For some entrepreneurs, the challenge is not to start a company from scratch, but to take over someone else's company and make it better. Both approaches are steeped in entrepreneurship and entrepreneurial philosophy.
Timothy Bovard, an adjunct professor of acquisition-based entrepreneurship at INSEAD, says that the challenge is not to start a company from scratch, but to take it over and make it better. Timothy Bovard notes, "Many people consider themselves qualified 'fixers' although not necessarily creative and innovative."
"If you have a good idea for a business, you have to dare to make it happen; however, many entrepreneurs are better at taking over an existing company and making it bigger and better, putting all the characteristics of a start-up into play."
Finding the right acquisition
According to Bovard, finding the right acquisition target is a creative act in itself, requiring a range of self-awareness and external support. "Acquisition-based entrepreneurship refers to starting a business by acquiring small and medium-sized companies, so the potential market is as big as you can imagine. How do you find the right acquisition target? First, the entrepreneur must establish a comprehensive set of search criteria. As with house hunting, you need to define your target company's category, its sector, its region, its business problems, and so on. Only then start casting your net. Of course, this all needs to be done in a methodical and professional manner."
During the search process, entrepreneurs need to make constant self-reflections, and entrepreneurs need to dare to be honest with themselves. "Another important point is to have someone around who can give advice and reminders at the right time. This person has the courage to say to you things like 'this company is great, but it's not for you'." Bovard says he himself has an old friend in the watch industry who has given him help, advice and criticism over the years.
"If you can find the right company with a clear goal and vision for growth, it can be a match made in heaven," states Poivard. As President of the independent watch brand Cabestan, his vision for the brand's future is to make it a rare brand that watch connoisseurs crave. This means broadening the niche market of this ultra-luxury brand. Initial initiatives include the launch of a new, award-winning watch; another new initiative is a limited-edition collaboration with the luxury sports car Ferrari. Although the global economic crisis has had little impact on Cebestan customers, demand has slipped for a while. "This has made us reflect on the true value we offer our customers: our brand is not only about exceptional design, but also about meticulous craftsmanship, striving for the ultimate interpretation of precision and luxury to create stunning masterpieces that are flawless," says Poivard.
Looking for financing
Bovard says it's not difficult to raise money if you find the right company. He says investment firms have a lot of cash on hand and there are some investors who are particularly inclined towards companies whose management has bought out and bought in. But Bovard points out that unlike start-ups, acquisition start-ups are not presented to investors with a business plan full of hypothetical data, but with an actual action plan. That is: the next step forward for the company; a concrete plan for the first 100 days or first year of operations after taking over the company, etc. "Once you have a concrete plan, you can translate it into concrete data to convince investors and bankers. And in the process, entrepreneurs can test the viability of the project themselves."
However, whether a CYE starts or acquires a company, the main time and effort of the entrepreneur should be spent on management. It is clearly easier for young entrepreneurs to acquire a company with an existing management team, a proven business track record and already some market and cash flow than to start a new company from scratch. "Anyone who really has the leadership qualities, is willing to put in the time and effort to learn the business and has a clear vision has a good chance of success."
Some entrepreneurs believe that they have what it takes to turn around a company that is in poor shape. Bovard's advice to this is: "For young managers or young people fresh out of an MBA course, the first criterion for selecting a company should be whether it is in good financial shape. It's better to pay a higher price for a company that is financially sound and has a stable cash flow, so that even if something goes wrong, the company doesn't collapse and you lose everything. Turning around an underperforming company sounds exciting, but it's also dangerous."
Potential pitfalls
Other potential pitfalls include differences in language or management style with the target company and its management. It's true that a comfortable working environment is a precursor to success, but the biggest stumbling block on the road to success is being too hasty. "People tend to put pressure on themselves in terms of time when looking for a target company. Remember that the search for the right company usually takes between 18 and 24 months. Be patient and cautious, and don't be constrained by time to act hastily. If you take a little more time to find a better and more suitable company, the risk of running a business in the future will be greatly reduced."
Acquisitive start-ups may not be as respectable as start-ups, but the road ahead is the same - the right people, relentless effort, leadership and foresight are all essential. "And passion! Entrepreneurship relies on passion, and passion is synonymous with entrepreneurship," says Bovard.
