One of my previous companies build up to about $10MM/year in revenue without any external investment at all. The only problem is that it wasn't very sustainable because we weren't able to inject the capital needed to grow much more than that. At that point, all of our revenue was getting funneled back into just running the company. Unfortunately, our growth model was founded on constant growth and so we had to scale back eventually.
Another company I co-founded was much more along the lines of your typical lifestyle company. We were self-sustaining at around $1.75MM/year. It wasn't a huge company, but that was ok. It was fun.
In both cases, we started with a very small contract with one customer and slowly built on that.
Another option that I've seen executed rather successfully is to begin your software as an open source project and slowly build the momentum around that project. If it's an interesting project, you should be able to recruit some smart developers to donate some time. If you are able to eventually parlay that project into a larger company, you will already have a pool of potential employees to tap and hopefully some customers who might be ready to sign up for more services or premium modules.
I think its unfortunate that the term "lifestyle company" has gotten a bad name in certain circles. There are a ton of positives for companies like this.
Let me know what you decide to do. I'm very curious about successful lifestyle companies.