Read This Before You Start a Business

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The following is adapted from Buy Then Build: How Acquisition Entrepreneurs are Outsmarting the Startup Game and Unlocking Trillions in Value

Read This Before You Start a Business: A Brief Primer on Acquisition Entrepreneurship

Don't Startup

If you have an entrepreneurial bone in your body, you’ve probably considered starting your own business. No doubt you’ve had great ideas that you think could become successful—perhaps you’re nursing one at the moment. In all probability, you think that the best way to succeed in business is to launch a startup, secure venture capital (VC), and ultimately make a highly profitable exit.

There’s only one problem. Most startups fail. I’m intimately acquainted with this experience. I’ve launched more than one startup and seen them crash back to earth. Most recently, I endured this painful assessment from John, the CEO of ViewPoint, the company we thought we were building together. “It’s dead,” he told me. “We’re out of cash, the product isn’t functional, and we don’t have any paying customers. It’s over.”

This wasn’t my first startup. Or even my first startup failure. I understood the risks—indeed, after having a previous startup fail, I thought I had learned the variables that lead to a successful launch. Viewpoint had lots of capital, a beloved and innovative product, and a ridiculously accomplished team. I’d done everything I could to stack the odds in my favor. This time was going to be different.

Our largest investor was a former Fortune 500 CEO. Our own CEO had been the SharePoint consulting executive at Microsoft and had worked with customers directly in our target market. Our team of proven, high-revenue-generating developers had built successful enterprise software before, and one of our advisors was a CTO of a Fortune 500 company. The equity raise was oversubscribed, and within months of graduating from one of the top-ten startup accelerator programs in the world we had beta trials inside many recognizable companies.

ViewPoint had all the hallmarks of success. The only thing we were lacking was actual success.

If you take one lesson away from reading this article, it should be this: even with every available advantage, most startups fail. This is why even venture capitalist’s buy boring companies for themselves. ViewPoint started with a stacked deck and still crumbled. Most startups begin with much tougher odds to overcome.

That’s the way it is. Even with overwhelming talent, outstanding early product trials, and an all-star team, success is still unlikely. Building a business from scratch is hard. We’ve all heard the statistic that one out of ten startups make it. It’s not a secret. We all go in with two eyes open. It appeared that ViewPoint was no exception.

Even those businesses that weather the storm and become functional rarely grow to any great size. Data suggests that, at best, only half of all businesses make it past the startup stage. Those that do often come out looking not like Uber—huge, growing, disruptive—but more like a small business.

As Verne Harnish, author of Scaling Up, observes, only 4 percent of all companies in the United States ever exceed $1 million in revenue. It’s odd to me that despite the huge interest in entrepreneurship in America, we really haven’t engineered a better way to avoid the startup runway and build sustainability into startups from the beginning. When we drill down into the numbers on this level, we’re left with the stark fact that somewhere well north of 99 percent of all startups either fail completely, or never really amount to much—either financially or impactfully.

This means that, while they may tick over and earn a decent living for their founders, these startups never deliver large returns, either for investors or for the people who build them. It also means that they don’t make as large a difference as they could to the lives of the general public. At best, they remain niche. At worst, they fold altogether.

What if there was a way to establish success from the beginning? An “entrepreneurship hack,” so to speak. A path that could bypass the startup phase altogether, so entrepreneurs could start operating a successful business as the Chief Executive Officer from day one. This would provide an immediate platform to add value from. You could grow it, run it as is, or use the cash flow from the company to fund the creation of new products or services.

This exists, and it’s called acquisition entrepreneurship.

Acquisition entrepreneurs start by buying an existing business instead of starting one from scratch. From there, they build value through an entrepreneurial approach. The combination of an existing small business’ profitable and sustainable infrastructure with the innovation and drive of an entrepreneur is a magical recipe.

The main benefit of acquisition entrepreneurship is that existing companies are already established with customers, brand awareness, employees, and most importantly, revenue and profits—everything a startup doesn’t have.

Instead of having to raise money for months (often years) while also trying to build sales from scratch with a new product, the acquisition entrepreneur acquires a profitable infrastructure from which to begin.

Existing businesses provide established markets, so they don’t have to worry whether they are too early or whether another company with more funding will beat them to market share—or in some cases, worry about creating a market from scratch.

This is the key advantage of acquisition entrepreneurship. Through bypassing the painstaking process of building a startup, in the hope that it will be one of the miniscule percentage of new businesses that achieves both scale and impact, you can choose to buy an existing company with potential to grow and develop.

It’s the perfect way to combine investment with entrepreneurship.

Get the full story here.

Walker Deibel

Walker Deibel

Walker Deibel is an entrepreneur and advisor. He is the author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game.