There is no easy path to owning, running, and exiting a business.
Seeing your efforts pay the kind of dividends that set you up for life is an attractive prospect. Beyond the income itself, entrepreneurship can be addictive – the thrill of a new challenge is what keeps serial entrepreneurs going.
But starting from scratch every time requires you to constantly come up with fresh, demonstrably successful ideas. It’s doable – but it’s exhausting, and the risks are great.
This is why an increasing number of business leaders are discovering entrepreneurship through acquisition as an alternative to starting afresh each time. It’s why I’ve found ETA to be the single most effective way to expand my portfolio with minimal risk.
Here’s how it works.
What is Entrepreneurship Through Acquisition?
Entrepreneurship Through Acquisition (ETA), also sometimes called Acquisition Entrepreneurship, involves buying businesses, growing them, and eventually exiting. It requires you to:
- Identify sectors that suit this ownership model (and your knowledge & skills)
- Find a business that has growth potential, limited risks, and a strong internal structure
- Conduct thorough due diligence on any potential acquisition target
- Use appropriate valuation methods to understand the value of the target business
- Acquire funding – whether through a search fund, an SBA 7(a) loan, or through other means
- Understand how to plan and make an approach using a term sheet and/or a Letter of Intent
- Identify risks that may not have been made public and potentially adjust your valuation through continuing negotiations
- Successfully negotiate the purchase of the business
- Work with the business’s existing management and operational framework, make changes where necessary, and implement a plan for growth
- Run the business! There’s no entrepreneurship path that avoids this core responsibility
- Make a successful exit.
Sound like a lot of steps? You’re right. This isn’t an “easy route” to business ownership. It requires painstaking attention to detail, careful analysis, and hands-on management.
So why would you choose this when you could just start and grow a company on your own terms?
The answer is that all that diligence and scrutiny translates to far less risk than you’ll encounter when starting from scratch. Startups have a monstrously high failure rate in their first 2 years.
A founder relies heavily on self-belief to persuade themselves that their startup will succeed. An external auditor may strongly disagree. As an acquisition entrepreneur, you combine the objective wisdom of the auditor with the entrepreneur’s vision for growth.
Is it risk-free? Absolutely not. But by using ETA, you can typically look forward to:
- Better quality of life than as a startup founder – you’ll acquire a company that already has a well-developed infrastructure, meaning you’ll need to work fewer hours.
- A more reliable salary – as a founder, your salary can skyrocket if you meet early success. However, it’s also the first thing that gets cut when your company is struggling. As an acquisition entrepreneur, you have a much more secure understanding of where the money will come from.
- More flexibility. After a time-intensive “bedding-in” period once you’ve acquired the company, you’ll enjoy more free time to pursue additional ventures. Cumulative ETA ventures can give you access to massive earning potential compared to going all-in on one venture as a founder.
Even though the acquisition process is rigorous, complex, and labor-intensive… it’s not like being a founder is easy.
The difference is that with ETA, you have a well-developed structure already in place. Every oversight you might have made as a founder is accounted for in the PATHS framework that has been developed specifically to guide acquisition entrepreneurs.
Differences Between ETA and Traditional Paths to Entrepreneurship
The entrepreneurial skillset is unique, and there’s some consistency between the skills you need as a founder and the skills you’ll need to acquire, grow, and exit a business.
The key differences lie in how your skills are “weighted” – and in the benefits you can expect to enjoy from each path.
Innovation vs. Development
A founder must innovate from the word go. Coming up with a unique product or service is at the core of your operation; there’s a huge emphasis on your capabilities as a creative individual.
Likewise, you’ll need to establish your own marketing strategies and know how to reach your client base. Unless you already have several other successful enterprises with a well-established, complementary network of contacts and clients, you’ll have to put in a lot of legwork finding and persuading buyers that your product is worthwhile.
An acquisition entrepreneur can expect a reasonably well-established client base as soon as they acquire a company. This shouldn’t be taken for granted, nor should you rest on your laurels rather than seeking out new opportunities for growth.
Your challenge is in developing and expanding a product that is already known to its audience. You also have a readymade referral network – as soon as you acquire a business, you should identify its best customers, understand what they already like about your company, and work out how they can help you reach a wider client base.
High-Risk, High-Reward vs. Steady Growth
First-time founders are often rolling the dice with their life’s savings on a product or service that hasn’t yet been tested. The mythos of the ultra-successful startup that went from the germ of an idea to a billion-dollar business in just a few years is extremely powerful.
But it’s not a good reason to become an entrepreneur.
There will always be risks in entrepreneurship, including ETA. If you’re careless with your due diligence or don’t understand how to properly value a company, there’s every chance you’ll find yourself as the owner of a stagnating company without the resources or infrastructure to compete and grow.
The difference is that founders aren’t given the opportunity to test the waters. Acquisition entrepreneurs have a tried-and-tested methodology available to help them avoid bad apples and select companies that offer solid growth prospects.
Entrepreneurs are drawn to challenges, but ultimately, the goal is to obtain financial autonomy and a more fulfilling lifestyle than you could hope for as a career employee.
The overnight billionaire founder and the individual who makes their millions over a couple of decades of sensible acquisitions and profitable exits have one thing in common – they’ve both achieved this goal.
The difference is that you have a far, far more realistic chance of meeting that goal through ETA than through founding startups.
What’s Similar About ETA and Entrepreneurship as a Founder?
The greatest similarity between traditional entrepreneurship and ETA is that you have to know how to run a profitable business.
You could be the world’s most diligent auditor, identifying everything that made a target business a solid choice. You could be a skilled negotiator and acquire a company for an excellent price, giving yourself a significant headstart on meeting the conditions for a successful exit.
But if you can’t lead the business once you’ve acquired it, it’ll sink – and you’ll sink with it.
Just as founders need to seek out the best people to facilitate their vision, acquisition entrepreneurs must be able to identify and work with an acquired business’s strengths and weaknesses. If you lose key personnel because their roles are sidelined by your vision for the company, that’s a problem.
Dissatisfaction trickles down fast. A founder might drive away employees with an inflexible, single-minded vision for their startup. Meanwhile, an acquisition entrepreneur must be able to work with the best of their company’s existing infrastructure or risk losing what made the business successful in the first place.
This involves weeding out chronically underperforming areas as well as communicating a sense of leadership, vision, and security to those who you’ll be working with. All entrepreneurs must trust their own judgment – but must also be ready to listen.
Why Consider Entrepreneurship Through Acquisition?
If you’re considering acquisition as an alternative to starting your own company, you need clearly defined goals from the start. It’s not a snap decision – here’s an outline of the advantages of this path.
A Safer Way to Grow Your Portfolio
If you’re anything like me, your mind is constantly firing off new ideas for profitable enterprises.
I’ll always test a new idea as a founder. Depending on the type of business, you don’t always have to invest a small fortune to find out if an idea will be popular. Many of these ideas turn into small-scale, profitable enterprises – it’s hugely rewarding.
However, transitioning these businesses into lucrative companies with 6, 7, or 8-figure revenues is the real challenge. This process typically takes a lot more time, effort, and investment. Not every good idea is scalable to this degree.
And this is fine. But I want those higher-earning businesses in my portfolio. And that’s where ETA is infinitely more reliable and less risky than relying purely on businesses you’ve founded yourself.
Acquiring businesses that complement your own startups is also a great way to find contacts and opportunities to grow your existing portfolio, and vice versa. It gives you a safer route into operating higher-value enterprises and vastly greater earning potential than sticking strictly to the founder route.
You Have a Huge Range of Industries to Choose From
Let’s take an example here – if your qualifications don’t include HVAC installation and maintenance, you’re unlikely to start an HVAC business from scratch.
There are numerous industries like this that would make no sense to you as a founder but that make a lot of sense as an acquisition entrepreneur. Home services like HVAC, plumbing, and electrical maintenance are great examples.
These businesses often have steady revenue streams, experienced personnel, great infrastructure, and consistent demand. Banks love to support ventures for companies with dependable client bases, meaning you’re more likely to acquire funding.
When you consider ETA, you need to think outside the box. Fintech, SaaS, and all our usual trendy vehicles for entrepreneurship are still there – and there are some fantastic startups that just require an experienced hand to steer in the right direction.
Your first step as an acquisition entrepreneur should be to identify which industries have the highest rates of ETA success stories. The results may surprise you. The opportunities will delight you.
Funding is Easier to Acquire
I’m saying funding is easier to acquire – not “easy.” Anyone who has ever had to obtain funding from banks or government bodies, or tried to put together a search fund, knows that there’s always going to be a lot of time and effort invested here.
This is where it’s so valuable that you’re approaching a business as an auditor rather than a founder. Backers are much more likely to view your analysis of a company’s growth prospects as realistic when you’ve conducted impartial research, and you’re not coming to them as a founder with a big idea and limited resources.
Search funds are an increasingly popular method for ETA, especially among buyers with less to invest initially. SBA and bank loans are still considered the most reliable by many acquisition entrepreneurs who already have diverse portfolios and multiple income streams.
Getting Started in ETA
Your first priority is research – and lots of it.
ETA isn’t the “easy” route to business acquisition. But it’s arguably the safest.
It puts control back in your hands. Knowledge-based, evidence-backed decisions are a far more reliable route to financial and personal independence than throwing all your resources into founding a business.
And, of course, the two aren’t mutually exclusive. In many ways, they’re complimentary. As a successful acquisition entrepreneur, you’ll have far more resources and time to invest in your best ideas.
Getting started in ETA could be the best idea you ever had. Sign up for the ETAInsider newsletter today to gain access to all the latest updates and advice from successful ETA professionals!