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Becoming an Entrepreneur Through Acquisition

Buying

If you want to become an entrepreneur but don't know where to start, don't fret- you are not alone. Most people associate being an entrepreneur with starting a business from scratch. Starting from scratch, however, presents a wide range of risks.

What is Entrepreneurship Through Acquisition?

Entrepreneurship through acquisition (ETA) is a term used to describe the process of buying an existing business, taking it over, and running it as CEO. This method of becoming a CEO is profoundly different from the startup grind and/or climbing the corporate ladder as an employee within a company. ETA allows you, the entrepreneur, to become CEO and owner of an existing business immediately.

In the coming years, predominantly due to the impending retirement of the baby boomer generation, millions of private businesses will be up for sale and go through an ownership transition. In fact, more than $10 trillion in baby boomer-owned business assets will be pased down or sold by 2025.  Surprisingly, about 75% of private business owners do not have an exit plan in place. The opportunity, therefore, is massive and the time is now to take control of your professional life and become an entrepreneur through acquisition.

Related: Entrepreneurship: No Experience Necessary

What Sort of Business Should I Buy?

One common misconception is that investing in private companies means you’re putting your money into a smaller pool. That is simply not the case. In fact, private businesses employ as many people in the U.S. as public companies.

For ETAs with prior experience in a management role, it is common to target businesses in the EBITDA range of $750K-$2M. The reason being is that most firms smaller than this won't really allow you to exercise higher level leadership and management skills to the same extent. Conversely, anything a lot bigger will generally perk the ears of private equity groups- which can ultimately price the business out of reach.

Why Should I Buy a Private Business?

Buying a business that is already running means that it is revenue positive on day one! No heavy start up costs, no customer list building, etc. Just operate and grow. This method is so very much under-appreciated, but yet some people have seen the opportunity and jumped on it.

There are many businesses for sale today that have stood the test of time, while delivering consistent returns to their stakeholders- quite often yielding a return on investment in excess of 25% per annum. When comparing this sort of return to bonds, public markets, real estate, etc. you can see how fruitful a quality private business can be. 

Outside of the obvious financial rewards, becoming an ETA can provide various intrinsic rewards as well. See below for a list of some of the many ways ETAs differ from the general workforce:
  • ETAs aren't forced to work within the policies of upper management.
  • ETAs decide the value of their time.
  • An ETA’s performance is determined by their customers, not a manager.
  • ETAs have a choice in who they work with.
  • ETAs are not held to a strict nine-five regiment.
 
Related: Buying a Business Over Starting From Scratch
 
 

What About My Lack of Experience?

Real world business decisions can be a lot different from a textbook or a case study. However, it is important to note that all business owners were first time owners at some point.

Much of the business’s functions: how to sell, how to be present, how to manage people, etc., can be learned through taking that leap, being a sponge, and learning all you can about the business. In addition, the vast majority of private business transactions are structured in a way where the seller will stay on board for a set period of time (generally 3-6 months minimum) to aid in the transition process. This is a time where the ETA will take a deep dive and learn the current processes, understand the company’s positioning, and be introduced to the various stakeholders. Sometimes, the seller may actually fill a part-time advisory role well past the initial transitioning period.    

The Decision

Becoming an ETA is not for everyone. Making the decision truly comes down to what you value. If you enjoy the consistency and reliability that comes with receiving a paycheck every two weeks, then becoming an ETA probably isn’t for you. If you don’t like situations where there is no ‘right decision’ and no direction, then becoming an ETA probably isn’t for you. If you value attaching a known brand to your professional role- ex: “I work at Google”, then becoming an ETA probably isn’t for you.

On the other hand, if you desire professional independence, enjoy calling the shots, and are attracted to directly tying your work to the success of a company, then you should really consider becoming an ETA. Thousands of acquisition opportunities come to market each year and making said purchase can be one of the best decisions you make in your professional life.