Acquisition entrepreneurship at its core
Acquisition entrepreneurship is, at its core, a way for a professional to become entrepreneurial by acquiring an existing business. I’ve seen this a lot with professionals that purchase a franchise business model as their first entry into entrepreneurship.
Purchasing an existing business has a lot of benefits. It also has some challenges.
The benefits include the fact that you are buying an existing business model. I compare this how adopting an older dog (we are considering this ourselves :]) allows you to skip the puppy stage. There is less training to do. When you purchase an existing business there is less of a need to create new policies and procedures in order to operate the business. Those should, note I said should, already be in place. You are also purchasing an existing customer base and hopefully some revenue that should come with that customer base. In the business has an established brand then you will also benefit from that fact.
There are certainly challenges that come with acquisition entrepreneurship. For example, if the previous owner was an integral part of the business it can be tough to replace them. I witnessed this with one business where I was the advisor to the seller. The person that bought the business was not as charismatic as the former owner and the business needed that type of personality. There is also the possibility that some percentage of existing customers will move their business when a new team takes over. In fact, you should count on losing some percentage of the portfolio of customers.
Then there is the fact that purchasing a business is costly. If you are going to need to finance the purchase through loans then you should count on anywhere between 10–25% of the purchase price to be from your own cash. If you intend to take on investors then that brings with it another level of complexity.
For more information on funding a business through debt or equity click here.
Is acquisition entrepreneurship right for you?
Whether or not this type of model is right for you depends on a lot of factors.
Running an existing business tends to take a different set of skill than that of launching a brand new business. That is we often see startup CEOs replaced by a new CEO who has more traditional managerial experience.
While running an existing business doesn’t take as much creativity there is room for some. Particularly if the existing business model has not been working or is not working as well as it should. New owners that are able to bring creative solutions to the model have the opportunity to improve upon the operations of the business and therefore produce more revenue.
Acquisition entrepreneurship may not be right for you if you plan to be an absentee owner. If you are purchasing the business only to turn it over to someone else to run, especially in the early days, then this model may not be right for you. That isn’t to say that you can’t plan on taking a step back in the future. Rather, it means that a business that has just been through a transition in ownership takes a certain level of attention. Many people that acquire existing businesses do so with the intent of improving upon it.
In the queue
Next up I will be talking about a popular career path for many entrepreneurs called an Entrepreneur In Residence, or EIR.