In the January 2017 issue of Harvard Business Review, Richard S. Ruback and Royce Yudkoff introduced the concept of acquisition entrepreneurship within their large article Buying Your Way Into Entrepreneurship.
According to the authors, in the realm of small and medium business acquisitions, a new buyer type has appeared: the corporatist manager who raised some money and is ready to employ them in buying an existing operation.
This is called acquisition entrepreneurship.
According to statistics a record number of such transactions occurred in the three quarters in US. And unsurprisingly, Harvard Business School organizes every year extended classes about this particular subject. Whether acquisition entrepreneurshipis right for a buyer depends on preferences and temperament.
People involved in the process have found this investment as being personally, professionally and financially rewarding. Perhaps the biggest benefit is the instant impact. However, small business acquisition is not without its challenges. The process can be defined, minimally, as a matchmaking. So, it should be treated in a systematic manner that includes: reflection, research, negotiation and the leadership change.
How does matchmaking work?
The most relevant step for Ventacy’s philosophy is the research in matchmaking the understanding and logics. According to Stanford University, about 25% of acquisition searches end without a successful purchase.
In other cases, people let emotion or desire for expediency lead them into buying bad business (or inappropriate for them) or overpaying. Stanford University stated that only 25% of the acquisition searches (in the field of SME) end up with a successful purchase. The rest are marked by the buyers’ frustrations due to the perceived bad business after buying, inappropriate investments and overpaying. The value of the small business is important and delicate. Those that show enduring profitability might be subjects for financing. When taking a decision, Ruback & Yudkoff recommend five criteria for any acquisition decision:
- Is it profitable ?
- Is it an established business ?
- Are its revenues and cash flows in the desired range ?
- Do you have the skills to manage it ?
- Does it suit your lifestyle (location, hours, travel, etc) ?
According to the authors, significant research time is necessary and in many cases the entrepreneurs employ brokers for the work, which is (in many times) expensive. Moreover, there are more qualitative business features than quantitative that make the process more difficult and risky.
All the struggle and the effort shouldn’t discourage you: if you have approached the acquisition process thoughtfully and begun to apply good management, things will soon settle down.
What skills do you need to succeed at acquisition entrepreneurship?
What depends on you is to be sure you have the proper basic skills in order to succeed after your acquisition:
- Management skills (an understanding of finance, leadership and an aptitude for decision making)
- Confidence and persuasive ability
- Enthusiasm for learning
Aware about all these factors, you’ll be able to focus on growing your new business into a successful medium-sized—or even large—one.
Sources of inspiration:
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