The path to entrepreneurial success is wide. There are all kinds of intersections and offshoots that form millions of combinations, and no one path is going to be perfect for everyone. In fact, that’s a large part of entrepreneurship’s attraction for those who feel compelled to take on the business ownership journey.
But, if you hope to make it to the final destination—success—you can’t just run off blindly down any path that looks interesting. Starting and running a business requires intelligent planning and strategy. So let’s take a look at one of the first important decisions every aspiring entrepreneur needs to make to illustrate how this kind of strategic decision should be made.
To Start Up or Purchase Your New Business
For most people, when they first consider the idea of owning their own business, the image in their mind is of a brand new startup that’s been built from scratch. However, once the planning and strategy period gets underway, many of these same entrepreneurs end up exploring and eventually settling on purchasing an existing business or franchise instead.
These two methods for becoming a business owner have their own pros and cons, and like every path on this journey, the new business owner is the only person who can decide which path is best for them. Taking the time, however, to consider the positive and negative aspects of each path can make that decision easier and more likely to result in success.
The pros of starting from scratch:
(Nearly) complete autonomy. When you’re building a startup from scratch, you’re painting on a blank canvas and you’re essentially free to do whatever you want or need to do to make it work. (Of course, every startup founder is only as free as his or her investors and co-founders will allow, hence the “nearly.”)
No mistakes to fix. When creating a brand new company, you won’t be bogged down by resolving any lingering issues left by the previous owners. No sullied reputations to boost, no brand image problems to fix, and no long-held grudges to deal with from personnel.
Greater potential for a breakout success. In most cases, the new businesses that appear on the world scene and make a huge splash are startups. Investors and consumers alike find startups to be more intriguing, so these businesses get more attention, and when that intrigue is combined with a stellar product and killer marketing, it’s a great formula for success.
The cons of starting from scratch:
Funding can be a nightmare. Unless you’re already independently wealthy or you’re willing and able to struggle through a tough initial bootstrapping phase, a startup is going to require significant funding. The trouble is, funding isn’t all that easy to secure when all you have is an idea and a prototype product to bring to your presentations.
Investors exert strong control. Although building a startup sounds like it should be all about the lone wolf entrepreneur going with her gut and succeeding through sheer instinct, the truth is the founder of a startup must make decisions in line with the requirements laid out by their investors. If they don’t, they risk getting the funding rug pulled out from under them at a critical moment.
It’s a lot of work. Of course, running any business is a lot of work; there’s no getting around that. But successful startups are notorious for demanding 100+ hour work weeks from their founders, sometimes for years. Even the most determined and passionate entrepreneur can struggle with that kind of protracted workload.
The pros of buying an existing business or franchise:
You can hit the ground running. When you buy an existing business or buy into a franchise operation, a lot of the hazardous and difficult stages of a brand new startup are already behind you. In the best scenarios, you can take over ownership and roll through your first month with profit on the books that’s equal to or greater than the previous owner’s.
You already have an established brand. Buying a company or franchise means paying to take over ownership of an established brand. While marketing and branding will likely still be necessary, you’re not starting from scratch with a name no one’s ever heard of, and a product or service no one’s ever bought.
Scaling the business is generally faster and easier. Especially if you become a franchisee, the work involved in buying and running a second or third location is really far less than it would be to build a brand-new business and expand to two or three locations, and it can probably be done much sooner, too.
The cons of buying an existing business or franchise:
You’re stuck with the previous owner’s mistakes. Whether it’s a pile of unpaid debt, a host of customer service problems, or a shop full of poorly maintained equipment, the previous owner’s mistakes are now your problem. (Expert tip: Do your due diligence before signing on the dotted line to avoid most or all of these kinds of problems.)
If it’s a single business (not a franchise), they’re selling for a reason. This can be tough because there are hundreds of different reasons why someone may choose to sell their business. But if they’ve chosen to sell because they have reason to believe the company or the industry are heading downhill, they’re not likely to share that with a prospective buyer. (Again, due diligence and getting advice from outside experts can mitigate this issue.)
Business valuation is essentially an educated guess. While experts who value companies for a living are very good at what they do and are probably spot on far more often than they’re not, determining a company’s value is akin to predicting the weather: No matter how knowledgeable and thorough you are, there are simply too many factors to expect perfection every time. That means you may find after the fact that a business you’ve purchased isn’t worth what you paid for it.
Which Option Is Best for You?
These 12 points are just examples, of course. An exhaustive list of pros and cons for this important decision would probably rise into the hundreds. But it’s enough to get a smart entrepreneur started in comparing two viable methods of obtaining a business of their own.
What’s the right choice for your unique vision, product, and ownership style? Only you can answer that. Whichever path you choose, it’s going to be an adventure. Take your time at the beginning when making those first important decisions, and you’re sure to have a much more enjoyable and fulfilling entrepreneurial journey.