There's no need to wait for a $100 million dollar exit to do this. If you have a lifestyle business (say, a web design company, or an online agency) that throws off enough cash, you can set up a team of hackers and UI people and start throwing stuff at the wall.
In fact, if they are truly free to be creative, yet have some constraints in terms of time and money, its likely to work better.
Can I just say that I despise the phrase lifestyle business? I know what you mean by using it, but wouldn't it be more accurate to describe a project that didn't take VC and has paying customers as simply a business? I would suggest that not aiming for a Google or Facebook acquisition (or big IPO) actually allows that kind of experimentation.
As I said above, I understood what you meant. I just find the phrase slightly damning--and indicative of a problem in this space. I see a trend in commentary on tech blogs and conferences that imply that as a developer, either you're creating the next Google or Facebook acquisition, or you've traded the big payout for a "lifestyle business" that is probably turning a profit and carrying no debt, with no hybrid examples in the vast middle. It's a bit like saying, "Poor Joe Startup, he has a nice lifestyle business there, but it'll never be Twitter, Foursquare, or Path.com." Personally, I'd love to have those problems.
To me, "lifestyle business" does represent a certain subset of businesses, but tends to be used, as you said, for any company that is not raising money to go for the big exit.
In my opinion, "lifestyle business" implies that the business is done to generate cash in a regular manner with little input. The business itself doesn't matter so much in the end and the main goal is to sustain the revenues rather than necessarily expanding the business. This is exactly what "The 4-hour Work Week" is talking about. Real-estate investments can be like this as well.
On the other hand, you have bootstrapped businesses like 37signals, GitHub or plain web/design agencies which tend to be wrongly lumped into this category. If these were lifestyle businesses, then any store owner, plumber, contractor would have a lifestyle business as well.
On an unrelated note, it seems very premature to put Path.com in the same category as Twitter and Facebook.
I agree, it's unfortunate when 'lifestyle business' is used in a derogatory manner. I'd rather just take the term back, like "monkeypatching." Words can mean good things in one crowd, and bad things in another.
Your problem isn't with the phrase then: it's the connotation. That problem would not be solved by not calling stuff as-it-is, mostly because the root cause is journalism -from their point of view, you're either next Facebook (and thus, story-worthy), or nobody.
Let me suggest a viable alternative, that would actually solve your problem: be more selective about the kind of infosources you're letting yourself influenced by, OR be more cognant about the fact, that you're letting yourself influenced by writings of underpaid philosophy-grads. More generally: ask the question "how do I know what I think I know" a bit more often. Or just take the red pill, and dig into techcrunch archives, say, 3 years back, and compare with reality. All of these can work wonders for your perception.
In fact, if they are truly free to be creative, yet have some constraints in terms of time and money, its likely to work better.