The age-old argument between “buy” or “build” has bounced around the heads of entrepreneurs for eons. There is a satisfaction that can only be derived from building something from scratch – but if you have the capital, acquiring is certainly more efficient. Below we look at few points in favor of one or the other side of the entrepreneurial quandary:
Money talks – If you don’t have the funding in place to buy a business, bootstrapping is your only option. Many of the most creative and industrious entrepreneurs call upon on their skillsets and exploit their networks to the fullest to build thriving enterprises. We need look no further for proof that to look at some of the great businesses in our own Virginia, Maryland and D.C. markets which are ripe with innovative companies.
- Pros: Satisfaction of building an operating business from the ground up with nothing but your blood sweat and tears.
- Cons: It takes a lot of time, a lot of work and a lot of luck. Even if all goes right, your chances of success are still rather limited.
Cash in hand – With enough cash and strong banking relationships, buying a Virginia, Maryland or Washington D.C. based business that is already profitable is a quick and efficient way to generate continued cash flow. Buying a business with a strong customer base in an industry you have experience in gives the buyer higher odds of continued success. A significant portion of our own business comes from helping local entrepreneurs buy their next business so we too appreciate the upside this avenue presents.
- Pros: Using capital to make more capital from the get-go.
- Cons: New ownership can be difficult. Without a strong integration plan and the right team to implement it, acquisitions can be less successful. Additionally finding the right business locally can be difficult – often requiring travel outside of your home business market.
Going concern – When buying a business with a long track record there is evidence of a proven need in the marketplace being fulfilled. The risk of creating a new product or service goes by the wayside.
- Pros: Low risk, proof that the operation is capable of generating cash.
- Cons: Exposure to competitors, finite market that may limit future upside.
Start me up – Starting a business from scratch be it here in Maryland/Virginia or elsewhere, will take significant time to gain traction. Startups need to convince the marketplace that there is a need for and value in their services or products. This holds true for both local businesses and larger up market enterprises.
- Pros: Creating a new need in the market with unlimited potential could lead to rapid growth and a large exit through acquisition or IPO.
- Cons: Adoption rates could be slow or non-existent, the market may not be ready for your products or services.
Employees – In the startup arena there are plenty of young college graduates willing to work for low wages as long as they can exchange those low wages for equity shares in the company. On the side of established businesses, employees are typically looking for higher wages and more job security without any inkling of owning a part of the operation.
- Pros: Startups can hire workers for cheap and established businesses typically have loyal long-term employees. With tech and service hubs near by, there is an abundance of employees looking to work for an exciting new company.
- Cons: Startup owners better be prepared to give up equity to key employees. Established business owners have employees that expect benefits and annual pay raises.
As you can see, we have done little here to clear up the argument as to which approach is better because it purely exists on a case-by-case basis. Sometimes an acquisition is the perfect move and sometimes it’s best to step out onto the frontier of startup-hood. In either case, hiring an investment banker or business broker to guide you can make the process more efficient and more successful.
If you are considering buying a business in Maryland, Virginia or Washington D.C. and have had a similar conversation please feel free to include us in the dialog. We help business owners every day find the solution that best fits their needs.