Entrepreneurship 101: Deciding Between Starting a Business from Scratch or Acquiring an Established Venture

Entrepreneurship is the process of creating something new and valuable through the application of initiative and risk-taking. One of the biggest decisions that entrepreneurs have to make is whether to start a business from scratch or acquire an established venture. Both options come with their own set of advantages and disadvantages. In this ultimate guide for Entrepreneurship 101, we will explore these options in-depth and help you make an informed decision.

Starting a Business from Scratch

Starting a business from scratch involves creating a new product or service, building a team, and developing a customer base. Here are some of the advantages and disadvantages of starting a business from scratch:

Advantages

• Fulfillment: Starting a business from scratch can be an incredibly fulfilling experience. You get to see your vision come to life and have a direct impact on its success.
• Flexibility: Starting a business from scratch allows you to be flexible and make changes as you go. You have complete control over your business and can pivot as needed.
• Full Ownership: Starting a business from scratch means that you have full ownership and control of the business. This gives you the freedom to make all of the decisions and reap all of the rewards of your hard work.
• New Ideas: Starting a business from scratch allows you to bring your new and innovative ideas to the market. You have the opportunity to disrupt the industry and create something that doesn’t exist yet.
• Creative Control: Starting a business from scratch gives you creative control over every aspect of your business. From the product design to the marketing strategy, you are in charge of making your vision a reality.

Disadvantages

• Risk: Starting a business from scratch involves a high level of risk. There is no guarantee that your business will be successful, and you may have to invest a lot of time and money before seeing any return.
• Time-Consuming: Starting a business from scratch can be incredibly time-consuming. You will need to dedicate long hours to building your product or service, developing your team, and marketing your business.
• No Track Record: Starting a business from scratch means that you have no track record or reputation to rely on. You will need to work hard to build credibility and establish your brand in the marketplace.
• Absence of Systems: Starting a business from scratch often means that you have to build everything from scratch including operational systems and processes, which can be challenging, time-consuming and costly.
• Less Initial Capital: Starting a business from scratch typically requires more upfront capital investment which could be a challenge to come up with.

Acquiring an Established Venture

Acquiring an established venture can be another option for entrepreneurs – acquiring an existing business with a proven track record, customer base, and brand. Here are some of the advantages and disadvantages of acquiring an established venture:

Advantages

• Immediate Cash Flow: Acquiring an established venture means that you have immediate cash flow and an existing customer base. This can help you build on existing client relationships and increase revenue right from the start.
• Established Reputation: Acquiring an established venture means that you have a well-known brand and reputation to leverage. This can help you gain trust with potential customers and suppliers.
• Proven Business Model: Acquiring an established venture means that you have a proven business model with a track record of success. This can reduce the risks associated with starting a new business from scratch.
• Existing Systems: Acquiring an established venture means that you have pre-existing operational systems that allow you to get up and running quickly. This saves you the time and money associated with building everything from scratch.
• Access to Skilled Staff: Acquiring an established venture also means inheriting a skilled staff. They have invaluable experience and can help you move the business forward.

Disadvantages

• Less Flexibility: Acquiring an established venture can limit your flexibility. You may have to work within existing structures and systems that don’t fit with your vision for the business.
• Mismanagement Issues: Acquiring an established venture means that you are taking on the previous owner’s problems and mismanagement issues. This can be difficult to navigate and fix.
• Higher Purchase Price: Acquiring an established venture can mean a higher purchase price than starting a business from scratch, which might make it difficult to come up with the upfront capital investment.
• Hard to Change the Existing Culture: Acquiring an established venture implies inheriting an existing corporate culture, which might be challenging to changing due to existing behaviour patterns and ingrained work ethics among employees.
• No Guarantee of Smooth Transition: Acquiring an established venture means that you are taking on an existing set of issues, and that the transition could be complicated to execute smoothly.

Factors to Consider

Deciding whether to start a business from scratch or acquire an established venture is a highly personal decision. Here are some of the factors that you should consider before making a choice:

Your Goals and Interests:

If you are highly invested in a specific industry and have a clear understanding of what you want to achieve, starting a business from scratch may be the best option. In contrast, if you are interested in finance and have experience in the field, acquiring an established venture could be the better option.

Your Risk Tolerance:

If you are risk-averse, then acquiring an established venture might suit you better. Here, you will have an idea of the existing business model, and you’ll see a clear track record, making it an ideal strategy for those unwilling to take too many risks.

Your Expertise:

Your expertise is another key factor that can determine the best route to go. If you are an expert in a certain niche or have a track record of successful instances in business development you may be ready to take on the challenge of starting from scratch and bringing a new idea to life. Alternatively, if you have fairly limited knowledge of building a business, acquiring an established venture might make more sense.

Your Finances:

The availability of the required funding for your business is crucial. If you do not have much capital investment or experience raising funds starting a business from scratch can be challenging. Acquiring an established business could be a better option as it might have financing options already in place.

Industry Growth and Competition:

The industry can dictate whether you choose to start from scratch or to acquire an existing business. Some industries require deep pockets for startup costs and operations, making it challenging to start from scratch, while in other industries despite the fierce competition, the product may not require a lot of capital expenditure to get started.

Current Market Conditions:

Your best option between the two could also depend on market conditions. If the market is over-saturated and there is a great deal of competition, starting a business from scratch might not be a good option. However, if there is a vacuum and there are no players in the particular niche, then starting from scratch would be the optimal choice.

Conclusion

Deciding between starting a business from scratch or acquiring an established venture is, without a doubt, a complex decision that should be based on your goals, expertise, risk tolerance, available investment capital and many other factors. Carefully consider these options and evaluate your options to make the best decision that will make you succeed in your entrepreneurial pursuits. By evaluating the various factors, you’ll be in a better position to select the right path to start or grow your business.