STEVE JACKOWSKI

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Build or Buy?

4/23/2014

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Over the course of my career, I've been involved in both building companies from scratch and in purchasing companies.  While most entrepreneurs in high tech go the first route (building companies from scratch), in other industries, it is more common to purchase an existing business.  Each approach is fraught with its own perils.

One big advantage of starting from scratch is that you can bootstrap the company.  You and other founders can start up with very little overhead, growing incrementally as business develops. 

While purchasing a business costs money up front and comes with overhead, an existing business will already have customers and income.  If the business was well-run, it should have financial systems in place and a team that drives administration, sales, product/services and support.  The day you close the purchase, you can hit the ground running.  You can probably even take home a decent paycheck - enough to support your family without putting your whole life at risk. 

Much like purchasing a home, the business will have intrinsic value which will likely appreciate over time.  Thus, while you may need to come up with money to buy the business, if you've chosen well, you should be able to sell the business at a profit (should you ever need/desire to do so). 

On the other hand, there may be issues with the business itself, its products/services, and/or the team.  Sometimes these things are hard to see from the outside before a purchase.

Worse, unless the business is exactly what you want it to be, it may be too entrenched in its own product/service market to make the changes you want to make, be they growth or new products/services. 

But starting a business is hard.  Ask anyone who has done it. 

You will put in the hours.  You will see less of your family and friends.  You will have less time for non-work activities and interests.  You will put yourself and your family at financial risk.

Add to this the risks in getting started, the time to develop your product/service and get it to market, and the challenge of putting systems and team in place to make the business run smoothly, and you can understand why so many startups fail and why so many founders get divorced. 

If you purchase a successful business, you probably don't have to worry about a possible short-term failure and with less stress on the family, perhaps the divorce can be avoided too. 

You might argue that you'd miss the thrill of doing it all yourself.  Maybe it's true.  However, I'd counter that any business is a challenge and starting with a stable platform may allow you to more aggressively focus on what you want to do rather than having to deal with the necessary, time consuming tasks that are part of any business, but which will distract you from what you really want to accomplish in a startup. 

Okay.  Buying a business is not for everyone.  But for those who can find a well-run business in their area of interest which can provide a springboard for the next great idea, it's certainly worth considering.  And if you find the right seller, e.g. someone looking at retirement, you might be surprised by how easy it is to finance the purchase.

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    Steve Jackowski

    Writer, extreme sports enthusiast, serial entrepreneur, technologist.

     
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