Or, in other words, an existing business.
As a general observation it seems to me that start-ups* are viewed as the more glamorous and exciting cousins of an established business.
This sense of glamour and excitement goes with the entrepreneurial spirit that flows when an employee or an inventor or an expert decides they are going to do their own thing, their own way. But it won’t be all beer and skittles!
So why not sell them your existing business instead and save them some of the pain of starting from scratch?
With some extra effort you, as a prospective business seller, could increase the pool of potential buyers and attractiveness of your business by clearly articulating the advantages of buying an (your) existing business.
To give you some hints here is what I’d say if I were writing this post to convince prospective starters of start-ups to become buyers of existing businesses;
- Cash flow is more predictable – you can validate that through looking at the financial history of the business,
- The phone or fax will be ringing the day you take the business over,
- You have immediate access to customers that might be great reference sites or testimonials,
- You buy a set of products or services that have served the customers of that business well to date and you now have a customer base to apply your innovations to in an incremental way. I think it is often much easier to make the case to an existing customer that you can improve their product or service experience than it is to win brand new customers on the basis of a totally new and innovative service or product,
- Staff that have valuable embedded ‘Intellectual Property’ on the business, the customers, competitors and the industry,
- You get a brand that opens door to customer opportunities, that is known to suppliers and potential joint venture partners.
Having outlined these advantages I’d then be particularly keen then to ask a prospective starter the following question.
Have they costed in their own time (in the form of a salary) to their cash flow and profit & loss projections for their start-up?
In my experience this is the single biggest flaw in most analysis done by those comparing starting vs. buying. They simply overlook putting in a cost for their own time – whether it be the salary they aspire to earn or are giving up by not taking or keeping a job as an employee.
With the above in mind you as a business seller now need to think about how this might change your approach to preparing your business for sale and how you market it.
I’d be advising you to talk about:
- How your customer base and your product or service suite can be incrementally innovated or used as a platform to cross-sell in new products or services,
- How as an established player in the industry you will have privileged access to customers, to emerging technology trends and innovations, to potential new competitors,
- How you can lower the cost of customer acquisition,
- How you can allow the new owner to focus more on growing the business than worrying about day-to-day cash-flow.
I’d like to see more potential start-ups enter the market via acquisition of an established business.
I’ve personally worked in a couple of start-ups. There is no doubt that you can generate enormous energy and excitement but it is also true that you can spend a lot of time spinning wheels as you look for that first customer, recruit experienced staff and watch the cash burn from month to month.
Potential start-ups are legitimate buyers for your business and I reckon a great formula to help you think about the way to sell to them is:
Established brand, customer base and cash flows, PLUS
New innovation in product or service, EQUALS
Faster, less risky path to higher, more sustainable profits.
Here is how you take this thinking a step further.
What might (normally) look like a potential new competitor e.g. a new company starting out in the industry with a product or service innovation, may actually be a the most suitable buyer for your business.
Until next time.
Cheers,
Michael
* There are many kinds new businesses based on radical breakthroughs in technology, in medicine, in science that are born to be started from scratch. I’m not referring to these.