One of the most difficult decisions for entrepreneurs is whether to grow their company by acquisition or start from scratch. The decision has significant implications on the entrepreneur's life, and it can be difficult to know which path will lead to greater success. It’s important to do your research and seek advice from those who have been through this process in order to make an educated decision.
In this article, we discuss some of the main reasons why acquiring a company may be better than growing one slowly from scratch.
Main Reasons to Acquire A Company Rather Than Grow Slowly
Obtain a pre-existing infrastructure
To grow a company from scratch, entrepreneurs need to obtain the infrastructure needed for growth. This can be far more expensive than just acquiring an existing business with pre-existing infrastructure already in place. You are likely going to have less room for error as well because you will not be able to use any of the previous successes at your new company as leverage on potential investors or customers.
Additionally, you avoid having to hire an entirely new workforce. This can be an expensive process because many people turn down offers for positions at start-up companies due to uncertainty over pay and benefits. In acquiring another business, however, there is already a skilled workforce in place that has been vetted by the previous business.
Aside from a skilled workforce, you also gain access to new technology. This is a huge benefit for entrepreneurs because they will not need to spend time and money on research about the best technologies to use. Buying another company gives you access to all of their technology, so there will be less trial and error involved in the process than if you were trying to figure things out from scratch.
Remove a competitor
When you are growing a company from scratch, your main competitors will be other start-ups. When an entrepreneur decides to acquire another business rather than grow from scratch, they get the advantage of removing their main competitor by acquiring it instead.
This can give them access to new markets and more customers in the process without needing to compete against anyone for those same resources.
Improve profit margins
Growth from scratch is a risky venture because there are so many things that could go wrong. Acquiring another company, however, allows for an opportunity to eliminate the uncertainty of growing by acquiring rather than starting your own business from nothing.
This means you will be able to make better decisions about how much time and money needs to be invested for long-term success, thereby improving profit margins significantly with less risk involved on the entrepreneur's part.
Many entrepreneurs who decide not to grow their companies through acquisition run into problems when it comes to mitigating legal liabilities around intellectual property rights or other benefits they may have at their existing businesses.
Growing a new company from scratch removes these concerns because when you acquire another company instead, those previous liabilities are pushed to the side.
Leverage pre-existing customer base
One thing that entrepreneurs should never forget is that people want what they're familiar with - so when you buy a company that has had success before, this gives potential customers something else to latch onto if they like one or two aspects of the new company but don't like others.
In order to combat this problem as an entrepreneur who wants growth, you will need to build your customer base from scratch. Acquiring another company allows you to use this pre-existing customer base in order to attract new customers that may be more interested in what they already know than an unfamiliar face or product with no track record.
Expand into a new market
One of the great things about acquiring another business is that it can help you expand into a new market. You do not want to spend time on research and development for products or services in markets where you may have no experience, so this advantage allows entrepreneurs to tap into an established customer base without having to invest any additional resources upfront.
Businesses that have been through the process of acquisition can provide crucial insight into whether or not this is a smart move. One thing they will tell you that many people are forgetting is how personal this decision can be - so before jumping in, it's important to get advice from someone who has experienced both trajectories and knows which one benefits them the most.
It can be more practical and less expensive to acquire a company rather than build one from scratch. It is important to consider the following benefits when making this decision: obtaining pre-existing infrastructure, access to new technology, removal of competitors as well as leveraging an already established customer base.
One last thing to keep in mind before deciding on whether or not to acquire another business is if it’s right for your needs - it's a personal decision too. You want what works best for you so make sure you consult with someone who has been through both processes before making any decisions about which direction will work better for your specific situation.