Entrepreneurship Through Acquisition

When the vast majority of people hear the word “entrepreneur” they think of a person that had an idea and set off to build a company from scratch. Building something from nothing is daunting to many people and the fear of failure and the unknown represent a large barrier that prevents many would be entrepreneurs from taking the leap into owning their own businesses. One option for those would be entrepreneurs that are a bit more risk adverse is to take the route of entrepreneurship through acquisition. Entrepreneurship through acquisition is, in its simplest form, just buying a business that is already operating.

I first heard of entrepreneurship through acquisition via a flyer from the Carlson School of Management at the University of Minnesota regarding an upcoming conference that was being held on the topic. As a business attorney that does legal work for acquisitions, I had not come across a deal where a “new entrepreneur” that had never run or owned a business before was buying a business; I wanted to learn more, so I attended the conference last fall. I quickly learned that there is an entire ecosystem in the Twin Cities area where would be entrepreneurs who do not have the time, resources, or new ideas to start a company from scratch can learn how to go about buying an already successful company.

I was surprised to learn that some of the entrepreneurs speaking at the conference had quite literally never owned or operated a business and ended up buying businesses that did things they had absolutely no experience doing. While some of the entrepreneurs had worked for large corporations and had some expertise to operate a business in a way that could help the business gain efficiencies, others had little to no management or operational experience and relied solely on their desire to be their own bosses. At first, I was a bit shocked that someone would choose to buy a business that they did not know the first thing about running, but it occurred to me that people who start a business from scratch are often doing the exact same thing. Typical first-time entrepreneurs generally do not know how to run a business and are figuring it out as they go along. The key difference with entrepreneurship through acquisition is that someone has already tested the business model, and the buyer can look at the past financials and other results before making the leap into entrepreneurship.

While entrepreneurship through acquisition can allow a would be entrepreneur to forego most of the initial business startup issues, buying an operating business still requires professional accounting, tax, and legal advice and it also has its own set of unique challenges. For starters, in order to buy an operating business, an entrepreneur will likely need a much larger upfront investment and a strategy for ensuring that once they have purchased the business, they are able to increase its value. In terms of financing of the upfront investment, there are local bankers in the Twin Cities metro area that specialize in helping new entrepreneurs navigate financing options such as the Small Business Administration loans that can be used in conjunction with personal funds or investments from angel investors. Having a solid strategy for ongoing success of the business may be a bit more difficult, especially in cases where the entrepreneur has no experience in the type of business they are purchasing. One of the continuing themes of the conference I attended was that entrepreneurs looking to do entrepreneurship through acquisition should seek out others who have gone through the process before to learn best practices. Some of the entrepreneur speakers at the conference had built a strong network of trusted advisors and sounding boards during their first business acquisition and had then gone on to be serial entrepreneurs buying and selling multiple businesses.

For anyone interested in learning more about entrepreneurship through acquisition, I would suggest reaching out to members of the Gary S. Holmes Centre for Entrepreneurship at the Carlson School as they can get you connected with various resources to help you to determine whether entrepreneurship through acquisition may be the right path for you.