MBAs Figured Out The Secret To Entrepreneurship (hint: acquisitions).

MBAs Figured Out The Secret To Entrepreneurship (hint: acquisitions).

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)

w160318_ruback_angstover1-850x607

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 😉

 

Advertisements

Spitting Watermelon Seeds.

Spitting Watermelon Seeds - Entrepreneur

The other day I saw a post on LinkedIn by Ryan Holmes titled: “3 Worst Entrepreneurial Habits Revealed (by a watermelon)“.

Holmes tells the story of a friend who spent time living in a Canadian village accessible only by plane. Because of the distance, food prices in the village were very high. One day a watermelon arrived in town and the shopkeep placed a $85 price tag on it.

$85 was a lot of money for the people in the village. The community members came up with a solution; cut up the watermelon and sell it in individual pieces so everyone could have some and share the cost. While the community members’ solution seemed logical, the store owner refused to cut up the watermelon. Eventually, “the rare and precious fruit was left to rot on the shelf, unbought and uneaten“.

Holmes say this story shows “three of the worst entrepreneurial bad habits converge: inertia, ego and fear“. He then goes on to detail each bad habit. It’s a great post and I suggest any entrepreneur give it a read.

You can find Ryan’s post on LinkedIn HERE

In the comment section, a LinkedIn user asked; “why no one decided to buy the watermelons themselves and sell them in parts.

This user’s comment highlights the most valuable lesson from this story – good ideas are a dime a dozen but the ability to execute is rare.

The town’s people all thought the shop owner should cut up the watermelon and sell it in pieces but no one wanted to take the risk and/or put in the effort to do it themselves. No one executed!

Some might be surprised at how often I speak with different management teams with nearly identical business plans. While some succeed, others don’t and failure is usually not because of a lack of good ideas. I’m also guilty of thinking of “great ideas” only to never do anything about them and later see an article in TechCrunch or VentureBeat about someone who is executing on my idea. Success or failure isn’t a result of the quality of an idea, it is a result of the quality of execution!

So, if all you have is a great idea and no execution, you are just spitting seeds…


About Ben Kotch:

Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.

For more, please follow on Twitter.


NOTE: THIS BLOG AND ALL OF ITS CONTENTS (THE “SITE”) ARE FOR GENERAL INFORMATION PURPOSES ONLY. THE VIEWS EXPRESSED ARE SOLELY THOSE OF THE AUTHOR. THIS SITE SHOULD NOT BE CONSTRUED AS AN OFFER TO BUY OR SELL ANY SECURITIES OR AS AN OFFER TO TRANSACT. NOTHING ON THIS SITE SHOULD BE CONSIDERED FINANCIAL, LEGAL, OR TAX ADVICE.