The Hard Truth About Acquiring a Company
Thinking of acquiring a company? It might not be the entrepreneurial path you imagine. Let's explore the realities and misconceptions of Entrepreneurship Through Acquisition (ETA).
ETA: Risk Mitigation, Not True Entrepreneurship
Risk Mitigator, Not Risk-Taker
ETA attracts those seeking the entrepreneur title without the true leap into the unknown. You're drawn to established businesses, customers, and systems.
Sobering Statistics
Stanford research shows only 66% of search fund searchers buy a business, and 27% of those destroy equity value. The expected return? A mere $1.88 million over 8 years for solo searchers — walking away from career paths that would make far more if they stick to it.
The Hidden Costs of ETA
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Financial Constraints
Lower returns than traditional career paths
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Geographic Limitations
Potential relocation to second-tier cities
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Personal Sacrifices
Missed family moments, partner resentment
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Career Dissatisfaction
Less than 10% want to repeat ETA (searchfunds)
Self-Funded Acquisition: A Different Beast
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Smaller Scale
Typically $1-5M revenue businesses
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Personal Risk
Your own money and guarantees on the line
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Geographic Flexibility
Build around your chosen market
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Increased Fragility
More vulnerable to market changes
Debunking ETA Misconceptions
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"I'll just hire an operator"
Good operators are expensive and hard to find. You'll likely be the operator for years.
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"I'll be a passive owner"
Small businesses require active management. The previous owner was likely key to operations.
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"The seller will finance a big portion"
Seller financing often comes with strings attached and may indicate financing difficulties.
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"I can improve this business easily"
Local businesses often have complex dynamics not obvious from the outside.
The True Entrepreneurial Spirit
Innovation
Creating something new, not buying someone else's dream
Problem-Solving
Addressing real issues in unique ways
Risk-Taking
Embracing uncertainty and challenges
The bottom line is this: If you truly have the entrepreneurial spirit, you wouldn't be looking to buy someone else's dream – you'd be building your own. You wouldn't be seeking the safety net of existing cash flows and established processes. You'd be out there creating something new, solving real problems, and taking genuine risks.
Warren Buffett didn't buy his first business because he was afraid to start one. He bought businesses because he was an investor at heart. If you're looking at ETA, perhaps you too should admit that you're more interested in being an investor than a true entrepreneur.
The Reality of Business Ownership
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CEO
Strategic decision-making
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Manager
Day-to-day operations
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Problem Solver
Addressing unforeseen challenges
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Janitor
Handling every aspect of the business
Alternatives to Consider
Investing
Explore passive income through strategic investments
Franchising
Launch a new franchise with established systems
Start-up
Build your own business from the ground up
Don't rush into ETA out of desperation. Consider all options and choose the path that aligns with your true goals and risk tolerance. Either embrace the full risk and reward of true entrepreneurship, or acknowledge that you're really seeking a safer path. And, that's okay too. Just don't fool yourself about what it means.
p.s. If this makes you angry, good. True entrepreneurs thrive on proving people wrong. So prove it.
p.p.s. don’t make a poor decision desperate to ditch your awful boss.