Equity Business vs. Lifestyle Business

In speaking to a group of new entrepreneurs recently about defining their business vision, I suggested that they be clear about whether they want an “equity business” or a “lifestyle business”, because the way they approach building a business must be very different depending on how they will define success.

The phrase “lifestyle business” has been used to excess recently and has been maligned as suggesting that a lifestyle business is not a “real” business. So I did a little digging. Mark Henricks in StartupJournal reports:

The term lifestyle entrepreneur was coined in 1987 by William Wetzel, a director emeritus of the Center for Venture Research at the University of New Hampshire. Mr. Wetzel was using it then to describe ventures unlikely to generate economic returns robust enough to interest outside investors. In financial jargon, there’s no upside potential for creating wealth,” he explains.

The article continues to say that today, Wetzel views it a bit differently. He:

recognizes lifestyle entrepreneurs as a specific breed of business owner who is neither a financially independent hobbyist nor wealth-seeking empire-builder. “Lifestyle ventures are usually ventures that are run by people who like being their own bosses,” he says. “But they’re in it for the income as well. Indeed, lifestyle entrepreneurs offer a different…view of success than those who are mainly after wealth accumulation.

On the other hand, it is hard to find references to “equity business”, but I did locate a definition from UK’s Tiscali Reference that meshes well with Wetzel’s definition of the alternative. According to Tiscali, equity can be defined as:

A company’s assets, less its liabilities, which are the property of the owner or shareholders. Popularly, equities are stocks and shares which do not pay interest at fixed rates but pay dividends based on the company’s performance. The value of equities tends to rise over the long term, but in the short term they are a risk investment because prices can fall as well as rise.

From this I construe that an equity business is one where the owner intends to build real assets with a growable, tangible value that can be bought and sold — either as shares or the entire business. Success would be defined as the increase in value of the business over time.

By contrast, a lifestyle business is one where the entrepreneur seeks to generate an “adequate” income while living where s/he wants, doing what s/he loves, or having the flexibility to be around when the kids come home from school or take long weekends in the winter to go skiing. Success would be defined as an increase in satisfaction with one’s life over time.

These are very different scenarios. “Equity or lifestyle” is another of those fundamental decisions you need to make when you’re starting out. If you’re contemplating going into business with a partner, determine if you both would answer the same way. Neither is good or bad. It’s just, which one is for you?