In past articles, I have been revealing insider's strategies to building successful businesses from scratch. In the course of sharing my knowledge with respect to business a building, I came to observe that a certain group of entrepreneurs are being sidelined. Now what are the interests of this group? You might ask.
This is a group with the mindset of; "why build a business from scratch when I can buy a small business and grow it? Another group are those who asking "how do I sell a business? So to make this blog balanced, I will be running a short series tagged "How to buy and Sell a Business." It is going to be strictly for those who fancy the idea of buying and selling already built businesses.
Now why do entrepreneurs buy businesses?
I don’t think I have a definite answer to this question but I will reveal the most possible answers why an entrepreneur will prefer to buy a business. Early 2010, the news was filled with stories of how Larry Ellison led Oracle to strategically acquire 57 companies within five years. Is Larry Ellison the only entrepreneur who believes in strategic acquisitions? The answer is no. General Electric has been strategically positioned to grow via acquisition.
Aliko Dangote; the richest black man in the world has a reputation for buying and reviving moribund companies successfully. McDonald’s grew rapidly and became the most successful small business because Ray Kroc saw that the need for already made businesses was in high demand.
Entrepreneurs see buying ready made business as a way to minimize risk and reduce their rate of failure, so franchising became the new hot business on the block. Now why do entrepreneurs buy businesses? Though there’s no definite answer to this question; below are 12 possible reasons why entrepreneurs buy businesses.
12 Reasons Why Entrepreneurs Buy Businesses
1. To Avoid the Risk Involved With Building a Business from scratch
Successful entrepreneurs who built great businesses from scratch definitely know the pain and sacrifice it took to achieve the feat. Most entrepreneurs shy away from the challenges of building a business from scratch and I bet you, it is not something you want to get involved with. Entrepreneurs that don't want to go through the process of building a business from scratch usually opt to buy an already made business.
2. To Increase Profit: An entrepreneur may buy a business to increase the cash flowing into his/her existing business.
3. To Fulfill A Desire To Grow: When an entrepreneur feels there is a need to grow, buying a small business may be the next option.
4. For Diversification Purposes: Buying a small business is another sure way of taking advantage of an opportunity in an industry entirely different from the one you are currently operating in.
5. To Have a Value Driven Acquisition Strategy: Some companies adopt the acquisition strategy as their overall value driven plan. This is in a bid to increase the value of the company's value or worth.
6. To Buy up Competitors: Sometimes in business, threats are eliminated by strategic acquisition. A company that poses a potential threat can be bought to eliminate the threat.
7. To Utilize Excess Capital: When an entrepreneur’s company is flushed with excessive cash or capital, buying up a small business might be the next option instead of building one from scratch.
8. To Gain New Distribution Channels: A business can be bought to increase and improve the buyer's distribution channels so that products can reach customers in less time.
9. To Gain New Management: An interesting way to bring a strong management team on board is by buying up the company where the managers are employed.
10. To Increase Shareholders Confidence: Acquisitions increases shareholders confidence because it shows the internal strength of the entire business.
11. To Gain Access to New or Emerging Technologies
In the business world, it has been noted that 75% of upcoming technological innovations are brought in by small businesses. So acquiring such businesses puts you in control of their innovative technologies. For instance, Google Inc acquired YouTube and FeedBurner. Yahoo acquired Viacom and MyBlogLog; AOL Time Warner acquired TechCrunch and Oracle acquired Sun Microsystems.
12. To Strengthen the Company's Balance Sheet
Just imagine Oracle Corporation buying up 57 companies within a space of five years. Buying businesses strengthens a company's balance sheet; it shows investors that the company has a strong growth plan and potential.
So these are the 12 reasons why entrepreneurs lead their company’s into making strategic acquisitions. There may be other personal reasons why an entrepreneur would opt to buy a business rather than build one from scratch but I think the ones listed above would do for now.
Written by Ajaero Tony Martins
