Which Type of Business Owner Are You?
In our 20 years of leadership and business development at 4-Profit, we’ve discovered business owners generally fall into one of three types when it comes to how they choose to grow their business: (1) Lifestyle (2) Growth (3) Hypergrowth. So where do you fit?
Creating and sustaining any one of these types of business is easier if you know who you are and what kind of business you want. And transitioning from one to another if you choose also goes more smoothly when you know where you stand.
Lifestyle owners are in business primarily to provide for their families. Profits are pretty much spent on making life good — good schools, nice vacations, a wonderful home and time together. Their major commodity is often service; they don’t own much intellectual property that distinguishes their business from their competition.
People are their major asset and expense, which makes scaling a service business extremely challenging — the more people you hire, the more headaches you have! (An old business partner used to say that business problems come with hair on their heads; of course, I can say that because I have a full head of hair, unlike my more follically challenged partner.)
It’s a wonderful way to start a business — one that Chris Winter and I, Larry Kesslin, have lived for the past 15 years. We started 4-Profit when we were also just beginning our families. With our children in diapers, we closed our New York City offices and moved operations to our homes, allowing us to spend significant time with the people we love most. Now that our children are older, 4-Profit is moving toward the second model, the growth business.
Growth businesses provide a comfortable living for their owners, but also enough revenue for reinvestment and expansion of between 25 percent and 50 percent annually. They usually have some competitive advantage or intellectual property that fuels their growth. These businesses provide solid foundations for their local economy, with lots of employment opportunities. One of the hallmarks of a growth company is its ability to attract good people. When you can hire great talent, growing a business is significantly easier. Leadership is easier when you have great people behind and beside you.
Hypergrowth business owners depend on other people’s money to grow their businesses faster than their own funds would allow. Hypergrowth businesses typically hire hundreds of people over a short time period and some go on to employ thousands of people. They are the engines of economic growth in most economies.
Outside funding typically comes from these sources:
- Friends and family
- Angel investors
- Venture capitalists
- Private Equity
(A growth business that moves into hypergrowth mode may qualify for debt-financing, as long as the business has a good track record over many years.)
Running a hypergrowth business is at the other end of the spectrum from a lifestyle business. Outside funding increases the pressure for success exponentially; running the business is the owner’s lifestyle. Growth and investment become a self-feeding cycle — the owners take outside money to fuel growth and that investment by others necessitates expansion be super-fast to justify the outside funding. Many business owners accepting outside funding for the first time are surprised by this additional pressure.
But, if you are a serial entrepreneur — someone who thrives on this pressure and excitement — then there is nothing more powerful for the economy than creating a hypergrowth business.
Larry Kesslin is one of the founding partners and president of 4-Profit, an IT-centric leadership development organization focused on helping solution providers and the manufacturers and distributors serving the IT channel.
