LAJ ARTICLES

Cupcake disruption and the lifestyle business

cupcake disruption 57

I like cupcakes. I don’t eat a lot of them because I try to adhere to my diet, but I do like them. Several blocks away from our apartment is a cupcake dispensing ATM, a digestable currency.
I have lived in New York City all my life, although I have had homes and apartments everywhere, NYC has always been my headquarters. Just like every other New Yorker, I am a tourist. When I see a cupcake ATM I gawk and I take pictures, I want to be part of the experience. I want to buy a cupcake, but I am not so eager to eat it. My reaction to the cupcake ATM is lots of left brain and a little of the right. It connects all the neurons in my brain.
People are buying cupcakes who otherwise would not. ((the ‘non’ cupcake eaters who will pay the premium)
People, tourists and residents, are posing with the machine because it is part of their NYC experience. (The will pay more because it is there edible postcard)
Consumers will forever have association to the brand. (thats lots of legacy love)
It is operating leverage, selling cupcakes during, and after, store hours with no employee intervention required
It is a nice aesthetic, it stands out and also blends in. (the store is photogenic)
In the past few years people have become transfixed by the headlines of tech and venture capital tabloids. But, the velocity of capital may be hitting the off ramp, particularly for earlier stage start ups. I expect one of the trends we will see going a mile wide and a mile deep in 2016 is recapitalization, down rounds and cashing out VC firms. Owner equity is destroyed.
I have been an investor through many generations of venture capital and I have seen the iterations of wins and losses.
Lifestyle business haa gotten a bad rap lately as venture funded businesses have gotten an excessively good rap, perhaps this is because there is no precise agreed upon description of what ‘it’ is. I believe ‘lifestyle’ businesses are the more reliable wealth creators.
Here is what I think are the essential ingredients of a lifestyle business
A company with closely held shares in friendly hands
A company that tries to preserve its first generation of management
This description can fit a technology company, a restaurant or even public companies. I have seen them all.
If you have a good operating business. If you have levers and can run lean, a lifestyle business might be the way to go.
You will be cashing checks, maybe not big ones, but regular ones that buy homes, good schools and vacations. You’ll have the time, patience and pain tolerance to construct operational excellence. That takes years and no amount of venture capital can expedite solving the mysteries of trial and error.
The cupcake ATM made my business senses tingle and I thought of a post that I often refer to, written by Hunter Walk. Hunter sees a lot of deal flow  and across many industries. He also seems to have a regimented and intuitive sense of what appeals to his funds risk appetite. His post is here You’re Either Venture-Backed or a Lifestyle Business: The Big Lie
Good luck

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