Buying A Business Vs. Starting One: Which Is Best?
If you’re an entrepreneur and you’re dead set on running a company, you generally have two options. You can either start a business yourself (the first thing most people think of), or you can buy one instead.
It turns out that one isn’t necessarily better than the other. Each has pros and cons associated with it. The task is to discover which option will work best for you and provide you with the type of lifestyle that you want. Remember, starting a business from scratch isn’t for everyone, but that doesn’t mean you can’t flex your entrepreneurial muscles. Running an existing company can be a lot of fun – and it might better suit your skillset.
Starting A Business Gives You More Freedom
Sometimes you have a purpose-driven business idea. You want to bring something new to the world that people have never done before.
In this situation, starting your own business makes a lot of sense. If it’s genuinely new and world-changing, then it pays to keep control of it from the start. You want to make sure that you can bring your vision to reality.
Starting a business gives you maximum freedom to choose the direction it takes. You’re not locked into an existing business model, and, when you’re young, it’s easy to pursue virtually any direction to accomplish your overall strategic goals.
Starting A Business Gives You More Control
Related to this is the idea of control. As you build your business, you slowly evolve it into the eventual shape that you want it to take. Over time, it takes on a form that gets you closer to your objectives, without any major operational reorganizations.
That’s not the case when you buy a business outright. You can’t just change its direction overnight. Instead, it can take weeks or months of effort and, sometimes, even that isn’t enough. It’s hard to break organizations out of their old patterns and set them on new paths. Very few leaders manage to do it successfully.
Buying A Business Is Less Risky
Now for some of the benefits of buying a business. It turns out that purchasing a business that already has customers and a proven business model is far less risky. You don’t have to ensure revenue streams. Instead, somebody else did all the hard work for you. Instead, your job is to simply ensure that the company continues moving forward, acquiring more customers, and protecting staff from layoffs.
Existing businesses are not risk-free. They can still fail. But if they have been around for ten years already, the likelihood that they will go under in the next five is quite small. Compare that to startups where the likelihood of failure is exceptionally high.
Buying A Business Saves You The Hassle Of Marketing
Startups usually have good products. What they lack is marketing clout. They don’t have the resources to tell people about what they’re doing before they make sales.
For ordinary businesses, this isn’t so much of a problem. Once a company is up and running, it usually has the resources to begin marketing.
Starting A Business Allows You To Target A Niche
There’s another big advantage of starting your own business: you get to target a niche that nobody else is focusing on. In fact, that’s one of the big reasons why people start companies. Often, it’s because they’ve seen an opportunity in the market that nobody else has.
Targeting a niche can generate profits quickly. Entrepreneurs can then use those profits to grow their companies, without having to rely so heavily on outside capital.
Targeting a niche is also good for branding. If consumers believe that you’re the only company providing a particular service, they’ll flock to you, not the competition.
Buying A Business Provides You With More Support
If you look at some of the top Australian franchising opportunities, you’ll notice that they all offer owners tremendous support. You get help with branding, marketing, staff recruitment, accounting, payroll, pricing and stock delivery. The same is not true when you run your own business. You have to do all of these things yourself, increasing the length of your working day and forcing you to take more risks.
Don’t underestimate the value of getting support in business. One of the reasons so many founders set up companies as a team is because they know how difficult it is to achieve. There’s so much work involved, and the range of skills you need at the beginning is enormous. For many aspiring entrepreneurs, it is much better to farm out all of these tasks to people in existing company structures than attempt to do it all from scratch.
Buying A Business Gives You Access To Intellectual Property
Buying a business comes with another big benefit: access to intellectual property.
Intellectual property is the mainstay of modern companies. Any firm that can develop a technical advantage over its rivals is much more likely to generate large profits in the long-term.
Strictly speaking, it is possible for startups to apply for IP protections, but it takes a long time. However, when a brand already has them in place, it opens the door to more stable revenue flows in the future.
Buying A Business Requires Upfront Capital
In economics, you don’t get something for nothing. There’s a price for everything – and that’s true when it comes to buying a business. While you get everything that you need upfront, the cost of this convenience is a much higher price. Technically, you can start and grow a new firm on a shoestring. But the moment you purchase a company already generating a profit, expect to pay a high price.
You also have to consider the opportunity cost of your capital. What else could you do with that money if you had it in the bank? Often, these costs can be high, especially since the price of private equity is going up all the time.
In summary, whether you start a business or buy one is very much a personal decision. You have to weigh up the pros and cons.