Why Start-Up when you can Acquire a Business?

The successful start-up entrepreneur has been glamorized in the media through reality shows like Shark Tank and wide spread accounts of people that have become fabulously wealthy growing a business that started with a kernel of an idea. However it’s no secret that the rate of start-up failure is notoriously high, according to the bureau of labor statistics about 50% fail within the first five years. With odds like that it is no surprise that start-up entrepreneurship has become synonymous with the young and the wealthy that can afford to lose their shirts.

For the rest of us that are attracted to the autonomy, flexibility and wealth-creation potential of business ownership there is a less risky alternative called “acquisition entrepreneurship”.  There are significant advantages to purchasing a going concern business over starting one:

Instant impact

Rather than toiling away on business plans, capital raises and prototypes, when you acquire a company, you can immediately focus on running, improving and building the business. The sellers have already done the hard part to get the business off the ground. They’ve built the infrastructure, developed policy and procedures, forged relationships with suppliers and most importantly they attracted customers. Achieving and maintaining this momentum is incredibly valuable to the long term success of a company.

Avoid the “ramen phase”

Start-ups can take years to turn a profit. Entrepreneurs are unlikely to be compensated during this formative stage. In contrast, the purchase of an existing business is typically structured so the buyers can a) cover debt service on a loan, b) pay themselves a salary and c) have some additional funds to grow the business.

Choose your job

As a start-up entrepreneur you’ll likely have the dubious honor of being the CEO, salesperson, operations manager, bookkeeper and janitor. You’ll wear all of the hats because you’ll have to. While juggling all of these responsibilities can be exciting, it can also be taxing. If you buy a business you’ll have a chance to choose one where your skills are needed and if you’re lucky there will be employees already working in the business that can do the things that you are not good at.

If you are ready to be your own boss but don’t have a world-changing disruptive idea or aren’t ready to risk your last clean t-shirt on a start-up, acquisition entrepreneurship could be a better path for you.

Books and online resources:

https://store.nolo.com/products/the-complete-guide-to-buying-a-business-buybu.html
https://www.amazon.com/Buying-Selling-Business-Step-Step/dp/0471657026
https://hbr.org/product/hbr-guide-to-buying-a-small-business/10090-PBK-ENG
https://www.sba.gov/tools/sba-learning-center/training/buying-business

If you’d like to hire a professional to help with the process of acquiring a California business, please contact M&A Advisor Adam Wiskind at (707) 781 8744 or awiskind@existrategiesgroup.com.