Why Aspiring CEOs Should Consider Acquisition Entrepreneurship

It’s no surprise that MBA graduates have strong career ambitions, and for some it starts right at the top. Their goal is to lead a company, as quickly as possible. While that may sound lofty, there are three ways that MBA students can become CEOs after graduation. The first, and least common, option is getting hired directly into a leadership role at an existing organization. The second is launching a startup — a popular choice that’s become a pretty overcrowded domain. The third pathway, often overlooked and fertile with opportunities, is “acquisition entrepreneurship.” As the name implies, the opportunity here is acquiring an existing business with the intention of growing and scaling the enterprise. While taking over an existing business may seem like a daunting or expensive idea, it’s more feasible and affordable than many people realize. What’s more — now is an unprecedented time to be an acquisition entrepreneur. Baby boomers who have owned businesses in record numbers are beginning to retire. Those with no clear succession plans or family heirs to take over are now looking to sell their businesses. This opens a range of sizes and types of businesses, across multiple industries, for acquisition entrepreneurs to consider. In the United States, for example, Small Business Administration (SBA) loans are available at favorable terms, allowing next-generation entrepreneurs to buy an existing business with surprisingly little personal capital as a down payment. In talking with MBA students, especially in the Zell Fellows Program at Northwestern University’s Kellogg School of Management, I’m often surprised by how many students overestimate the amount of money it takes to acquire an operating business. Here’s a fact: The business doing about $1.5 million in annual revenues can be acquired for about $60,000 in cash, plus debt (and sometimes the seller will even help with financing). While acquisition entrepreneurship may lack some of the glamour of a startup, the path of buying a company is far less risky than trying to come up with the next new innovation amid a sea of other entrepreneurs with similar and bright ideas. Even with a good concept to exploit, startups face the great unknown of determining the product-market fit. For example, sometimes the problem they’re trying to solve changes, or a new, nimbler competitor emerges to disrupt the landscape. What looked like a viable idea in the initial ideation can prove otherwise. Take WeWork’s business model as an example; that has come into question as the company failed to generate the kinds of profits investors had expected. The Benefits of Acquisition Entrepreneurship With an existing business, however, product-market fit is already established. That lowers the risk and brings the added benefit of acquiring a business with cash flow. Even more convincing is the fact that acquisition entrepreneurship has a greater success rate compared to a startup. In his book, Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game, author and entrepreneur Walker Deibel estimates that the odds of success through acquisition entrepreneurship are a whopping 98%, compared with a roughly 10% success rate for startups writ large and 25% for VC-backed startups. Unlike startup entrepreneurs who tend to be driven to solve a particular problem or address a pain point, acquisition entrepreneurs tend to be far more agnostic about specific opportunities. They are motivated by the idea of taking a viable small business and catalyzing growth. There are some MBAs who search with a certain interest or skill set they intend to apply; for example, those looking to leverage their technology backgrounds in a manufacturing business. But whether that business makes nails or bedding or sheet metal usually doesn’t matter as much. What’s attractive to these entrepreneurs is the size and potential of the business. For example, my Kellogg School colleague Alex Schneider is a co-founder of Clover Capital Partners, a private equity firm that acquires and invests in small businesses. His background is business, not baking — and yet, he has several food and beverage holdings, including a wholesale bakery that supplies national retailers and fast-casual restaurants. Another plus for acquisition entrepreneurship is that it involves businesses that have been the backbone of job creation for decades. In fact, small businesses account for about two-thirds of net new jobs created in the United States. For entrepreneurs motivated by the desire to create jobs and support job growth, there’s no comparison between an existing workforce and a small tech startup employing only a handful of people. If an entrepreneur is passionate about job growth, acquisition entrepreneurship can align with that sense of purpose. On-the-Job Learning for CEOs Those who lack entrepreneurial skills need not see themselves as shut out of the C-suite. It’s possible to develop these skills while also honing one’s leadership for running a company one day, as part of a dual track of development. For example, an apprenticeship program such as Alpine Investor’s CEO-in-Training model hires people based on attributes rather than experiences and focuses on training candidates for long-term career potential. The CEO-in-Training model is attracting top talent from MBA programs who are hired and placed in a portfolio company to work with a more experienced CEO to gain skills and confidence. No matter the route, there is a need for “learning by doing.” While MBAs bring knowledge of business strategy, finance, marketing, and other subject areas, they need to surround themselves with talent that is stronger where they have weaknesses. The willingness and ability to create a team with complementary strengths a sign of strong leadership and a willingness to empower others. As MBA students contemplate their career paths, it may be far more possible to access the C-suite than ever before. Acquisition entrepreneurship brings together a supply of new executive talent with the demand for capital and ownership for existing businesses that increasingly are coming up for sale.

Why Aspiring CEOs Should Consider Acquisition Entrepreneurship

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