A recent article asks whether apps are just a feature, or if they are a business. Should individual creators or very small teams try to make a decent living from an app (a “lifestyle business”) or should they raise venture capital and expand (a “startup”). The article cites Buffer, an app for scheduling tweets (sigh), as an example of a business transitioning from the former to the latter model.

MetaFilter founder Matt Haughey offers an interesting response, one that runs counter to the usual Silicon Valley disdain of anyone who doesn’t match their worldview:

“I’m OK with this lifestyle business. It’s a put-down for a lot of people, especially in Silicon Valley. I think it’s the best thing in the world. You don’t have to kill yourself. I’ve been at startups where we worked 16 hours a day and didn’t get anything out of it. It’s stupid. Geeks who know how to program and make things should be able to make a small thing that runs forever and make $100,000 a year and live off that. I mean, what is wrong with that? It’s an awesome goal.

…It’s like nobody sings unless they want to be Britney Spears. That’s stupid—we should all sing in bars three nights a week if we like it and get paid as professional musicians. Who says you have to be a superstar? I hate the whole ‘rock-star programmer’ thing where you have to make the next Facebook.”

This sounds lovely, doesn’t it? I’m all for opposing the VC folly, and The problem is, singing in bars three nights a week is a hobby, not a business. That’s not an insult to amateur singer/songwriters, but it does show where the analogy breaks down: a business, even a “lifestyle business” has to be sustainable for its owners. It can’t be a thing done just for pleasure—not if it’s meant to be a real business providing a primary income.

We used to have a name for those kinds of organizations: “small businesses.” Small businesses serve modest numbers of customers with specific products and services, enough to support their owners and in some cases a small group of employees. There’s an old joke: “What’s the difference between a startup and a small business? A small business makes money.”

The name “lifestyle business” has always been a derogatory one, used by proponents of investment to recast small business as indulgence. After all, plenty of small business owners work just as hard as the startup employees Haughney mentions. Yet, the implication is clear: “lifestyle businesses” are easy, quaint living, while startups are hard, real work.

The conflict is not one between working more and working less. It’s a choice of principles rather than effort. The problem is, one set of principles is making the other inviable.

Startup culture values high-leverage, high-risk, fast-burning value above all else. What you make is really incidental; all that matters is that it develop a perception of worth in the marketplace, which can be used to leverage further investment and eventually acquisition or a public stock offering.

By contrast, small business culture values stability—and to his credit, Haughney does point this out in his comments. There are lots of types of stability: the stability to work outside of corporate fealty, to spend time or even work with family, to pursue a passion without compromise, or to service a particular talent, to name just a few.

But there’s a problem with the whole discussion, at least when it comes to software, the subject of the article in question. Nowadays, the startup sector has made it nearly impossible to run a small business in technology anyway. There are lots of reasons for this, but the most obvious one is cost. Since startups care less about revenue than they do about value, they can give product away in order to build a user-base, which can then be used to provide evidence of value. Even if those “customers” aren’t paying revenue, they could always be “monetized” in one way or another. And of course some startups do make real money rather than speculative money, but they seem always to do so by giving everything away at first. And they can afford to do that because they’ve raised investment in the first place.

In a situation like this, the “small business” developers have no choice: they have to play the startup’s game. That doesn’t mean they have to take investment, mind you. Rather, it means that they have to work within the market conditions the startups have created. Most of the time, that means giving away products for free or nearly for free—in any case, at a price that can’t sustain the business. Since only a small percentage of users actually pay, one now needs a much larger customer base to achieve the same yield that might have previously been possible with a smaller one. For example, I was recently told that all the revenue in Facebook games comes from 1.7% of the players. Ad-supported apps and websites work the same way: only those with very large user-bases can make advertising sustainable at the level of a business. Without the capital and access to market to very large groups, the only way to succeed is through sheer dumb luck. In that sense, it’s just like becoming Britney Spears.

Here’s another aphorism about small businesses: “You can sell a thousand of anything.” It used to mean that it’s possible to run a sustainable business at small volume, since there’s a small market for everything. Nowadays, transaction costs and price points being what they are, selling a thousand units of software might net you $700. The more accurate slogan for our time might be, “You can’t give away 1,000,000 of anything.”

published August 6, 2011


  1. Mark N.

    I’m undecided on whether I’m collapsing an important distinction, but to me this is just a particular mechanism of economies of scale: any sector dominated by large players is hard to compete in as a small businessmen, because they change the market in ways that only large players can take advantage of. One mechanism is the one you point out: build large audiences that you can then profit from with advertising or upselling (though even that predates tech, being the main newspaper business model). But there are all sorts of others, like Amazon’s free shipping and supply-chain system, or Wal-Mart’s loss leaders, which make it basically impossible for a small businessman caught in a market with such players to charge enough money to get by.

  2. Ian Bogost

    Mark, you’re right, this happens in many sectors. I was just riffing off the article on apps/software in particular, since (a) I’d read that one just yesterday, and (b) there seems to be less discussion of this squeezing-out in high-tech… instead people tend to assume that things are better, *more* friendly toward individual and small creators. Which is a nice story for big organizations to tell while they steal everyone’s wallets.

  3. Mark N.

    Hmm, good point. Perhaps people (me included) focus on literal barriers to entry, so building Amazon’s inventory and shipping infrastructure is obviously really expensive, and it gets talked about a lot vis-a-vis indie bookstores, while starting a website or shipping an iPhone game has never been cheaper in terms of capital needs, so the implication is that the playing field is level. There do still seem to be more bootstrapped small-time businesses in tech than in many other areas, but perhaps the perception is over-optimistic.

  4. Ian Bogost

    I wonder if there really are more bootstrapped small-time businesses in tech. It certainly seems that way. But even if there are, how many of them are self-sustaining, or even close to it? I don’t know, but it’s an interesting question.

  5. Darius K.

    Most bootstrapped small-time businesses in tech that I know of are consulting companies, rather than companies that make products. Consulting companies find it pretty easy to self-sustain: if you can cover salary, that’s almost the entirety of your expenses.

  6. Ian Bogost

    But consulting is a death march, one that can never pursue passive income of any kind.

  7. Darius K.

    It’s only a death march if your consulting rates don’t increase steadily over time. Once you have plateaued on rates: yes, absolutely it is. And, thinking about it, your rates have to plateau somewhere, some time.

    I’m a fan of a hybrid model of both consulting and products. Sometimes the products are “apps” and sometimes they’re books or training seminars or other things like that. Bocoup, where I work, has found training and events to be good sources of scalable income. They’re not as scalable as software itself, but once you’ve developed and run a training seminar, you can give it again at little additional cost beyond the time it takes to update the material and physically teach the class.

  8. Olivier

    So capitalism is not a level playing field, I don’t see how this is anything new wrt startups vs individuals.

    Those with the most capital have always been able to push those with less out of their markets. The only difference now is that at least with computer networks, the small guys can at least sit at the table and give it a go. That was pretty much impossible in a world dominated by physical distribution.

    Therefore I would argue that the situation is actually better than it ever was…

  9. Ian Bogost

    Yeah, I think that’s the standard position Olivier, but I wonder… are the small guys better off at the table? Or were they better off when they could make a niche living that was really a living, rather than a pittance with a lottery-like bet at the big-time?

  10. Olivier

    By that you mean a time where many small guys could earn enough passive income to make a living? Did such a time ever exist?

    And if you’re not talking about passive income then I agree with Darius: it seems consulting is the modern equivalent of owning a small shop.

  11. Ian Bogost

    Olivier, I’ve been thinking about your question for a couple days. It’s a good one. Here’s my answer.

    Perhaps there was indeed never a time when as many people could take a swing at earning a passive income to make a living. But today, while many can do, very few can succeed at it. Whereas previously, while fewer might have attempted it, those who did at least did so in a market that had a chance of sustaining them. Today it really is a lottery.

  12. Packt Explorer

    You should take a look at this guy, who runs a successful niche software business and blogs about it openly: http://www.kalzumeus.com/

    The key is to choose a market that will never be big enough to interest start ups, and focus on building a technically very simple solution to their painful problems. You then have:

    – Low costs: your software is simple.

    – High price: you are solving a serious problem.

    – No free competition: your market is not big enough to interest VCs, and thus start ups

    Small businesses were always local businesses in the past, and niche is the new local.

    I don’t agree that consulting is like owning a small shop. The key to owning a small shop is that you OWN it and can go on holiday leaving low paid staff in charge, and still make money.