In Defense of Lifestyle businesses by Nathan Rothstein
Do we really want another tech investor telling us what kind of media we want to consume?
In the season finale of Alex Blumberg’s stellar podcast, Startup, he talks to super investor Chris Sacca. Sacca, an investor in twitter, and Uber, and countless others, has done pretty well for himself. When we first meet him on the show, Alex is bombing his pitch, and Sacca, with little knowledge of podcasts or this potential new podcast business, explains it better than Blumberg.
But Alex has come a long way.
Each week since then, his business has grown, and as listeners, we have been privy to all the ups and downs that has come along with his success. In an earlier episode, Gimlet Media announces that revenue is better than expected— almost a million dollars to date, and profitability is around the corner.
Chris Sacca appears to be irritated. He is only getting updates via the show, and they are not the updates he wants to hear. He tell this to Alex, after a ‘dramatic long pause’, and we get to listen:
“I’m listening to you talk on the radio about how soon you are going to be cash-flow positive. That’s usually a bad move for an early stage company- to get cash flow positive. I have strong opinions about that. Everyone I know who pushes for cash flow positivity that early stops growing at the rate they should be growing, and gets so anchored by this idea that ‘we need to keep making money.”.
Chris does not want a lifestyle business for his investment, and Alex is struck by this conflicting advice, and asks him to define the concept of a lifestyle business.
“A Lifestyle business is likely not growing, or growing at a modest clip. People are living comfortably. It’s going at a pace where you get to take vacations,” Sacca says.
Well that sounds pretty good, Alex chuckles. Unfortunately Alex is learning the hard way that once you raise a million dollars, you have a boss again, even if you are ‘running’ your own company. This boss doesn’t care if you are making decisions about quality of content, and doesn’t like that you are approaching profitability- you have to be weirder, and more of bully to drive your idea to full world domination.
When Alex was starting Gimlet Media, he immediatly sought advice from investors who were impressed with his previous experience. One of the reasons he started thinking about building a for-profit company around a concept that had traditionally been connected to non-profit radio stations was his success selling a t-shirt. Well, it was more than a t-shirt, but still a t-shirt. At Planet Money in 2013, Alex and his team created a kickstarter, where the backer-reward was a t-shirt, which was not unusual. What was different was the fact that Planet Money would tell the story of where t-shirts were made — from the root to the fruit- or from the cotton to the finished product. This did unbelievably well.
In just 30 days, they raised almost $600,000- with just one pledge item- a t-shirt.
The audience was genuinely interested in the behind scenes look at t-shirt production. Americans seem to like t-shirts- almost 2 billion are printed and distributed every year, but a majority of them are now made overseas. So the story was also one of globalization, and took us from the cotton fields of Texas, to the factories in Brazil, all the way to the secondary markets in Kenya, where all the shirts that were made somewhere else, and sold in the US, are now re-sold in Kenya. They even found someone’s bat mitzvah shirt in Kenya (which was a similar story and message to Ross Lohr’s Tedx talk in 2012).
Some lifestyle businesses do better than others, but at least you have control…
“After years of doing public radio and begging people for money with pledge drives, this project felt refreshingly straight forward. Here’s something we made. Do you guys want to buy it? Great.” Blumberg says in the first podcast.
He felt there was a market for intelligent, thoughtful and compelling podcasts that people would pay for- so would advertisers. He wasn’t wrong, it just wasn’t clear how big of a market there was to do it. But if anyone could figure it out, it was Alex, who had years of experience making these kind of shows with This American Life and Planet Money. This was his competitive advantage.
After years of trying to convince people to support something that was free to them, there was a certain simplicity in participating in the oldest form of the marketplaces. It was a simple premise. We are offering a product that you want, and we set the price, a price that is a reasonable offering compared to existing competitors, and you choose our t-shirt because you, as a consumer, connect to the brand, story and enjoy the product. This has worked for many before Gimlet Media and probably many after.
With no business experience, Alex then pursued the biggest names in business- like mega investors like Chris Sacca, who led him away from what people enjoy from podcasts.
While there is the audience for longform (formerly known as magazine articles), compelling podcasts (see Serial), can it provide the kind of returns to make Chris Sacca happy? Maybe, but is that what we really want?
Later in the the last podcast, Sacca uses Travis Kalanick, the founder and CEO of Uber as the bar to which all other entrepreneurs should try to follow. Over the holidays Travis joins Sacca ( not even his family wanted Travis at their holiday gathering apparently) at his parents house, where they partake in a Wii tennis game. Travis destroys Sacca’s father because as it turns out Travis is actually one of the best Wii tennis players in the world. Sacca is telling Alex this story with exuberance and admiration for Travis. He’s a weirdo, Sacca says, and that is what makes a great entrepreneur who is going to grow a gigantic company. Nothing will get in his way.
While Kanye West was making his 2010 song, Runaway, Pusha T rapped his verse in the character of a big douchebag, but Kanye West stopped the tape to yell at him, thinking he wasn’t going far enough. “More douchebag, more douche bag!” So he finishes his stanza with, “I’m just young, rich, and tasteless” Perfect. It seems like that is what the Venture Capital investor wants, just replace douchebag with ‘weird’.
This is who we are supposed to emulate as the standard for entrepreneurship in country? Someone who has no family or kin that will invite him for the holidays, has a staff that intimidates female reporters and countless other shady stories?
Uber disrupted an industry that needed some shaking but it’s definitely easier to grow when you steer far from all the government regulations and taxes that other businesses have to pay. It’s not free enterprise when you can avoid expenses that your competitors have to pay. First, level the playing field, and then show that you can grow, but as Travis continues to be lauded for barreling through his way to a $40 billion evaluation, Sacca and others want to invest in other unicorns like this, but is this really what our country, let alone world needs to make the world a better place? If it’s just the blind pursuit of profit, that’s fine, and we should be honest about that, but when Sacca and Travis get the platform to discuss their ‘world changing’ ideas, we are propping up the wrong things.
Sacca and other VC’s looks down on lifestyle businesses. I spent three months in a business accelerator in San Francisco in 2012, and heard the same thing over and over. We were constantly asked if we just want to be a lifestyle business or a global brand? Just wanting to prolong our runway for staying business, we nodded enthusiasticly. “Yes, we want be as big as EVER. (Whatever you want us to say)” We said. But we were doing all the wrong things. We spent all of our time asking for money from wealthy people far removed from the daily grind of online marketing, and production. We should have been learning more from our customers about what they wanted, and creating a streamlined process for pumping out t-shirt blankets. We were really a logistics business having to manage people sending us their shirts and then shippping out a quilt without losing any of the shirts- like a glorified laundry service, but our heads were so far up the Silicon Valley clouds of Series A raises of over a million on a simple deck, that we lost our way. Once we left, and went with groupon, got customers from the midwest and the rest of the country outside northern California, we started thinking straight again.
This is the world in which Alex tried to start his business. The thinking was- if I have an idea, instead of working really hard to build the product and find customers willing to pay, I need to go to investors that want 10–15x return, and ofcourse want good quality podcasts, but they care more about users and listeners. What’s wrong with 2–3x return? The VC model will pass on solid businesses with potential to grow at a reasonable rate, but are more likely succeed over failing 9x time to find the unicorn on the tenth time. Alex gets swept up in this train of thought, and so do the rest of us.
The real question, which I did not hear on the podcast, is this the type of company that should be taking VC money, and even if it is, should it be taking it now? To prod further, did Alex and his team just take the VC money because that is what everyone said he needed to do?
It’s quite a rush when someone says that your idea, something you whipped up over kitchen tables and lots of slow drip coffees, should go out and raise a million dollars on. We were swept up with this as well.
We went through all the motions of raising money. We spent too much time on our pitch deck and talking to potential investors, and fine-tuning our pitch for pitch day, only to find that nobody wanted to give two boys without retail experience a million bucks to upcycle clothes. Who knew?
Obviously, Alex is a much better bet to start a big media company than we were on starting a company that would last more than a year, but what if Alex had tried to bootstrap his business by doing a kickstarter for his podcast instead of talking to investors? He could even have sold a t-shirt, a small book on the highlights of his podcast career, posters,etc. Kickstarter along with solid journalism proved to be a great model for Planet Money- why wouldn’t it work for launching Gimlet Media?
It may have made for some more interesting podcasts, but now he has Sacca breathing down his neck. He could have worked to secure more sponsors, sell other products, and build his staff slower, instead of going for the juggular. While slow growth is looked down upon in the startup worlds of San Fran, NYC and Boston, most people would be happy building a business that makes a million dollars, and the founder has the opportunity to spend time with his or her family and can even go on vacation!
It also becomes a question of what kind of company does Alex and his team want to run. They are the media experts, but once they start asking for money from people who have helped build gigantic businesses, it may not be the best advice for building a fundamentally sound, introspective and innovative media company. One of the reasons for starting slow and small is to make some more deliberate choices about their content and kind of growth. Without proving out a business model, Gimlet has to not only figure out what kind of media it wants to produce, but also how to continue to please very wealthy people who may not be the best people to be that close to a new kind of media business.
Right now, in 2015, I’m definitely running a lifestyle business, but we also are one of the fastest growing consumer goods businesses in the country. I get to read, and write long posts like this (lucky you), but along with my business partner, we have the time to think strategically about how we want to grow our business, but also take time to sleep, exercise and even take vacations. Is that so bad?
Yes, we don’t get in techcrunch for raising our Series A, but I don’t know another consumer good business that has grown has fast as we have in Boston. We don’t have people like Sacca getting angry at us for making money, and we don’t feel pressure to move our production to places with cheaper labor to please investors. We still want to grow much bigger, but on our own terms. It’s a lifestyle business, and that’s fine for us.
At the end of 2014, in the back of Bloomberg Businesweek was an article by Kurt Soller. He wrote about a company called Griz Coat. They make a bear coat.
Yes, a bear coat. We were featured in 2012 in Fast Company together as one of the top new shopify.com stores, but I quickly forgot about this company. How could I? Well now, they are doing quite well, but they run their business very similar to the way we operate at Project Repat. Sollar explains:
Karl and Hans are able to run their enterprise — Buffoonery Factory is its official name — as the only two employees. The entire Griz Coat operation is outsourced to more than 100 vendors: Twenty of them offer physical goods to build the product, and the rest provide automated accounting, payment processing, and other back-end services. The only tasks the brothers don’t outsource are content creation, social media, and customer service.
There’s a new model for lifestyle business, and it is more efficient than ever, and it doesn’t fall into a simple box that a VC understands.
Bostinno (Boston’s version of techcrunch) which constantly covers start-up Series A, but has very few articles on revenue, wrote an article recently about four tech companies who do not want VC money. The CEO of BuySellAds seems to understand how VC’s can steer companies away from what they should really be focusing on— customer satisfaction and market fit:
“Sacrificing customer service and satisfaction for growth to meet VC demands is not in our DNA,” CEO Todd Garland told me in an email. “Of course, we always consider opportunities and our options, but we’re profitable … It’s due to our philosophy of building a customer centered business for the long-term.”
It’s fun to tell people that you raised all this money, but now you are just in debt to rich people who now can give you advice whenever they want. Is that what you want? Not me. I’ll go back to running my fast growing lifestyle business.