Feb
07

Would you advise someone to buy an existing business or start a concept from scratch?

Author // merav
Posted in // Uncategorized

This is a deeply individual issue. Are you interested in this or committed to it? If you aren’t committed don’t do either. Businesses are easier to start and buy than they are to unstart or unbuy. The upside is great, but so is the downside.

  1. What are your objectives? Why are you doing this; to pursue a passion, a vision, an idea, money, self-reliance, needs, or all of the above? Do you have a clue what you are getting yourself into?
  2. There are huge differences between writing checks, using other people’s money, buyouts and bootstrapping a business. You need to be clear about this.
  3. Do you know how to do, manage and lead either of these? Entrepreneurs are often their own worst enemies – armed with ideas and passion way over their skis heading straight for a cliff with others along for the ride.
  4. Do you have the passion, values, skills, experience, resources and knowledge to follow either of these paths? Otherwise, get a job, or get prepared for sleepless nights and other consequences.
  5. What are you willing to risk? Don’t start whining when the going gets rough later. You start it, you deal with it. You buy it, you own it. You will need twice as much money and twice as much time as you think. The rewards can be huge but so can the risk. You need the right attitude.

There is an old saying “it’s not the deal I didn’t do that kept me up at night”. Whether investing, buying a business or starting up.

Buying a business: You must decide where, what and how you are going to buy – Is it an asset purchase, a franchise, a corporate purchase, a leveraged buyout, a management buyout? The pros: You get a business that is seasoned or pre-packaged, has probably gone through its startup pains, and has infrastructure, people and assets in place to work with. Cons: You get potential liabilities, and lots of instant complexity and people, often dependent upon past leadership/culture. In a sale, the seller is selling for a reason. Why? Success can also depend on price and structure – the art of the deal. Always be prepared to walk away. A franchise can be a great option; a business in a box –or it can be a box of rocks. A friend bought an apparently thriving extermination business – too good to pass up, despite advice against it. When the route manager suddenly quit he had to run the route himself. His clients didn’t want extermination services when he arrived, they wanted marijuana. It turned out the route was a drug dealing route. The route manager had been a drug dealer. The business dried up overnight. It was fun when the money was rolling in. Then it was a nightmare.

Starting a business: As Wharton MBA’s over 20 years ago, a partner and I wrote a plan, mortgaged our houses and raised a million dollars for our start-up. As far as I know, we were that year’s only graduates who actually started a business. It speaks volumes about starting businesses. As an entrepreneur and business advisor, I later lectured at Wharton and my favorite lecture was on business planning and entrepreneurship. I had the entire class stand up, and then asked anyone to sit down who couldn’t answer my questions including: who’s ready to mortgage their house, to lose it all, to go bankrupt, to borrow from their friends and family, to get divorced, to lose friends, to be sued, to make payroll yourself, to fire people on a day’s notice, to be stolen from and cheated, or to lose their company to someone else…. almost everyone sat down. I asked the last questions: who can write a business plan, and who has a good idea. Few were left standing. But I picked them up and we had fun. Nonetheless, starting a business requires a host of personal attributes, skills, experience, due diligence, planning, money, risk and just plain luck.

Entrepreneurship is not uniform. This decision needs to suit the individual, the circumstances and the business opportunity. If you have what it takes, it’s worth the ride.

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