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What’s the difference between lifestyle and hyper-growth startups? How do you know which type of startup business is right for you?
Entrepreneurs Ash Ali and Hasan Kubba, in their book The Unfair Advantage, describe two types of startups: lifestyle and hyper-growth. They offer recommendations for how to determine which type of startup you should pursue. The factors to consider, they say, are your purpose, your desired lifestyle, and your unfair advantages.
Read more for Ali and Kubba’s insight into different types of startups.
Choose the Right Type of Startup
According to Ali and Kubba, there are two main types of startups. Let’s review the features and goals of each and explore how to choose the right type based on your unfair advantages.
Lifestyle Startups
First, lifestyle startups are local small businesses that provide founders with a sustainable income. Some have physical locations while others are online. Lifestyle startups generally provide services or products that target a relatively small customer base and are thus hard to scale. Examples include a specialty tea shop, a virtual dance academy, and a mobile dog washing business.
Lifestyle startups are almost always self-funded and have limited appeal to external investors. As Ali and Kubba explain, the goal of lifestyle startups is to turn a profit fast rather than dominate an industry (as investors aim to do when they get behind a startup). While lifestyle startups can be lucrative and usually provide a comfortable life for their founders, profits are usually more modest. If you pick this type of startup, the authors say, you’ll have to work extremely hard to succeed, but you should be able to create a schedule that affords you some freedom once you get some traction.
Hyper-Growth Startups
Second, hyper-growth startups almost always involve a technology-based product or service. The focus is outpacing competitors to capture as big a portion of the market as possible, as fast as possible. Ali and Kubba explain that costs are often very steep initially and then taper off when (and if) the business gains traction. This is because, once digital products are made, they usually can be mass produced with moderate expense.
Hyper-growth startups require generous funding from outside investors. This is due to their extremely high upfront costs and the value placed on fast growth, according to Ali and Kubba. Hyper-growth startups often remain unprofitable for a long period of time, sometimes losing a lot of money in the push to strike it big. However, those that do succeed reap huge profits, making the investors’ risk worthwhile.
As Ali and Kubba say, entering the arena of big money and influential investors with a hyper-growth startup can be exciting, and you could reap big financial rewards. However, very few hyper-growth startups find success, so you’re more likely to walk away with nothing than become a millionaire. Also, to have a chance of succeed, you must focus nearly all of your time and energy on growing your business. Your schedule will be relentless.
How to Know Which Type of Startup Is Right for You
When deciding which type of startup you want to pursue, Ali and Kubba say to reflect on your purpose, the type of lifestyle you want, and the strength of your unfair advantages. If it’s important for you to have a humane schedule, a greater chance of achieving profitability, and freedom from the pressure and demands of outside investors, a lifestyle startup is likely a good fit. Also, if your unfair advantages are rather weak, you should consider opting for a lifestyle startup.
(Shortform note: Other business leaders concur with the authors that there are benefits to not having investors in your startup: the freedom to make decisions independently, the ability to focus on customers’ needs rather than investors’ demands, and the ability to quickly adapt to change. However, even if Ali and Kubba are right that lifestyle startups have a better schedule and are more profitable than hyper-growth startups, they’re not necessarily much better in this regard. One survey found that a quarter of small business owners have fallen ill due to stress and overwork. According to another study, only 40% of small businesses are profitable, and 30% lose money on a continual basis.)
However, if you’re a risk taker and you love the “grind,” a hyper-growth startup might be an option—but only if your unfair advantages are incredibly strong. You need access to valuable assets, sophisticated technical knowledge, a desirable location, excellent interpersonal skills, and high prestige so you’re able to fund your efforts, develop an innovative product, attract customers, woo investors, and sustain their trust.
(Shortform note: The need for founders to have strong unfair advantages to succeed in a hyper-growth startup likely contributes to the disproportionate number of white males leading venture-backed startups across the US, which Ali and Kubba acknowledge. Data tracked for a four-year period starting in 2013 showed that 90% of hyper-growth startup founders were male, 72% were white, and 14% were Ivy League-educated. Although there are now more women and entrepreneurs of color getting traction among investors, white, upper-class males still have a notable edge, which highlights the privileges afforded this demographic.)
| Is Entrepreneurship Right for You? If you’re still not sure entrepreneurship is for you, you may find it helpful to evaluate whether you fit these more surprising personality traits common among entrepreneurs: You’re a rule breaker. If you frequently challenge conventions and take unexpected routes to typically mundane tasks, your rebellious streak can be a huge advantage, given the need to constantly innovate as an entrepreneur. You’re restless. Entrepreneurship requires tackling one challenge after another, so if your first thought after achieving one milestone is always “What’s next?” applying that zeal to a startup venture could be a fantastic career move. You don’t fit in with the crowd. If you see and do things differently than most people, your unique perspective could generate insights that drive breakthrough innovations and move society forward. While there’s no surefire litmus test to determine which career path is right for you, Ali and Kubba arguably give a fair and balanced view of critical factors to consider. Use their advice as a jumping-off place for your decision. |
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Here's what you'll find in our full The Unfair Advantage summary :
- The guidebook you need if you're planning to start a business
- How to find and use your unfair advantages (everybody has some)
- The steps you must take to achieve startup success
