7 Examples of When You Should Acquire a Startup Rather Than Build One

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It’s hard to build a startup. About 90% fail, usually in the first five years. Even startups with venture capital never earn a return 75% all the time. This presents a dilemma: Are you risking your time and money to build a startup from scratch, or are you acquiring one with a proven track record?

failure surveyed founders of over 80 failed startups and found that the most common reasons for failure were product-market fit (34%), marketing (22%), and teams (18%). Why spend a fortune and years of your life solving these challenges when you could acquire a startup that already she conquered?

Related: How to Transfer Assets in a SaaS Startup Acquisition

That is, acquire or build depends on whether you are a builder or scaler. You could build if that’s what you love and where your expertise lies. However, if you are a scaler, you should acquire a startup that suits your skill set and allows you to sync and scale with ease.

Other examples are:

1. You lack the expertise or motivation to build

Success depends on how passionate or skillful you are at something. Concentrate on your strengths. If you’re a scaler, there’s no point in forcing yourself through a builder-shaped hole (you’ll just get stuck). Instead, acquire a startup.

The same applies to motivation. You’ve probably heard about it Flow, that trance-like state of happiness in which creativity and productivity thrive. Achieving flow by doing what you love feeds back into the joy of doing it and creates tremendous momentum.

For example, even if you are a master builder, you will not enjoy all aspects of building. However, an acquisition leaves you Choose a startup that needs what you enjoy most. As Steve Jobs said, “The only way to do great work is to love what you do.”

2. You don’t have the time to build

When you buy a business, you buy time. Let’s say you have a great idea, but your job, business, or other responsibilities prevent you from developing it. For example, you can run multiple SaaS companies to Increase your chances of a life-changing exit.

However, as a serial entrepreneur you are short on time and taking on an established startup takes the pressure off you. This way, you behave more like an angel investor and focus your strengths on scaling startups rather than building them from scratch.

You could also consider an operator to do the startup for you. Or acquire a set of technologies for your business instead of building it. Both save months and potentially thousands of dollars in the process of doing it alone.

Related: Free Webinar | February 10: Buy-side essentials for M&A transactions

3. You want to de-risk your next venture

When you build, you take the risk of turning an idea into a business. Imagine all the long nights, setbacks, and stress—with no guarantee of success. Going from zero to one is a lot harder than jumping off a solid stepping stone, especially when you’re entering a new niche, product, or service.

Despite the risks, building a startup teaches a lot about entrepreneurship. Some of these lessons are worth the time, effort, and dollars if you fail. But if you’re risk-averse, bouncing back from failure (mentally or financially) can be difficult, and in that case, buy, not build.

4. You want to repeat something already good

You’ve probably heard the phrase “evolution, not revolution” before. Iterative changes are both easier and more impactful because you have time to react to the world around you. The revolution, however, is a radical reinterpretation of an entire system whose ambitions, however well-intentioned, may fail in many ways.

Let’s put it this way: It’s much easier to get a good business and do it better than it is to start a business and do it well. Not only is it less tiring, but it’s also more fun to drive the momentum up rather than starting out of inertia – you’ll see results much quicker, too.

5. Your skills are more suited to scaling than building

just because you can build doesn’t mean you must. You should only build if you enjoy it and are good at it. Otherwise, you would have more success (and, dare I say it, fun) if you acquired a startup and then used your unique levers of experience to improve it.

I recognize the cachet of being a founder, but it may not be for you. Don’t force yourself to build because you think it’s a corporate rite of passage. Whether you buy or build, the goals are the same: you want the startup to be acquired for a life-changing sum.

Related: Why seller financing could save your acquisition business from disaster

6. You spotted an opportunity

Great startup ideas can simply be iterations of what already exists. A better service, better marketing, a more efficient business model and so on. Revitalizing a tired industry is much easier than creating a new one. It’s even easier to acquire a struggling startup, fix its problems, and then watch its earnings double.

Opportunities are everywhere. Many startups stagnate because the founder lacks experience or skills. Being able to do what the founder can’t do could transform the business. Connect with founders and other entrepreneurs to find profitable flipping opportunities.

7. You want to beat the competition

When you discover a new startup doing something better than you, why not buy it instead of reinventing the wheel? At least run the numbers: How much would it cost to develop new technology or update operations? Then compare that to the acquisition cost.

For example, younger founders might be willing to sell since the first startup is rarely successful. You could therefore acquire something that would have taken you months to build, at a reasonable or even reduced price.

Unless you’re developing a truly disruptive product or service (like the next Uber), you’ll find that the best opportunity is to acquire niche startups. You don’t have to work through that one to two year period to figure everything out. Instead, buy a profitable niche SaaS startup, learn what worked from the founder, and then repeat it until you reach your goals.

See also: How to Fund an Acquisition with an SBA Loan

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