If I could do it all over again… I wouldn’t

Wednesday, 08 September 2010 10:03

I get anywhere from 20 to 50 questions a day from entrepreneurs like you. You usually ask me a variety of questions ranging from what I do everyday to how I make money.

But one question that seems to be stuck in your head is: what business would you create if you had to start all over again?

The problem with that question is that I wouldn’t start any business. And no, I wouldn’t get a 9 to 5 job either.

See, the hardest part about starting a company is creating it… or at least that’s the hardest part for me. The easiest part for me is growing a business.

So if I were to start my entrepreneurial career all over again, here is exactly what I would do.

Step 1: Go on a hunt

I classify businesses in 3 categories. Now, I know there are a lot more than 3 ways to classify businesses, but for the purpose of this blog post, lets just go with it.

1. Businesses that make little to no money.
2. Businesses that make a shit ton of money (ex: Microsoft)
3. Businesses that aren’t doing well as they should be because of founder or team issues. (ex: company that is making 1 million a year but could be making 10 million)

Obviously, I don’t care for businesses in category 1 because they aren’t making money. And I don’t care for category 2 because I can’t afford to buy out those companies.

But the businesses I care for are in category 3.

As I mentioned above, in most cases those companies aren’t doing that well because of management or founder issues. It could be that the founders of the company are stuck in their old ways and don’t understand how to adapt with the times, or that they just don’t care.

Either way, if that business was owned and run by me, it could theoretically be making a lot more money.

Step 2: Get down and dirty

Once I figure out all of businesses in category 3 that could be doing well, but aren’t, I would want to figure out if they were acquirable. I would typically do this by sending them an email to see if they were interested in selling.

But sadly, most of those businesses aren’t acquirable because:

• The owners or investors don’t want to sell.
• They want a lot more money than the company is worth.
• They are emotionally attached to the business.

Keeping those things in mind, I would literally strike up a conversation with anyone interested in selling and more importantly with any businesses that I would enjoy running.

Hopefully some of those businesses would get back to me, but if they didn’t I wouldn’t let it phase me. The moment you get emotionally attached to a company, you’ll end up spending more money than you should acquiring it.

Step 3: Get creative

A good portion of the businesses that would reply will be unrealistic with their demands. But a small percentage of the businesses I hit up will be willing to sell.

When you acquire a business you pay a multiple on their profit or revenue. So if the business was making a profit of 1 million a year, you’ll typically end up paying anywhere from 1 million to 4 million to acquire it.

The reason for the big range is that depending on the industry the business may not be worth much, such as a service oriented company. And in other cases a business can be worth a lot, like a software as a service business.

Once I have a list of companies that are interested in selling, I’ll come up with a creative way to structure the deal because I don’t have millions of dollars laying around.

Some ways to get create are:

• Payment plans – if I were acquiring a business for 1 million dollars I may try to offer two hundred grand up-front and maybe 1.3 million dollars over the next 3 years. I know the total ends up being more than 1 million dollars at that point, but no one would take a payment plan unless there was an advantage for them.
• Bank loans – getting a bank to give you a loan is tough. But if I have a home that is almost paid off, I maybe able to get a line of credit. I could then use that cash to buy a company.
• Equity – if I were buying a company, I may try to buy it for a fraction of the price and offer the current owner 10% or 20% equity in my new business. I would pitch them on the vision that I have and explain how they’ll make more money selling the business to me.
• Ego boosters – people like selling their company because they can brag to their friends and family. So not only would I give them that privilege by buying their company, but I would also offer them a fancy title such as “advisor” after I buy it. Hopefully this would give me a reduced price.
• Other people’s money – worse case scenario I could leverage my contacts and convince a few investors to give me money to acquire a company. In exchange I would give them equity in the business I am buying.

Hopefully through one of these methods I’ll be able to buy a company. And then I can focus my efforts on growing the business.

Conclusion

Just because you buy a business it doesn’t mean that you’ll be able to grow it. I have bought businesses in the past and lost money. When buying them, make sure you are conservative because issues always come up.

If you had to start all over again, what would you do?