The American Dream has many components, but to me, the big three are liberty, business ownership, and home ownership. The order is intentional.
- Liberty is prime because it makes the other two possible. Freedom is from God, but liberty is a contract we give to each other.
- Business ownership in America has produced more self-determination than any other force in history, including from all of the associated jobs.
- Homeownership is available to all Americans who’ve claimed one of those jobs.
As much as the latter two are part of our liberty, business ownership is the most challenging. Blasingame’s 1st Law of Small Business states: “It’s easy to start a small business, but it’s not easy to operate and grow one.”
That paradox manifests in full measure when the entrepreneurial sap starts rising in the bark of a prospective business owner who decides to start from scratch. It’s a natural process to envision your new business and then set about creating it out of whole cloth. But that natural urge must be tempered with this rude truth: Someone else has probably already created something that looks a whole lot like what you’re thinking about creating. Consider these points before you become a startup.
Think of your local marketplace as a Honda Civic that you want to ride in. But unfortunately, it turns out that there are five really big guys already crammed in there. If you’ve ever ridden on the console, that’s what it feels like to add a new business to a marketplace. I’m not saying it can’t be done – I did it. But it’s a rough and dangerous ride because the console doesn’t have a seat belt or an airbag.
Now let’s say instead of squeezing yourself into that rough ride, you convince one of those five big guys to sell his seat. In the marketplace, that seat represents an existing location, a known brand, phone numbers, a website, vendor relationships, experienced staff, and most importantly, customers and cash flow. Those last two represent your seat belt and airbags. With this plan, your first day as a business owner won’t be the first one for your business.
The biggest lament for every small business dreamer is, “How do I get the capital to fund my new company?” Indeed, most startups begin with precious little capital and a plan to bootstrap their way to success. But if you’re willing to buy your dream “off the shelf” instead of starting it from whole cloth, here’s some really good news: Almost all small business sales involve some seller financing (“taking back paper”). The acquisition is made by combining new owner capital, some level of seller financing (the paper), and likely some bank debt.
So when you’re talking to that big guy about selling his seat in the Honda, be prepared to discuss how the two of you can be creative in developing a multi-year payment plan. You’ll get terms you can afford and the seller can maximize his/her price. If real estate is involved, don’t buy it at first – lease it to reduce the upfront capital commitment. And before you convince yourself that the price tag of an existing business is too high, calculate the cost of failure of the one you tried to squeeze into your marketplace.
Finally, the Main Street marketplace is currently going through an unprecedented shift: millions of Baby Boomer business owners are at retirement age and are looking to hang it up. And the rest of the news is that, more than ever before, the kids don’t want the business and there aren’t enough outside prospects. That creates a buyers market, which means more than at any time in my long career, there’s an inventory of available small businesses you can buy from the founder at prices and terms unavailable not that long ago.
So, look around for an operating business that fits your future business model, has an established location, physical and digital addresses, and a customer base. Then negotiate a price you can justify, plus the kind of capitalization terms (paper) that will help you make the acquisition transition.
Write this on a rock … Part of your American Dream might be the next version of someone else’s.