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Become an Entrepreneur: Increase Your Odds of Success by Buying a Business

When most people envision "owning a business," they picture coming up with a new concept and seeing the business from startup to maturity.

Starting a business can be incredibly rewarding, and you'll have the pride of knowing you did it all on your own. However, the world of startups is a difficult one.

Data from the Bureau of Labor Statistics shows that approximately 20% of new businesses fail during the first two years of being open and 45% during the first five years.This alarming statistic poses a challenge to aspiring entrepreneurs, with many opting to buy their way into business rather than starting from scratch.

Why it Makes Sense to Buy an Established Business

Starting a business from scratch is undoubtedly more challenging than buying an existing one. You'll start with nothing but an idea, then put all the pieces together.

This includes deciding the business name, registering the company, sourcing financing, assembling a team, finding suppliers, prospecting, etc. All these processes pose a challenge to entrepreneurs who are new to the business.

But, when you purchase an existing business, many of these elements are already in place. You have an established customer base, employees familiar with the business, and a ready market. This way, you take on an entity that's already generating cash flows, hence you're less likely to encounter the challenges startup owners face.

5 Big Challenges to Launching a Startup

Starting a business from scratch presents some distinct disadvantages. We'll take a look at these challenges from an entrepreneur's standpoint.

1. Finding the Right Financing

Buying an existing business requires more capital than launching one from scratch. But, financing a startup is more difficult than funding the purchase of an established entity.

Many financial institutions and lending groups find first-time startup owners too risky for lending.For that reason, first-time small business owners have difficulty securing loans for 8 factors including minimal cash flow.

To turn their dreams into reality, many first-time entrepreneurs turn to family and friends for loans. Those with promising business ideas that require significant capital investment turn to crowdfunding platforms like Kickstarter for funding.

In contrast, it's easier for an established business to secure funding. As long as a company can produce financial statements that demonstrate its ability to pay the loan, it can secure financing from most lending institutions.

2. Finding the Right People

People are paramount to the success of a startup. For a startup to succeed, entrepreneurs need to hire meticulously and surround themself with the right people.

The process of building a team should start even before the issue of raising initial startup capital is raised. Remember, most brilliant ideas don't get funded because the entrepreneur is trying to build an innovative product as an individual.

A business team is vital, yet often an ignored key to securing business funding.

However, finding talent can be challenging for startups, especially budding companies that can't afford to offer competitive benefits offered by established businesses.

Moreover, most candidates prefer working with companies that offer them job security with prospects for future growth. Given the high failure rate of startups, many talented employees will ditch startups in favor of established brands.

That said, first-time entrepreneurs should consider hiring from their professional network, focusing on people they trust and find dependable.

3. Winning Customers' Trust

Customers are the lifeblood of any business. Their word-of-mouth advertising and presence on social media can give startups an edge against even the big brands.

However, winning customers' trust is one of the biggest challenges businesses, particularly startups, face. Most startups lack social proof and influencer endorsement to give them credibility in the ever-competitive marketplace.

There's also the problem of brand awareness. Consumers are, by nature, skeptical about buying from brands they don't know about.

And since startups are still in the budding stage, they have a lot to do to create brand awareness and earn customers' trust. In contrast, buying an existing business gives you access to a database of existing, loyal customers.

4. Marketing Challenges

Marketing is the fuel that drives startups' success. But it's not always easy for startups to implement marketing strategies that drive results.

A startup begins its journey from zero. It has to build a marketing team, allocate an optimal marketing budget, delve into marketing automation, conduct A/B tests to determine what works for that niche, and do much more.

Many startup entrepreneurs aren't savvy marketers and often make the mistake of not prioritizing marketing from the word go. Sometimes, startups lack the budgetary resources to experiment with different marketing methods.

And if there's no sufficient marketing to create buzz around your product at launch, your product will go unnoticed. But when you buy an established business, you'll experience minimal marketing challenges as your business already has a footprint in the market.

5. It Takes Time to See Results

The wise say, "great things come to those who wait."

And this applies to startups too. It can take years on for a new business or product to become profitable.

A business could become profitable immediately if it delivers an innovative product or service. Your business could also turn a profit early if you invest heavily and wisely into paid advertising. But in most cases, those who take the startup route don't see immediate results.

Advantages of Buying an Existing Business

Today, many aspiring entrepreneurs are eyeing existing businesses or what is called acquisition entrepreneurship. In 2021, as reported in BizBuySell's Insight Report, 8,647 businesses were sold —representing a 13.6% increase from the sales figures for 2020.

Many people are opting for the acquisition entrepreneurship route because of its many benefits. These include:

1. Better Financing Options

Established businesses stand a better chance of securing financing.

Existing businesses already generate revenue streams to cover the operational costs of running the business. In contrast, startups may need financing to pay expenses before opening their doors to customers.

Often, established businesses have a solid customer base and reputation in the community. This gives the lender assurance the company has the resources to meet the debt obligations.

In addition to reputation and customer base, existing businesses may use assets and inventory as collateral to secure big loans. Most startups lack these resources and hence find it difficult to secure financing.

2. Existing Customers

Startups don't have a solid customer base, hence will conduct marketing activities to acquire new customers. And acquiring new customers can be very expensive.

According to a study by Forrester Research, new customers cost up to 5 times more to acquire when compared to retaining an existing customer.

Plus, it takes time to establish trust and loyalty with customers. Imagine how much time and money it would cost to build a new customer base for a new business.

In contrast, an established business will already have a database of existing customers and can market to its customers, saving on costs in the long run.

3. Well Established Supply Chain

Existing relationships with suppliers and other business partners are crucial to running a smooth business transition.

Your supply chain personnel not only provide the resources required to produce and sell products but can also offer help and advice on how to grow and sustain the business.

These individuals have been working with the company for years, so they know the nitty-gritty surrounding its operations and the market dynamics. They also know what processes are critical for success and what needs improvement.

Comparatively, first-time entrepreneurs must spend a lot of time and money creating business relationships, establishing business policies related to the supply chain, and reviewing systems ideal for efficient supply chain operations.

4. Already Established Brand

An existing business already enjoys brand loyalty with customers and is well-known in the market. As its new owner, you may tweak the branding, but you'll not need to spend any investment introducing the brand to the market.

Making small changes to the branding when you already have an audience and loyal customer base is easier than building a market presence from nothing.

In contrast, new businesses spend significant investments on marketing to create brand awareness and acquire new customers. And when you have a loyal customer base, they can do the marketing for you through word-of-mouth.

5. Greater Likelihood of Success

The staggering failure rate of startups makes launching a new business unattractive to aspiring leaders and entrepreneurs.

As mention above, data from the Bureau of Labor Statistics show that approximately one fifth of new businesses fail within two years of being open, nearly half within the first five years, and nearly three quarters during the first 10 years. Only about a quarter of new businesses make it to 15 years or more.

Buying an existing business positions an entrepreneur for success, if you can manage it effectively. Businesses that have survived the first five years are also likely to have a huge customer base, a ready market, and a greater likelihood of success.

6. Access to Trained Staff

Among the many advantages of buying an established business, perhaps none is more critical than starting with a trained workforce.

Finding a team that shares your vision and focus can set your business up for success no matter what challenges you encounter. Buying an established business ensures you have the right team and systems in place.

Moreover, by buying an existing business, you can save on costs that would otherwise go into recruiting and training new staff.

7. Save Time and Money

Starting a new business is difficult, in part due to the time and money required to open the doors.

You'll need commitment and a considerable financial investment to perfect the product and introduce it to the market.

Ideally, an existing business will have tested the product and all the marketing channels and found what works and what doesn't. This can allow you to delve into marketing and continue with the tested and proven marketing strategies.

Wrapping Up

Starting a business is everyone's dream. Owning a company gives you unlimited earning potential and flexible working hours while giving you control over the business.

However, starting a company can be challenging, especially for those new to the business world. You will inevitably encounter challenges finding the right people, winning customers' trust, marketing your products, and scaling up.

Rather than taking the startup route, forward-thinking entrepreneurs buy their way into the business world. This way, you avoid all the challenges associated with startups and enjoy many benefits of purchasing an existing business, such as better financing, an existing customer base, access to trained staff, and a greater likelihood of success.

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