Don't Start a Business, Buy One

By Tom Taulli

Last week, I was a panelist at a small business conference. The subject was "Drafting Executive Summaries" and we had a great turnout (we actually ran out of handouts!) We had a lively crowd ó full of hardcore entrepreneurs.

In my presentation, I talked about the importance of being realistic when drafting an executive summary. What are the challenges? Who is the competition? What kinds of problems will the money solve?

Well, a person in the audience had an issue with that. She said, "Aren't entrepreneur's optimistic by nature? If they look at the bad things, it really means they are not a true entrepreneur, right?"

Perhaps. But if you look at the great entrepreneurs, they are often very paranoid people. They always think a competitor will somehow destroy them. They think customers will stop buying. They think something will break-down.

It is this paranoia that results in more and more growth.

So what does this have to do with M&A? A lot. Many entrepreneurs believe that they need to start a business from scratch.

But this does not have to be the case. Look at one of the all-time entrepreneurs: Howard Schultz. He did not start Starbucks. Instead, he initially worked for the company; then left the company; then he came back and bought the company!

In fact, it is the eternal optimism that can be the bane of an entrepreneur. Just about any study shows that start-ups fail within the first few years. But, somehow, all entrepreneurs ignore this fact.

Buying a business means not having to deal with some of the inevitable pitfalls of a start-up. You have a business with an existing product and customer base. There is an infrastructure in place.

Moreover, this is a tremendous time to buy a business. The seller will often finance a big portion of a purchase. And interest rates are at a 40-year old. Also, valuations are much lower.

This does not mean I'm against optimism. Optimism is a great trait. But adding some realism is also important. And, this may mean buying a business, not starting one.

MergerPlace is pleased to have the esteemed Mr. Tom Taulli as the managing editor of our MergerPlace M & A Advisor™ E-zine.

Tom Taulli is an expert in the M&A process. He is the author of the critically acclaimed The Complete M&A Handbook (Random House) as well as six other books written for publishers such as Bloomberg and McGraw-Hill. Tom also teaches M&A at the USC School of Business.

Tom has been quoted extensively in the press, including the Wall Street Journal, USA Today, Barron's, and The Los Angeles Times, and has provided commentary on CNBC, CNN, and Bloomberg TV, as well as appeared on a variety of top radio stations across the country.

Tom's books are available for purchase in our bookstore.

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