Don’t Start from Scratch! Buy over an Existing Business

 

Starting one’s own business is a dream of many would be entrepreneurs. Taking a step to start from the beginning to create a business based on an idea in one’s mind is to many the epitome of entrepreneurship. It is like nurturing a baby from the day he or she was born, totally dependent on the parent,  to the day the person became a grown up who is independent .

Some areas of business have to be started from scratch if similar ones don’t exist at the point of conception. For instance, Mark Zuckerberg had few or no business models to copy from when he created Facebook. The same goes for Travis Kalanick when Uber was formed. Its a new ball game for them.

However for many areas of business, there is no need to start from scratch. Many would be entrepreneurs eye going into the food and beverage or F&B business. Every now and then, a new F&B outlet opens near your neighborhood or at the nearby mall while another closes. Thus if your start up idea is in this line, there are many business models to copy from. One can start by copying the menu and prices of the successful outlet that one hopes to emulate. Even the layout and ambience of the successful outlet can be followed to a certain extent. How the successful outlet markets and promotes itself can be similarly adopted. What cannot be copied would be the taste of the food being served. That is unless one poaches the chef of the successful outlet.

The same applies for many other business areas like developing an App or a website. There are many business models to copy from. Even so, getting the business model to work for your start up can still be a challenge. There is a learning curve for everyone starting a business from scratch.

One way to shorten the learning curve is to purchase an existing business.  There can be many reasons why an owner of an existing business wants to sell it. The business can be unprofitable for whatever reason. The owner may be thinking of retiring. Or there may be a more attractive business area for the owner to spend time on instead of the present one. And so on.

Many businesses are started by people who are technically inclined towards it. What it means is that F&B outlets tend to be started by chefs or people who can cook and Apps tend to be developed by programmers. Of course this makes sense as it requires technical skills to get a business going. However a business will not succeed without good management and marketing.

Hence a F&B outlet may serve good food in the beginning when the chef started the business. However as someone else takes over the kitchen, standards can drop if the management of the outlet is not tight. Alternatively, the outlet may face intense competition and without good marketing and promotion efforts, revenue may decline.

Thus someone thinking of entering the same F&B business as this outlet may be better off investing in taking it over for a mutually agreed sum. For a start, the amount probably includes the costs of all the fittings, kitchen equipment, furniture, or in other words, log stock and barrel of the entire outlet. Thus one gets a bargain compared with purchasing everything new and at much higher price. Secondly the existing customer base, even if the outlet is unprofitable, is there to fall back to unlike a new outlet from scratch. Thirdly, one gets the benefit of a team of trained staff who are probably not unhappy to jump over to the new owner with little or no change in terms of employment. Finally, any premium paid can be considered a tuition fee which is probably lower than what one incurs in losses during the initial period.

Thus if the outlet is making losses, the incremental effort needed to turn it into a profitable outlet is much less than starting from scratch.