Entrepreneurship by Acquisition is becoming an increasingly popular business strategy. Instead of starting a business from scratch, entrepreneurs are now looking to buy existing businesses as a way to enter the market. This approach is often called ‘Entrepreneurship by Acquisition,’ and it may be the smartest business decision you ever make.
What is Entrepreneurship by Acquisition?
Entrepreneurship by Acquisition is the process of buying an existing business, often with a successful track record, instead of starting a new venture. This approach can significantly reduce the risks associated with starting a business from scratch. In many cases, the new owner will inherit a well-established customer base and operating systems, which means they don’t have to start everything from scratch.
Why is it a Smart Move?
Entrepreneurship by Acquisition has several advantages over starting a business from scratch. Firstly, it gives the entrepreneur a much higher chance of succeeding. According to one study, around 30% of start-ups fail within the first two years. In contrast, the failure rate for acquired businesses is much lower. Secondly, it is much easier to secure funding for an acquisition than for a new business. Banks are much more likely to lend money to a new owner who has a proven track record than to someone starting from nothing.
How to Identify the Right Acquisition Target?
Identifying the right acquisition target is crucial to the success of the process. The ideal target is a business that is either struggling to grow or being neglected by its current owner. This can create an opportunity for the new owner to implement new marketing and management strategies to help turn the business around. The ideal target should have a strong balance sheet, good cash flow, and offer suitable synergy with the existing business of the entrepreneur.
Case Studies
One of the most famous examples of Entrepreneurship by Acquisition is Warren Buffet’s purchase of Berkshire Hathaway. When Buffet bought the company, it was a failing textile manufacturer. However, he saw an opportunity to transform it into a holding company for his other investments. Today, it is one of the largest companies in the world.
Another example is the acquisition of Skype by eBay. eBay recognized the huge potential of video communication, and the acquisition of Skype allowed them to enter this market. The acquisition was a success, and eBay later sold Skype for a profit of $1.9 billion.
Conclusion
Entrepreneurship by Acquisition is an excellent way for entrepreneurs to minimize risks while still having the opportunity to reap the rewards of owning a successful business. It reduces the upfront costs of starting a business from scratch and allows the entrepreneur to gain control over an established business with a proven track record. With careful planning, research, and execution, Entrepreneurship by Acquisition may indeed be the smartest business decision you ever make.
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