Understanding Entrepreneurship Through Acquisition

Entrepreneurship through acquisition, or ETA, is a relatively new approach to entrepreneurship that has been gaining popularity in recent years. In essence, ETA involves locating an existing business for sale using a specialized listing service such as DealStream and then purchasing the business for use as a platform to build a new and innovative enterprise. This method of entrepreneurship has several advantages over starting a new business from scratch and is becoming an increasingly popular way for entrepreneurs to get into the game.

The primary advantage of ETA is the unique opportunity it provides for aspiring entrepreneurs to bypass many of the hurdles and risks associated with starting a new business from scratch. Entrepreneurs can immediately impact the industry by acquiring an existing business that has already established a customer base, developed a product or service, and created operational systems. They can bypass the typical early-stage issues like dealing with extensive business plans or prototype models. Plus, with an existing revenue stream, entrepreneurs don’t have to worry so much about pulling long nights or working all weekend at a startup, scrambling to cover their overhead and turn a profit. 

Additionally, ETA can be an attractive option for investors and venture capitalists looking to support innovative new businesses. By investing in an acquisition, investors can gain exposure to a new and potentially lucrative business venture. 

ETA also allows entrepreneurs to take advantage of the expertise and experience of the previous business owner. In many cases, the previous owner is willing to stay on as a consultant or advisor, providing valuable insights into the business and its operations. This can be particularly valuable for entrepreneurs who are new to the industry or who lack experience in running a business.

Teaching Entrepreneurship Through Acquisition in Higher Ed 

Business schools are taking notice of the rising trend of ETA and, in recent years, have begun incorporating it into their entrepreneurship curriculum to prepare students for the changing landscape of the business world. Traditional entrepreneurship courses often focus on new business ideation and early-stage development. While this approach is still essential, it doesn't give students a complete picture of what it takes to become a successful entrepreneur in the 21st century.

By using entrepreneurship through acquisition as a model, business school curricula present students with a realistic and practical view of acquiring and managing an existing business. Courses on financial analysis, due diligence, negotiation, and management not only help students prepare for entrepreneurship through acquisition but also equip them to become successful, enterprising leaders across various business contexts.

ETA can also be an effective way to promote entrepreneurship and economic growth more broadly. Business schools and other institutions can help create new jobs, spur innovation, and promote economic development in various industries and sectors by encouraging and supporting ETA initiatives, which can have a positive impact on local and regional economies as well as the broader business community. With those benefits in mind, the students of Harvard Business School (HBS) began an Entrepreneurship Through Acquisition Club to educate the HBS community about Entrepreneurship Through Acquisition and "provide potential searchers with the network and resources needed to succeed.”  

By teaching ETA and supporting student-led networking and education initiatives, business schools are equipping students with the knowledge and skills they need to succeed in today's competitive business landscape.

Entrepreneurship Through Acquisition Might Interest You If… 

Entrepreneurship Through Acquisition can be an attractive option for a variety of individuals with different backgrounds and skill sets. Here are some examples of people who may be well-suited to pursue ETA.

Experienced Executives

ETA can be an appealing option for experienced executives looking to start their own business but who may not want to start from scratch. With their existing network and expertise, these individuals may be able to find and acquire an existing business that aligns with their skills and interests.

Investors 

ETA can be an attractive option for investors who want to diversify their portfolio and support new and innovative businesses. By investing in an acquisition, investors can gain exposure to a new business venture without the same level of risk associated with investing in a completely new startup.

Entrepreneurs with Limited Resources

ETA can be a viable option for individuals interested in starting their own business but who have limited resources. By purchasing an existing business, entrepreneurs can access an established customer base, a proven business model, and a team of experienced employees, all of which can significantly reduce the time and resources required to get a new business off the ground.

Individuals Looking for a Career Change

ETA can be a way for individuals wanting a career change to enter the world of entrepreneurship. By acquiring an existing business, these individuals can leverage their experience while pursuing their entrepreneurial dreams.

ETA can also be a good option for people with specific skill sets or industry knowledge. For example, someone with experience in the tech industry can acquire a tech company and use their expertise to grow the business. This can be a great way to leverage existing skills and experience to build a successful business.

Advice for the ETA Process

Be prepared to take your time. You might find it helpful to listen to the stories of other ETA entrepreneurs via the podcast Acquiring Minds, which explores the sometimes circuitous journey of acquisition entrepreneurs. Listening to their stories can help you meaningfully evaluate whether ETA is the right path for you. Once you've decided to pursue entrepreneurship through acquisition and spent some time considering the right business to buy, keep this practical advice in mind as you move through the ETA process.

Research and Evaluation

The ETA process will require researching and evaluating potential acquisition targets, conducting due diligence, and assessing the financial and operational health of the target company. To be successful, you should:

• Conduct thorough research and gather as much information as possible about the target company.
• Develop a clear understanding of the target company's financial and operational health.
• Consider hiring professional advisors, such as lawyers and accountants, to help you with due diligence and other tasks.
• Develop a clear acquisition strategy that includes your goals and objectives.

If you’re interested in further resources on the subject, Blake Taylor, the managing director of Synergy Business Brokers, wrote up some great tips on navigating research and evaluation in his article “Questions That Buyers Ask When Purchasing A Business.” 

Negotiation

Negotiation will be required throughout the purchase process, from drafting the initial letter of intent through finalizing the purchase agreement. To be a successful negotiator, you should:

• Develop a clear understanding of the target company's value and negotiate from a position of strength. 
• Be prepared to walk away from the deal if the terms are unfavorable.
• Develop a strong working relationship with the seller and be open to compromise and creative solutions.
• Consider working with a professional negotiator or advisor to help you.

Financing

To be successful in securing the necessary funds to complete the purchase of the target company, you should:

• Develop a clear understanding of your financing options, including debt and equity financing.
• Develop a strong relationship with potential lenders or investors.
• Be prepared to provide detailed financial projections and other supporting documentation to secure financing.
• Consider working with a financial advisor or consultant to help you navigate financing.

ETA can be a complex and challenging process, but with careful planning, preparation, and execution, it can also be rewarding and lucrative.

In Conclusion

Entrepreneurship Through Acquisition is a unique and innovative approach to starting and growing a successful business. By acquiring an existing business, entrepreneurs leverage established resources, reduce risk, and expedite the process of launching a new enterprise. ETA can be an attractive option for a wide range of investors and entrepreneurs, including recent graduates, experienced executives, investors looking to diversify their portfolios, entrepreneurs with limited resources, and individuals looking for a career change. No matter who you are or what stage of life you’re in, ETA offers a new and innovative approach to entrepreneurship that can help you achieve your entrepreneurial dreams and build a successful business.