“Yes, there are two paths you can go by, but in the long run
There’s still time to change the road you’re on.” ……..Led Zeppelin, Stairway to Heaven
Entrepreneur vs Investor
After a dialogue with a long time subscriber I feel compelled to write a piece on exactly who we are and who we are trying to become — if I may be philosophical. The question was asked as to why “entrepreneurs” don’t buy businesses, in fact don’t even think to buy businesses? If I may put on my personal development hat on for a moment I think we will find it all worthwhile. The answer to this question goes to the heart of self assessment and it may well dictate which road in life you take.
First, a little background. Let’s say hypothetically the subscriber is an entrepreneur and comes from a family of entrepreneurs. I, on the other hand, was a banker and come from a family of bankers, indeed middle market and top-level-manager-bankers. Certainly not entrepreneurs. Now I won’t sit here and tell you that everyone is a product of their upbringing. I never liked banking and have embraced entrepreneurial pursuits for most of my life.
However, I was a better banker than entrepreneur. I believe this has to do with my inclinations, tendencies, strengths and weaknesses. In effect I ended up going the best route for me and it wasn’t to start businesses – it was to buy them. I loved the idea of starting businesses but never actually did it. But then, one day I did but it wasn’t what I imagined. Now, of course, necessity is the great motivator and I needed to start something. so I started a buyout shop. A merchant bank as we called it bank then. I gravitated towards that type of business, the businesses of buying businesses. This was in part because PE and LBO firms were well publicized success stories and it seemed that my financial expertise translated well into the buyout field. However, that was just a minor factor.
The truth is that I probably didn’t want to start a business. Before the internet you didn’t just throw up a website and collect some money, you had to raise money and run on shoestring for years before it paid off and there was no guaranty of success because most startups failed. Just like today. Of course you had far less competition because the cost of entry was so high. So why not use that same startup money to acquire a business using leverage so that you would not have to go through the headaches of growing pains and suffer from a lack of capital?
Now, the reverse of what I did is what a conventional entrepreneur does, which is to embrace the management duties of a day to day business owner. He could be a Type A (hate the word) personality or a restless, energetic, driven individual who doesn’t mind, in fact thrives on, the grind. He doesn’t mind being chief cook and bottle washer because that is what he would do in a small business. The smaller the business the more hands on he will have to be. Entrepreneurs are often good at one thing and might not even have a clue about financials, accounting, loans or equity. The entrepreneur is not concerned about the metrics of some other company he doesn’t own, he is concerned about day to day operations of his baby, the company he does own.
I have considered myself all of the following: banker, investment banker, financial professional, investor group, private equity, but not necessarily an entrepreneur. The difference between us is pretty apparent. The true entrepreneur prefers an environment that is a fast paced microcosm of the real world. He makes and sells pizzas so a few people can eat. He makes and sells clothes so people can wear them. He invents a new egg beater so it performs better. Is an accountant or lawyer with his own firm an entrepreneur? Well yes and no – just like me. I put them in my category as a financial or legal professional. I suppose that could mean they produce nothing useful, or as Trump would say: “hedge fund managers just push paper”. Indeed that could be said about many professions.
So getting back to the original question, I’ll ask another question. Would an entrepreneur do his own legal work? Or audit his own books? No, almost certainly not. And so it is he probably won’t buy a business. That doesn’t mean he can’t – he is every bit as smart as everyone else. The process of buying a business is simply out of his comfort zone and his skillset. Now, because the result of buying a business can be far more lucrative than auditing your books or doing your own legal work, the initial question is really important. Why aren’t they doing it? Entrepreneurs should be far more motivated to buy a business than undertaking just about any other venture other than growing their own startup internally. But they probably aren’t hardwired to do it even though they stand to benefit more than most other professionals. I mean, if nothing else they should be able to jump in, manage and take a business to the next level.
I have over the years actually coached some business owners to do just that, buy businesses to grow. Do they do it? No. Why not? At this very moment, an entrepreneur knows how to do one thing well and that is to drive his business. He doesn’t know how to drive other people’s businesses. In many cases they don’t even know how to expand their own business which would be the obvious next step. Yet these are the same folks who thought outside the box and started their very business from scratch and grew it to $5.0 Million.
So it is very important to recognize the different tendencies and limitations that we all have and understand that they change with circumstances and over time. If you don’t like working with numbers you may not like evaluating businesses to buy. If you would rather keep your hands busy then making pizzas might be the ticket. If you love running a store then go for it. If you like working with people and systems perhaps a manufacturing company is the right choice. But the reason I decided to buy businesses is that if you took the time to learn the process you could have your cake and eat it too. You get to see, learn and touch hundreds of different types of businesses. You can’t beat that for an eye-opening experience. If an entrepreneur takes the time out of his fast pace to learn and experience the somewhat slower moving acquisition process, indeed he can be a dealmaker too.
