I get anywhere from twenty to fifty 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 three categories. I know there are many more ways to classify businesses, but for the purpose of this blog post, let’s go with this classification:
- Businesses that make little to no money.
- Businesses that make a shit ton of money (e.g., Microsoft).
- Businesses that aren’t doing as well as they should because of founder or team issues (e.g., a company that is making one million a year when it could be making ten 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 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 to 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 figured out all of businesses in category 3 that could be doing well but aren’t, I would want to find out if they were acquirable. I would typically do this by sending them an email to see if they were interested in selling.
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 business that I would enjoy running.
I would hope some of those businesses would get back to me, but if they don’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 would be unrealistic with their demands. But a small percentage of the businesses I hit up would be willing to sell with reasonable conditions.
When you acquire a business, you pay a multiple on its profit or revenue. So, if the business was making a profit of one million a year, you’d typically end up paying anywhere from one to four million to acquire it.
The reason for the big range is that depending on the industry, the business may not be worth much, as in the case of a service-oriented company, for example. In other cases, e.g, in the software-as-a-service industry, a business can be worth a lot.
Once I have a list of companies that are interested in selling, I would come up with a creative way to structure the deal because I don’t have millions of dollars laying around.
Some ways to get creative are:
- Payment plans – if I were acquiring a business for one million dollars, I would try to offer two hundred grand upfront and maybe 1.3 million dollars over the next three years. I know, the total ends up being more than one 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 may be able to get a line of credit. I could then use that cash to buy a company.
- Equity – I could try to buy a company for a fraction of the price and offer the current owner 10%-20% equity in my new business. I would pitch him or her the vision I have and show the owner how he or she would make more money by selling the business to me.
- Ego boosters – people like selling their companies because they can brag about it to their friends and families. So, not only would I give them that privilege by buying their companies, but I would also offer them fancy titles such as “advisor.” My hope would be to get a reduced price as a result of this flattery.
- Other people’s money – in the worst 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.
Let’s hope that through one of these methods I’d be able to buy a company. Then, I would focus my efforts on growing the business.
Just because you buy a business 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?