Let’s begin by defining what I consider to be a “lifestyle” company. A lifestyle company is an organization that is structured (either by plan or accident) to provide a nice, pleasant lifestyle for the owners of the company.
Lifestyle companies do not focus on plans to go regional, national or intergalactic (pun intended). They simply exist to provide a product or service in a competitive manner that will allow the owners of the company to have a nice lifestyle based on the profitability and infrastructure of the company they own. A boat in the company garage is not unusual in a lifestyle business.
These companies are almost always a family-and-friends type of organization. Many were started by patriarchs or a group of buddies that once worked for a competitor.
Owning or working for a lifestyle company has many advantages such as having your opinion count, spending less time with bureaucratic minutia, feeling a sense of pride with your fellow employees, having close relationships with your customers and more flexibility in your schedule.
Lifestyle not always a bed of roses
Of course, no business situation is perfect and lifestyle organizations have a downside as well. Because lifestyle companies are normally much smaller in nature there is often no room to move up the corporate ladder; it doesn’t exist. Employees also have to wear many hats and often function without a backup plan or corporate safety net.
Another big difference is the philosophy of the owners. With rare exception, lifestyle companies do not focus on an exit strategy. They focus on the day-to-day functioning and profitability of the organization. When the owner is ready to move on or retire the company may be sold to employees, to a competitor or even closed. Some become family organizations and the next generation takes control.
Unfortunately the exit multiples for lifestyle companies are low, often based on a multiple of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and lifestyle companies are not known for creating large EBITDA numbers. One exception is the alarm company that creates a large base of recurring monthly revenue. However, I do not consider this type of organization to be a lifestyle company as they almost always do focus on building exit valuation.
I have lived in both environments—owned a lifestyle company and also owned a company that was structured from day one on an exit-strategy payday.
Which one was the best? One was more fun (the Lexus and country club lifestyle was not all bad). The other was more stressful and demanding and did not provide immediate reward but instead, the financial safety net that the lifestyle company could not.
Many PSA members run lifestyle companies and have exceptionally fulfilling lives and careers. Others work for large corporations and enjoy a different set of benefits.
It really comes down to what your priorities are. It is a very important personal decision that has a huge impact on your life, health, happiness, finances and overall well being. Do some soul searching and you will find out what works best for you and your family. If you find yourself in the wrong spot, make the change.