Why Starting Your Own Business from Scratch Might Be a Bad Idea

Business.com / Strategy / Last Modified: February 22, 2017

A viable alternative to the startup grind, according to Microsoft and Harvard Professors.

According to the Washington Post, "about 50 percent (of businesses) survive four or five years." And the other half fail.

As you can see, the odds aren’t so great. That means half of everyone reading this will not survive four or five years in business.

But what if there was an alternative? A way to pick up an existing business that was already “over the hump” and a proven success?

That Alternative Is Called Entrepreneurship Through Acquisition

The concept is simple; you buy an existing business that you believe you can accelerate further as an established business rather than starting something brand new.

I reached out to Nunzio Presta, founder of BizON (a marketplace for buying and selling businesses and franchises) to get some insight on this topic. When you are buying an existing business, you are in control of finding something that suits your lifestyle, according to Nunzio.

Related Article:Are You a Gambler? You Might be a Perfect Entrepreneur

Are You an Entrepreneur That Loves to Travel? Do You Like the Idea of Owning a Local Business?

The great part of entrepreneurship through acquisition is that you can buy a business that suits your lifestyle, rather than trying to build your lifestyle around a business that you may not love.

On top of owning a new business that you love, and that works for your lifestyle, you can also make a lot of money, even with a business loan. Just calculate the annual cost of your loan (with interest) and as long as the business is still profitable with that loan cost calculated in, you are going to be one happy camper.

Harvard Professor Royce Yudkoff Also Recommends That All Entrepreneurs Should Buy a Business

"You can buy an existing business, right now, and run it as CEO. We call this entrepreneurship through acquisition, and we’ve been studying it with our students at the Harvard Business School." -Royce Yudkoff

Royce and Nunzio are not alone. Microsoft also agrees.

"Jeff and I both believe we have a significant opportunity to accelerate LinkedIn's growth and the value it brings to its members with Microsoft's assets and scale.” -Satya Nadella, Microsoft CEO

Related Article:Part of the Job: 7 Skills All Entrepreneurs Must Master

Microsoft’s Recent Acquisition of LinkedIn Is a Perfect Example of Entrepreneurship Through Acquisition

Microsoft has a ridiculous amount of cash and resources. If they wanted to build something from scratch, they certainly could. But they believed that instead of starting something new, acquiring an existing business would be a better fit for their corporate goals and vision.

LinkedIn is a unicorn in its category and starting a competitor from scratch may not have unfolded the same, even with all of Microsoft’s cash and resources.

Plus, by starting something from scratch, they would have had a much slower and more difficult path with no guarantees. They may have fallen into that 50 percent failure category.

Microsoft was essentially able to mitigate the risk of starting from scratch, by acquiring LinkedIn. Microsoft obviously did this on a very grand scale, but the same principles and reasoning could apply on any scale.

What if You Don’t Have the Cash to Buy a Business?

It turns out that not everyone has access to the kind of cash that Microsoft does. Fortunately, the average business is sold for $333,333. That is less than the average price of a house in Los Angeles.

Nunzio Presta points out that there are several ways to get access to capital, without giving up your first born.

One idea is to get a traditional bank loan. Since you will have actual financials and a proven business model to show, the rates should not be that high. It is not as if you are taking the loan for a startup that may or may not work. Hopefully, you have done your due diligence, and you are investing in a "sure thing" that is proven.

Friends and family are also a great way to get access to cash. Hopefully, they would also be willing to take a smaller percentage than a venture capitalist would.

Lastly, you could always go to an angel investor or angel group. These non-VC individuals or groups typically invest in particular categories of investments. It is best to find angels that specifically invest in your desired business category.

Related Article:Well-Rounded Leadership: The Nature and Nurture of Female Entrepreneurs

Buying a Business May Not Be for Everyone

While I believe there are many reasons to acquire a business, it’s certainly not for everyone. Personality and lifestyle play a big factor in which route you take. What might be a great idea for one entrepreneur might be disastrous for someone else.

I have started most of my businesses from scratch but also acquired a handful of companies. I like both sides of it. It is valuable to employ both methods to be the most well-rounded entrepreneur that you can be.

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