In Defense of Lifestyle
You don't have a company. You have a job.
- Yale prof and Honest Tea founder Barry Nalebuff, to me, September 2006
I was in college at the time, running a small antique furniture reseller called Aloysius Properties on the side. Aloysius was a fun business. We realized that Ivy League schools, especially our own Yale, were selling their turn-of-the-century-era wood furniture at fire sale prices as they renovated libraries and classrooms. Aloysius bought as much as we could get our hands on and sold it online at significant markups -- a 20x multiple wasn't uncommon in addition to a 15% shipping and handling fee. And our customers (almost exclusively wealthy southern women) were thrilled to have these pieces of academic history.
It was very much a lifestyle business in every sense of the term. Specifically, the founders (Matt Brimer and I) wanted a business that threw off a decent amount of cash with minimal hourly involvement -- that is, a business to support our lifestyles as college students. And it was a total break from our college lives spent staring at books and screens -- buying furniture out of university warehouses, physically moving inventory, talking to customers and coordinating shipping was different and exciting.
But this kind of business went over with the pre-Lehman Yale crowd like selling crack in New Haven grade schools. It was gross, physical labor -- a waste of our precious mental resources that would surely be better spent pricing derivatives or being flown around the world by McKinsey. In more precise terms, Aloysius would not get one laid.
The university did have a nascent startup scene. Innovation was encouraged, and traditional jobs in high finance and consulting were held in slightly less regard. But there was a parallel problem in the Yale startup community, one that effectively took the place of the larger university's fetishization of high finance. There was the palpable sense that unless you raise significant capital, you're not running a real business.*
This left Aloysius high and dry. Matt and I abandoned the business in early 2007, choosing instead to focus our efforts on raising venture capital for an online gaming startup, GoCrossCampus. Things didn't turn out badly -- my next company, PayoutHub, was acquired earlier this year, albeit not for fuck you money.
Since then, I've slowly getting back into "lifestyle-like" cash flow businesses. It's entirely possible that I'll see an opportunity in a company to take it to the next level and scale it into a venture-fundable blow-the-doors-off next-coming-of-facebook success. But I don't have to, and there's nothing wrong with covering my downside by starting with the goal of building profitable companies and seeing where it goes from there.
As a caveat, scalability of personal involvement is important. This is the difference between a job and a company -- and helped spell the doom of Aloysius. Aloysius Properties was not only a personnel-heavy business, but it would've been difficult to pass off to an intern with minimal instruction (my litmus test for cash flow businesses). If you can't pass it on to an intern with fewer than a few hours' per week involvement, it's probably a job. As you might imagine -- and contrary to our beliefs at Yale -- the litmus test has nothing to do with raising venture capital.
* Over the last few years, the Yale Entrepreneurial Institute has done a great job shifting this culture. One of last year's businesses was a grilled cheese restaurant. Cool.