Don’t do Startups, Buy a Business..?
I recently ran across a blog post stating that you shouldn’t start a business, but should instead just buy one. The idea originally came from the Entrepreneur Journal oddly enough, and it’s main points are..
- it’s easier to buy than startup
- the current down economy valuations are favorable for buyers.
At first I was kind of put off by the claim, but then I started pondering the idea in regards to young entrepreneurs. After searching some of the businesses for sale on Biz Buy Sell, I decided it might not be that impossible to consider buying a pre existing business. With some businesses returning their investment after 3-4 years assuming no growth, they’d be great candidates for purchasing.
But now for the obvious drawbacks of buying a business: Cost, credibility, risk, and scale. College students/young business people probably don’t have $200,000 for a business. So financing would be a must, whether through a limited partnership or a “real bank” (This type of money isn’t available at Prosper or LendingClub). Additionally, the lack of track record and credibility would make a loan and large partnership very difficult… probably impossible.
For risk, putting all your eggs in one basket could bring a large risk/reward ratio, especially with all the pains associated with transfering and managing a new business. Same goes for the scale of a pre existing business, including the amount of time needed to devote to the acquisition and management.
So while those drawbacks seem insurmountable, where there is a will there’s a way; but unless you’re feeling lucky or have access to a massive reserve of resources, buying a business in college seems pretty unrealistic even though fundamentally it may be sound.
This once again brings me back to my original belief that college is a prime time for trying a startup. But this reconsideration of the potential in purchasing pre-existing businesses has ignited a little spark, and I do plan to/recommend looking into purchasing pre-existing websites for businesses due to their more manageable scale and favorable valuations (Sitepoint will be your best bet).
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Great article. Just my $0.02 (and yes, I do share my experience a lot)… I have been on both sides of deals, buy and sell. The RISK part cannot be overemphasized. All the research in the world won’t identify things like cultural fit, and client reaction to a merger.
Be careful going in to a deal. There is a reason why most fail, and from my experience it is typically because of the less tangible things.