Thread by @dunkhippo33

Last night we had a pretty healthy debate amongst a handful of us at our Team @HustleFundVC mtg on "lifestyle businesses" vs "VC backed businesses". Ironically, though we are VCs, we all have our battle scars w VCs so ppl have strong opinions about the topic of VC itself

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In fact, for context, 1 biz partner fully bootstrapped. Another was early at an almost entirely bootstrapped unicorn. Another raised true VC $. I raised mostly angel $.

Addl context: I HATE the word "lifestyle business". When I was pitching my co, VCs who rejected my Co would often use that phrase.

The phrase basically suggests that it's easier to build a smaller Co than a unicorn. And it poo poos the hard work it takes to build ANY business.

If you are a VC, DON'T demean ppl's businesses! (I'm looking at all the VCs who have zero startup exp.)

The reality is that building a smaller Co is often F***ING hard work - sometimes *even harder* than building a large Co and here's why:

Businesses that capture a lot of "market pull" are way easier than companies that don't have that.

As in, the customer acq is so cheap and easy, you have to operationally serve your customer but worry less about cust acq.

In contrast, companies that have a HARD time acq customers (little to no marker pull) have to work really really F***ING hard to get customers.

(And serve them)

And so here's the interesting thing - my argument in last night's convo is that very very few ppl set out to build a unicorn business OR a lifestyle biz. Most ppl set out to solve a problem. if they get customers easily, they serve them. And they just keep climbing the ladder.

But when that "easy growth" tapers is where you see divergence in what ppl do.

Some say “The unit econ are not working. I am going to raise a lot of $$ & pour $$ into this.”

Others say, “The unit econ are not working. I am going into organic growth & will do this on the side.”

Side note: To be clear, a lot of people end up in the situation because they don’t actually know their unit economics. But they know something is not working as well as they would like.

And it is in these times when you hear people start to say things like “oh I would be so excited to sell this for $1 million.” Or “oh I would love to go and raise $1 billion and then go IPO.”

Because let’s be clear, when things are working really well, nobody thinks about selling something too early. You would want to keep on going to see where this goes.

years ago when, I first started my investing career, I met an entrepreneur & was assigned to mentor her. And in one of our conversations, she told me that she really wanted to sell her company. I thought, “oh no! Her investors made a huge mistake.”

And then interestingly enough, over the next couple of months, her unit economics got to be really good, and she really start to grow her business quite quickly. Things were working!

I’ve spoken with her somewhat recently, and she hasn’t raised very much money. She hasn’t needed to, and her revenue is fantastic and they are profitable. She did $5m runrate last yr and will likely double it this yr. She is not thinking about selling at all.

And so my take away from that entrepreneur as well as many others I’ve since worked w is that you can change someone’s opinion about how big or small they think based on how the business is actually doing.

Tl;dr Most people set out to solve a problem. & will follow that problem wherever it takes them.

And when you taper out, some pull back and grow slowly.

Others implode the biz w VC $$ that goes nowhere.

But no one aims to end up w a co that tapers off. That’s just bad luck.