a space with competitors offering free solutions. This price simultaneously demonstrated value to the customer and allowed the business to support itself.

In contrast, many VC-backed companies offer unsustainably low pricing to capture market share and rely on massive fundraising to offset that lack of profitability. Of course, that flow of investor money can be cut off at any time, as many businesses have learned in the macroeconomic environment we face today.

The prevalence of the venture capital mindset creates a distorted view of which businesses are actually successful. For example, it’s odd that we celebrate companies that raise money, rather than celebrating them for the value they create with that money.

A company would never throw a party or publish a press release for taking out a bank loan, but doing so isn’t really different from raising a Series A. Either way, the company is taking money that must eventually be paid back in one form or another.

There is nothing wrong with the venture model. However, DHH’s point was that it’s crucial for founders to understand the odds in that space.  

For every ten companies a venture capitalist invests in, eight will fail, one will produce an average return and one will be the homerun that pays for the whole fund. However, thanks to survivorship bias, we tend to only hear about the winners.    

DHH noted that we urge student athletes to stay in school because their odds of being the next Lebron James or Michael Jordan are miniscule. Founders face similarly tiny odds of becoming the next Bezos, Musk or Zuckerberg, where they are given a free pass to lose money for a decade as they build market share.

Knowing this, DHH argued that more founders should do the business equivalent of “staying in school”: running a profitable business that gives them time to actually have a life. Basecamp’s approach has created a happier, more productive team, a loyal customer base and two founders who live balanced lives, take tons of time off and feel financially secure without an exit.

Ambition is great, but only if you remember two things.

First, ambitious people often struggle to appreciate when they have enough. If you set out to build the next Amazon, even if you’re lucky enough to succeed you’ll realize it’s hard to feel fulfilled when there’s always another level of growth to hit.

Second, we only get one trip on this journey called life. Having a business, job or vocation that fulfills you professionally while also giving you time for the people and things that matter most to you outside of work is nothing to criticize. How could having a job or business that is compatible with having a full life possibly be bad?

I was excited to discuss this topic and others with DHH on the first episode of the new season of the Elevate Podcast, which launched this week. I think you will enjoy the depth of DHH’s thinking in our conversation.

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