Thanks, I think. Oddly, I never thought of it as a lifestyle business. The main thing it's done to my lifestyle is to prevent me from getting a good night's sleep for the last 3-4 years of coding, beta testing, launching, and finally managing it.
If that's what it is -- ok. But as I understand it, the thing that stops lifestyle businesses from scaling up is that the owner prefers having a business that works around their schedule, suits their lifestyle, and prefers to be hands-on in operation rather than delegating. To the point that it makes little sense to scale, because the person is the business, and vice versa.
So if what stops lifestyle businesses from being good investment vehicles is the founder's unwillingness to scale, then I completely understand why larger investors would shy away from them. But if an owner of one -- I mean, it could be a bakery or a doggy daycare or anything -- builds out a framework for growth, wouldn't it be logical to pick one that was trying to grow at a slow, responsible rate?
Maybe stretching it here, but why would an investor choose someone who makes great at-home pizza and wants to open 50 restaurants next year, over someone who's run a pizza place for awhile and wants to open two or three more, when the investment needed for the latter is half or a quarter that of the former on a per-restaurant basis?
Is it that VCs won't stoop for pennies? Because - I've always thought it was kinda stupid when people said they wouldn't stoop for pennies. That's money. Why would you leave it lying on the ground.
If you have tens of millions of dollars to invest, it's not easy to find enough businesses to invest in. For every business, the investor has to do some research and due diligence, and there's a non-negligible cost associated with that. Finding 10 big-bet companies is easier than finding 50 small-bet ones. It's analogous to how a fund-manager friend has trouble finding enough businesses into which he can put $50m a pop - his bank simply doesn't make smaller investments.
> wouldn't it be logical to pick one that was trying to grow at a slow, responsible rate?
Wouldn't it be more logical to find one which had the potential to explode, and which they could own more of with a large investment? These guys don't want small bites of a small-to-medium business, they want big bites of a potentially massive one. And they're willing to take big losses on the losers in order to get the big winners.
> Is it that VCs won't stoop for pennies? Because - I've always thought it was kinda stupid when people said they wouldn't stoop for pennies. That's money. Why would you leave it lying on the ground.
Because there's a cost in picking them up, and the value of a penny is too low for many people to bother doing it. I certainly wouldn't stoop for a few pennies on the sidewalk - they just aren't worth the effort. It's the same with VCs, I'd guess.
There's also a practical limit to how many businesses you can be involved in. If they aren't stooping for pennies, and they've been around investing for some time, then it's clear they're making good returns on other businesses and don't feel a need to stoop for pennies.
There is a cost in research involved each time an investor "stoops for pennies".
In your pizza example, it is possible that the investors have their Fast Food Business formula with their suppliers and management consultants they bring to the table. Someone who made great at-home, with a great personality would add exactly the right "personal touch" and taste to match.
This doesn't mean that stooping for pennies is bad or that VC are necessarily justified in scorning it. I think it avoiding it can be perfectly sensible from their perspective (which should leave others to take advantage of the opportunities they scorn).
If that's what it is -- ok. But as I understand it, the thing that stops lifestyle businesses from scaling up is that the owner prefers having a business that works around their schedule, suits their lifestyle, and prefers to be hands-on in operation rather than delegating. To the point that it makes little sense to scale, because the person is the business, and vice versa.
So if what stops lifestyle businesses from being good investment vehicles is the founder's unwillingness to scale, then I completely understand why larger investors would shy away from them. But if an owner of one -- I mean, it could be a bakery or a doggy daycare or anything -- builds out a framework for growth, wouldn't it be logical to pick one that was trying to grow at a slow, responsible rate?
Maybe stretching it here, but why would an investor choose someone who makes great at-home pizza and wants to open 50 restaurants next year, over someone who's run a pizza place for awhile and wants to open two or three more, when the investment needed for the latter is half or a quarter that of the former on a per-restaurant basis?
Is it that VCs won't stoop for pennies? Because - I've always thought it was kinda stupid when people said they wouldn't stoop for pennies. That's money. Why would you leave it lying on the ground.