Being an entrepreneur doesn’t necessarily mean taking a unique idea and starting a business from the ground up. Those who don’t experience a sudden moment of insight (which then leads to their own startup) can still experience all the challenges and rewards that come with being an entrepreneur.
Through the practice of acquisition entrepreneurship (AE), also referred to as entrepreneurship through acquisition (ETA), an interested party can buy someone else’s startup company and run the business. This practice is becoming increasingly more common in the U.S: 2016 saw a record number of total small business transactions, an increase of 8.6 percent, from the previous year.
Becoming a successful entrepreneur through acquisition involves a lot of moving parts. In order to turn the transaction into a successful career path, it is important to assess all the advantages and disadvantages that go along with acquiring a company, and to thoroughly examine the company’s profile in order to identify on potential red flags. Determining the point in a career path in which AE makes the most sense is critical too.
As a result, a recent college graduate might experience this form of entrepreneurship differently than someone established in their career.
A closer look at acquisition entrepreneurship
Making a career choice, whether straight out of college or years down the road, can be stressful. Not every opportunity that presents itself makes sense financially or logistically. As with any career choice, AE comes with various advantages and disadvantages that are important to note before making a move.
A major benefit acquisition entrepreneurs enjoy is the ability to avoid sifting through specific areas in any given market that need improvement or in which something is missing. In other words, they are not in charge of developing an idea and turning it into a business. They can also avoid writing out potential business plans that require endless editing before getting it right or developing a prototype that involves lengthy, complicated procedures before it is ready for the masses.
Acquisition entrepreneurs can step into a business that has already gone through the seed and development phase, as well as the startup phase, and enter at a time when the business is ready for growth and establishment. Additionally, time is on the side of this type of entrepreneur. The late nights and weekends that were a reality in the company’s early stages are a thing of the past.
Owning a company can be an incredibly rewarding endeavor. However, the responsibility comes with a tremendous amount of pressure. Once someone acquires a business, they face similar disadvantages as most other business owners. Major decisions often need to be made that could have a harsh impact on the company or on employees. Owners of companies find themselves second-guessing whether or not they made the right choices during times of crisis.
The original person (or people) who envisioned the company started it because they likely had a deep passion for it. A potential challenge of AE is that the buyer might not share the same level of passion, which can cause difficult times to be especially hard. Possibly the biggest disadvantage of acquiring a company is the reality that mistakes and financial losses are inevitable and will hit much harder as the owner of a company than it would have as an employee in a large corporation.
Gearing up for success
In order to make AE a successful career move for a potential buyers, professors at Harvard Business School recommend committing to a search for a period of six months to two years. Raising the funds needed for acquisition and identifying potential acquisition prospects are two components that take a significant amount of time. According to these experts, narrowing down acquisition prospects can be done using five criteria:
- Is the business profitable?
- Is the business established?
- Are revenues and cash flows desirable?
- Are the managing skills in the buyer’s wheelhouse?
- Does the business support the buyer’s lifestyle?
AE might sound like a tempting career move for a recent college graduate, especially with a competitive job market ahead of them, but it might make sense for someone more established in their career to tackle the venture. Let’s explore how shifts in focus at business schools are changing the typical career path for college graduates.
Paradigm shifts in business education
Top business schools such as Harvard Business School and Columbia Business School are preparing students for the possibility of buying a small business after graduation by offering comprehensive courses. These classes cover a wide range of topics, from negotiations on acquisitions to debt financing and equity investments.
It seems that such courses are making an impression on students. Over the past decade, more and more MBA students have sought to acquire businesses immediately following graduation, rather than going into consulting, the traditional career path for new MBA grads. Given that entrepreneurship seems to be on the rise, increasing dramatically after drastic lows in 2014, it’s safe to say that this trend towards AE will only continue to increase in the years to come.
It’s true that there have been questions as to whether a recent college graduate has enough real life experience and business management skills to successfully buy and run a company. As a result, business schools are offering courses on this very topic as a way to expand students’ conventional post-graduate possibilities and truly prepare them for this career path.