When most people think of entrepreneurs they envision young techies with game-changing business ideas and plans to go from zero to $1 billion overnight. What most people don’t think of is the hard work, long hours, stress, and failure rates.
Well, leave it to the MBAs to figure out a way to achieve entrepreneurial success faster, easier, with less stress and higher success rates. What’s their secret? Search funds!
Search funds have been around since the 80s but really started to grow in popularity after 2010. Aa search fund is basically a mini private equity fund whose goal is to acquire a small operating business and accelerate its growth.
I recently saw an article in the Harvard Business Review discussing how, for new MBAs, search funds have become increasingly popular. Rather than take the traditional consulting or investment firm route, MBAs from top schools see search funds as a fast track to being the CEO of a small, profitable business.
While HBR focuses on search funds vs. traditional careers, I think there is also a similar comparison to be made for traditional entrepreneurship vs. growth through acquisitions.
The biggest hurdle of a search fund is the upfront work/stress required to raise a fund, identify and then close a quality acquisition. After that, it’s basically just like most high-level jobs except you get to make your own business decisions and directly benefit from the improvements you make to the business. The same goes for most small businesses growing through M&A — financing and sourcing quality deals is usually the most difficult part.
While high early stage obstacles, with long-term rewards, is the idea of growth through acquisitions, HBR points out that, with the traditional MBA path, getting the job is easy and thriving at a chosen career is the difficult part. (see chart below)
In my opinion, a chart similar to the one above can be made to compare traditional entrepreneurship to growth through acquisition. As many of the entrepreneurs reading this know, gaining initial traction usually takes longer, cost more, and is much more stressful than initially anticipated (while starting a business is relatively easy).
In the last few years, I’ve seen an increasing number of entrepreneurs attempting to replicate the search fund model but there are still far more entrepreneurs going at it the old fashion way. Maybe MBAs actually do learn something in business school 😉