It's meant to be a business which adjusts to the lifestyle - so that the founder can live their life as they like (and oftentimes already do).
Those requiring extensive capital (for example: car manufacturing) are difficult to launch and sustain on a lifestyle basis; others such as small creative industries businesses are more practical for sole practitioners or small groups such as husband-and-wife teams.
However, lifestyle businesses can and do win awards and provide satisfaction to their owners and customers.
Often their founders create them to exercise personal talent or skills, achieve a flexible schedule, work with other family members, remain in a desired geographic area, or simply to express themselves.
An example of individuals who promote the concept of lifestyle businesses favorably include Tim Ferriss's The 4-Hour Workweek and other numerous blogs that emphasize the concept of passive income with the same goal of lifestyle businesses.