by • February 1, 2017 • Lean startup metaComments (0)4

The business part of social & lifestyle businesses

I’m sitting in an island hut in paradise, Thailand, listening to the owner yell at his staff (bamboo walls don’t block sound) that he needs to make more money or he’s going to have to close it all down and everyone loses their job. This is particularly worrying since the resort is fully booked. Seems like the business model math doesn’t work out.

Just last night I’d overheard him talking to a buddy about how he was finally living the dream. Beautiful weather, beautiful views, palm fronds everywhere. He’d bought the place just 6 months ago, gotten it fixed up after a year of disuse, and this was his first season running it. But today, his staff is telling him to relax and he’s saying that he’ll relax in the off-season, but right now they’ve got to make some money[1]!

It’s easy to forget that before you have a good social or lifestyle business, you’ve got to have a good business[2]. Running a failing lifestyle business is not fun. Running a failing social enterprise is not rewarding or meaningful. The most important part of any sort of business is that the business works. I’m not saying you should do something actively evil and profit-hungry and then try to slap a bandaid on it with paid vacation, ping-pong tables, and CSR. But within the constraints of doing something you believe in, the profitability does matter. A lot.

Various government and non-profit projects suffer a common failure pattern where they’re supported by grants or donations, so they focus 100% on impact, and then when the funding dries up, they try to attach a revenue model to a project that was never built to support one. I don’t want to spoil the ending, but it’s not going to work. You can’t answer the lifestyle or the impact questions while ignoring the profitability one and expect it to just plug in later. You’ve got to develop them together.

I used to teach a group of burned out bankers and lawyers about starting their first business. They’d been focused so hard on making money for so long that they now wanted to avoid it entirely and instead do something they cared about. That’s fine and even admirable. But the biggest mistake they made, by far, was obsessing over the lifestyle or impact to such an extent that they forgot about building something that worked, so they ended up getting nothing (except another job when they ran out of money).

You can have it all, but you’ve got to embrace all the constraints. Lifestyle and culture and impact and industry (and all the other parts of a business) are constraints on the idea you pick and the way you run it. But that’s actually pretty helpful, since without a few good constraints the possibility space is just way too big. The most important one of all is profitability (or traction, if you’re in an investable area). Succeeding at that one gives you some time to massage the other parts of the business into place. Without it, all the other dreams are for naught.

[1] You may be tempted to brush him off as a jerk, but I’ll ask you to believe me that he was in fact he was a super nice guy and, apart from that one outburst, treated both customers and staff extremely well.

[2] A similar question is whether an amazing culture like Valve’s creates success, or whether it’s the prize you get after becoming successful.

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