Many entrepreneurs welcome the challenges associated with building a business from the ground up. The prospect of making something from nothing generates a powerful pull, luring these focused founders to embrace the unique requirements driving upstart ventures.
As appealing as it may be to start from square one, launching a new business isn’t the only way to satisfy self-employment dreams; buying an existing operation is another viable way to answer the call to entrepreneurism.
Small Business Success Rates
An often cited statistic, claiming half of all small businesses fail within the first year of operation, may actually be a pessimistic assessment of upstart success rates. According to the Small Business Association (SBA), up to 80 percent of new businesses may surpass the one year mark. But the picture grows decidedly dour, beyond year one.
It is thought only about half of small businesses prevail for five years, and that the ten-year success rate, staying in business, may be closer to one in three upstart ventures. As discouraging as the figures may be, they don’t spell gloom and doom for every new business – many survive and prosper. Even so, better business odds are always welcomed – particularly for entrepreneur investors, putting personal capital on the line to fund an independent venture.
What if you could reduce the odds of failure, while still pursuing self-employment?
If you’re eager to act, but not sold on startups, buying a business may be a prudent path, enabling you to hit the ground running with an existing enterprise. And timing may be on your side. A combination of retiring baby boomers selling businesses and economic conditions favoring entrepreneurs has created a robust market for business buyers. One recent report showed a noted uptick in available businesses for sale during 2018, resulting in a prime opportunity for you to become a first-time business owner or to expand your personal holdings.
Understanding Durable Competitive Advantage
The economy remains strong, but some observers view another recession as a possible risk for small business owners. The potential for an economic slowdown, paired with a marketplace rich with ownership opportunities, makes it more important than ever to do due diligence, before striking a deal to buy a business. As you vet alternatives, one of the most important things to look for is a durable competitive advantage.
According to a recently published Inc. article, most existing small businesses are relatively young; fewer than 20 percent of them are 20 or more years old. Without a durable competitive advantage, which Warren Buffet identifies as an indispensable ingredient for commercial success, your business venture may be short-lived. A business so equipped is one with long-term potential that is directly related to its products or services. Businesses with a durable competitive advantage offer goods and services that are:
- Hard to copy
- Superior to competing products
- Always needed
In addition, products and services with durable competitive advantages are consistent, remaining relatively unchanged over time and requiring little research for continued development.
Businesses That Hold Up Over Time
Certain businesses lend themselves to the types of advantages required to prevail over the long haul. While exploring business-for-sale opportunities, focusing on companies in the following sectors can help you sort prospective winners from businesses that are more than likely to fail.
Health Care – Health care businesses are statistically viable, because the segment already accounts for a substantial share of the US GDP, and the number is headed upward in coming years. The workforce is aging, so a quarter of workers will be in their mid to late fifties by 2023, reinforcing a steady need for health care providers.
From home health services to non-medical assistance for seniors, health-related businesses have a built-in, aging, client base that strengthens projections for their ongoing success. Such business services are self-promoting, because people will continue getting sick and health care is subsidized in varies ways. The government backing provides steady cash flow for health businesses, even when the economy takes a turn for the worse.
Subscriptions and Repeating Service Businesses – It’s no secret; you’ll need long-term, repeat customers to prosper over time. Repetitive service businesses fulfill the need for reorders, guaranteeing income for entrepreneurs who are able to retain clients and add new business to counteract the churn rate.
If your business provides sought-after solutions and consistently delivers a high level of service, customers are likely to keep coming back. And if it’s adaptable, without calling for substantial investment to institute changes; you’ll be less likely to experience peaks and values when market conditions change. Examples of repetitive service businesses include:
- Cleaning companies
- Pest control
- Transportation services
- Auto repair
- Many more…
Diverse repetitive service business alternatives typically focus on everyday products and services, providing a wide range of different avenues for buyers to pursue.
Franchise Businesses – Franchises bring with them a certain level of stability, appealing to buyers seeking structure. Corporate backing and established marketing mechanisms provide advantages, beginning on day one. And because they are turnkey operations, changing franchise ownership is often easier than orchestrating sales of other types of independent ventures.
Starting out with an established brand puts you ahead of upstart businesses, creating widespread franchise recognition, extending beyond the borders of your territory. And as economic conditions change, presenting challenges, a corporate team works to support your franchise business investment. This extra measure of security adds value to your businesses purchase, unavailable to strictly independent business buyers.
Although many focused entrepreneurs thrive, turning good ideas into sustainable businesses, building from the ground up isn’t the only way to achieve success as an owner. Buying an existing business may provide an extra measure of protection for your investment, enabling you to hit the ground running, with an established concept.