Five Guys In A Honda Civic
According to a survey conducted by the Kauffman Center for Entrepreneurial Leadership, 1 in 12 Americans are actively thinking of starting a small business. What we don't know is how many of these are considering buying an existing business.Russell Brown is an original member of The Small Business Advocate Brain Trust and one of our good friends. He and I agree on many things, but none more than the advantages of buying an existing business as opposed to starting one from scratch. Russ knows his stuff. He's the author of two outstanding books that I recommend, Strategies for Successfully Buying and Selling A Business and Preparing Your Business For Sale. He has joined me on the show many times to help me talk about the good, the bad, and the ugly of buying and selling a small business.
If you are one of the "one-in-twelve", it's a natural process to envision your new business and then set about creating it. But wait! Maybe someone has already created it? After all, when you need new tires you don't build a tire factory, do you? If you want your own business, why not see what you can get "off the rack".
Here are three good reasons to take this suggestion seriously:
1. Think of your marketplace as a Honda Civic, and there are 5 really big guys already in it. Snug, but do-able, right?! Now imagine that your plan is to get in that car yourself. Also do-able, but man, somebody's gonna get squeezed. Guess who? You're the new guy, you get the console. Ouch! That's sort of what it feels like when you add a new business to a marketplace. The folks already there have the best seats, and you get what's left. I'm not saying you won't make it, but it will be a rough ride. And remember, the console on a Honda Civic doesn't have a seat belt.
2. Now, let's look at that Honda Civic another way. Let's say you talk one of those 5 big guys into selling you his seat. This time you get a real seat, with a seat belt. In the marketplace, that seat represents an existing place of business, phone numbers, vendor relationships, CUSTOMERS, CASHFLOW. Day-one of your new VENTURE is not day-one of your BUSINESS. The customers and cashflow represent your seat belt.
3. Here's some really good news: Russ reports that of businesses that sell for a price below $1 million, 75 to 80 percent involve some seller financing. What this means is that 4 out of 5 of those big guys not only might sell you their seat, but might also give you terms to help you pay for it. THE biggest frustration I hear from small business dreamers is, "How do I get financing to start a small business?". Any more questions?
Write this on a rock... If you want your own business, look into buying someone else's first. And before you convince yourself that the price is more than you can afford, find out what it costs to replicate the existing customers and cashflow of one of those big guys in the Civic.
