Tip of the Spear Ventures

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Acquisition Entrepreneur – Art or Science?

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The Point: We’re often asked about our Mergers & Acquisitions business specifically, “How can I be an Acquisition Entrepreneur?” The reality is that most entrepreneurs that take on an acquisition are not born that way, they are trained to do so. If learning is at the forefront, what else is involved in the background? So, in this post we’ll explore the Acquisition Entrepreneur – Art or Science… Enjoy!

Things to Consider As an Acquisition Entrepreneur

The acquisition of a business is often thought of as the same thing as buying an existing enterprise, however, there are several key differences. An acquisition can be more difficult for some entrepreneurs because of their inexperience and limited financial resources. Acquiring businesses involves a series of steps.

No Cowardly Lions!

The first step to successful acquisition is having the courage to buy a business. There is often fear among investors that if they invest in a startup it will fail. This is not true. The reason for this is that successful entrepreneurship is built on sound principles, strong leadership, and an excellent business plan.

You are an Investor

To buy a business, investors require information about the owner. They want to know the entrepreneur’s personal and professional background. This includes information on the founders, the current business model, and the products or services offered. Having this information allows investors to evaluate the potential acquisition more objectively.

What Does the Business Do Well?

Investors also look for the strength of a business. In addition to a strong business plan, an entrepreneur should have experience in his field. Additionally, he should show that he has the ability to manage and grow a business. In addition, it is important for a start-up to demonstrate how the business will survive during tough times. These can be difficult to assess when a company is still in the development stages.

What is the Legacy of the Business — and You?

When buying a company, investors look for companies that are well-established and that have a solid financial footing. It is also important for the entrepreneur to convince potential investors that he is capable of managing the business. By conducting a survey of the company and its current location, he can show investors that he knows where he is going. He can also convince potential funding sources that he has a great idea for making the company successful. If he is able to generate interest from interested funding sources, he may find himself able to buy the company more easily than he had originally expected.

Time is the Great Equalizer

Another important thing to consider when it comes to being an acquisition entrepreneur is the time line for making a successful acquisition. Most companies that are interested in buying a business develop interest over time. However, it is not always easy to close a deal at the right price and time. As a result, some companies prefer to wait to make an acquisition until they have more negotiating power. This gives them a better chance to get a good deal on the business. On the other hand, a strong acquisition entrepreneur knows that he needs to quickly close a deal so he needs to be ready to negotiate with all of his potential funding sources.

SUMMARY

In this post, we’ve explored the topic of Acquisition Entrepreneur – Art or Science. We know that there are a lot of ways in which you can explore your entrepreneurial spirit. Becoming an acquisition entrepreneur is a smart way of doing so.

Sam Palazzolo

Five Tips For Becoming an Entrepreneurship Through Acquisition

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The Point: Being an entrepreneur is great! However, the saying, “Work smart!” should be a tactical advantage with a strategy of buying a business being front/center! I see time and again entrepreneurs that start a business from scratch — and that’s just plain hard work! In this post we’ll explore Five Tips For Becoming an Entrepreneur Through Acquisition (ETA)… Enjoy!

You do not need to begin a new business from scratch in order to become an entrepreneur. In fact, purchasing a company with which you are familiar could be a wiser choice. Creating, marketing, and then selling companies are all a part of your entrepreneur s journey. There are certain things you will want to keep in mind when looking into purchasing a company, though. Below are four tips for becoming an entrepreneur through acquisition.

Tip #1 | Entrepreneurship Through Acquisition

The first and most important step to becoming an entrepreneur is being able to finance your business. Financing is crucial to making any business work, but it is even more critical when you are just starting out. If you are working with a limited budget, your options may be limited. In order to get everything lined up, you will want to begin working with a lender as soon as possible, particularly if you intend to use credit cards or other forms of capital. When you are seeking seller financing for your business, you will have to provide substantiation of your income, a solid plan for increasing your sales, and a clear plan for paying back the loan.

Tip #2 | Entrepreneurship Through Acquisition

The second step in becoming an entrepreneur through acquisition is finding a seller financing program. Most traditional banks do not look favorably on businesses that have never made a profit or do not have a history of revenue. In order to get everything lined up for your business, you will have to secure funding from either a bank or a private investor. A good real estate investor will be especially helpful because he or she can get you loans with a lower interest rate than what you can get from a bank.

Tip #3 | Entrepreneurship Through Acquisition

The third tip to becoming an entrepreneur through acquisition is to make sure you can make a profit on your investment after your first acquisition. The ideal scenario would be to purchase a business with low start up costs and high revenue potential. Most businesses fail shortly after they are launched. If you cannot turn a profit on the first sale, you may have to take a loss on every sale thereafter until you break even.

Tip #4 | Entrepreneurship Through Acquisition

The fourth tip to becoming an entrepreneur through acquisition is to consider a gradual increase in profits over time. An entrepreneur does not simply buy a business with the best potential for revenue and expect a huge windfall from it the next day. Business development takes time and effort. Your job during the early stages of your business venture is to generate customers and build a strong relationship with your suppliers.

Tip #5 | Entrepreneurship Through Acquisition

The fifth and final tip to becoming an entrepreneur through acquisition is to consider starting your own company as a small business. When you start your own business, your goal is to have low start up costs, high annual revenue, and a strong customer base. This means you will have a limited amount of resources to work with in terms of finances. Starting your own business can be extremely difficult if you do not have a comprehensive business plan in place. You must set a budget and identify your target market to determine how much money you can invest in your new business venture.

SUMMARY

In this post we’ve explore Five Tips For Becoming an Entrepreneur Through Acquisition (ETA). If you’re ready to put the strategic advantage of acquisition — buying a business — to work for you instead of starting one from scratch, success is still going to be hard work. However, the outcome can be much more advantageous.

Sam Palazzolo

Buy a Business – How to Make Sure You Are Acquiring an Industry Leader

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The Point: In most instances, purchasing an existing enterprise is less expensive than beginning from scratch when you buy a business. However, on the other hand, purchasing a business is also frequently far more expensive than starting from scratch in almost any other industry. This is because most businesses start out small and have only a slight chance of becoming profitable before they expand beyond their initial premise. For this reason, there is a substantial risk of losing money when you purchase a business. Therefore, a geographic location is one of the most important business attributes to consider when you are deciding whether to purchase an enterprise or not.

Entrepreneurship through Acquisition (ETA)

An enterprise, on the other hand, is a company with existing assets such as accounts receivable, inventory, and franchises. A business typically generates these types of assets from customers who pay their bills by credit card or electronic check. Generally, the longer it takes to bill a customer, the more profit that the business will generate. Therefore, if your customers are able to pay their accounts receivable on time, you do not lose money when you are buying an enterprise. On the other hand, if customers run away from your company, you could be faced with a flood of checks and a loss of revenue for several weeks, even months.

The Financials Matter in Entrepreneurship

Because the amount of profit generated from each sale is directly related to the amount of cash flow that you have available, it is essential that you make sure that you can service all of your customers within a reasonably short period of time. In addition, it is essential that you make sure that you have enough cash to service all of your current accounts receivable balances. If you do not have a strong cash flow performance, you may encounter difficulty in meeting your financial obligations. Therefore, it is imperative that you do everything possible to improve your cash flow if you are going to buy an enterprise.

Financing the Acquisition

In many cases, business owners try to buy businesses even if they do not have enough financial resources to finance the purchase. It is essential that you carefully consider your ability to pay cash for the asset that you are buying. For example, many business owners are willing to spend more than ten percent of their net worth just to purchase an industry leader. It is important to remember, however, that this purchase will cost them at least ten percent of their net worth at the end of the term. Therefore, if you are willing to pay more than ten percent of your net worth just to buy an industry leader, you should also be prepared to lose ten percent of your net worth when the industry leader decides to file bankruptcy.

Entrepreneurship through Industry Leader?

If you are going to purchase an industry leader, it is important that you do not rely on your accountant’s preliminary analysis as you do with many commercial purchases. The preliminary analysis provided by your accountant will provide an overview of the company’s financial results for the last three years. However, this analysis is not a full analysis and it does not take into account all of the relevant information related to the company’s business model. This means that the preliminary analysis can be quite wrong. As a result, you should make sure that you have the final analysis from a reliable source and that you understand what the company’s liabilities and assets are.

SUMMARY

When you are looking at purchasing an industry leader, it is also important that you consider the costs associated with the transaction. For example, if the transaction is expected to result in annual recurring expenses of ten million dollars or more, you should use the services of qualified accountants who can provide you with the financial statements and other documentation that you need to make an informed decision. Also, it is imperative that you understand how the tax returns of the company impact its acquisition and whether the acquisition will have a significant effect on the company’s ability to obtain financing in the future.

Sam Palazzolo

Entrepreneurship Through Acquisition Conference Notes | February 2021

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This week we’re participating at the ETA Conference put on by The University of Chicago – Booth School of Business and Kellogg School of Management at Northwestern. If you were unable to attend, or if you did attend and wanted to compare/contrast session highlights, below is the notes that we took.

ETA Day 1

Managing a Search Fund Business – A Discussion with CEOs

Presented by Professional Bank. This panel discussion with ETA operators will focus on three key areas of operating a business – people, strategy, and finance – as well as the challenges and learnings CEOs have found.

Cybersecurity and Implementation

Presented by Mowery & Schoenfeld. “So you own a business, now what?” This panel will take a realist look at the financial, accounting, and cybersecurity challenges facing business owners. Participants will leave equipped with practical tools to help them make solid decisions during the search phase that will set them up for success as an early owner-operator.

Operating and Searching Amidst COVID-19

Presented by NextGen Growth Partners. This discussion will address how NextGen Growth Partners navigated the impacts of COVID-19. They will discuss the various ways their portfolio companies and entrepreneurs-in-residence adapted to unforeseen circumstances, and how they leveraged their ecosystem to weather the storm, innovate, and capitalize on great opportunities.

To access the notes from Day 1, please register below and you’ll have immediate access:

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9 Lessons In 9 Years at Tip of the Spear Ventures

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February 2012 – I am a 2%’er. Apparently, and I wouldn’t know this until later (much later!) that less than 2% of all entrepreneurial startups achieve successful exit. The experience of raising $8Million, launching a technology software startup that received consumer traction, and having a private equity firm acquire us was incredible! But now what? As I sat on a rock overlooking the ocean in San Diego, CA, I thought back to how it was just 7 years earlier that I had done the same to envision what was to come. “Now what?” was the question I was asking myself again, looking to the horizon where the sky meets the Pacific.

I knew that I enjoyed the private equity experience, and after a few moments determined that was what I wanted to do next. I wasn’t a total stranger to the financial space, having my formal education in Accounting and spending my formative years working in Strategic Planning and Finance. In the 9-years since that day, I’ve built something that I’m very proud of and I’d ike to share with you 9-lessons I’ve learned along the way.

Lesson #1 – Define Your “What?”

What are you made of and what do you offer? This is the “metal” that has been tested at Tip of the Spear everyday. We’ve “pivoted” over the years with different ventures, but the one mainstay was that we are “what” others should desire to be (Namely a group that puts forth A+ effort and content deliverables).

Lesson #2 – More People, More Problems

If you’ve hired as a part of your leadership journey, you know the pitfalls that can come with doing so. We’ve been at different times over the 9-years a small and big organization. I’m happy to say that we’ve settled on a model for the future that includes clustered growth. 

Lesson #3 – Think Strategically, Act Tactfully

In the heat of business, I want to win. I assume you do as well. However, and this was key for me, those “win” moments or victories that I sought to win were often at the expense of the war. I was reminded to think strategically and to act tactfully by an executive coach. The difference in thought/action appears in everything we do now.

Lesson #4 – It’s Lonely at the Top

I originally had a partner at Tip of the Spear Ventures. They were a silent partner that was low on injecting capital, but high on injecting their opinion. At about the three year mark we determined that parting company was best for the company (and us as individuals). I would rather be lonely than miserable.

Lesson #5 – It’s Lonely (but Don’t Go It Alone!)

This piggybacks off of Lesson #4… Even though you’re alone at the leadership helm of your firm/organization, you don’t need to go it alone! While opinions are like you know whats, if you tactfully align with peers/mentors you’ll achieve desired strategic outcomes faster.

Lesson #6 – Change Lives!

Opportunities to make money are everywhere, especially if you look for them! What might be even less obvious is the ability to change lives. I’ve been fortunate to receive recognition that what I was doing was actually making a difference for the people that I worked with. It is simultaneously humbling and rewarding.

Lesson #7 – Time… 

You, me, everyone only has 24-hours in a day. What are you doing with it that maximizes your efforts?

Lesson #8 – Agility

While processes and procedures form the structure of a successful business, the ability to be agile is a key differentiator. Want to stand out from the crowded crowd? Become agile!

Lesson #9 – It takes Blood, Sweat, & Spears!

I sometimes have to pinch myself… I’m a city kid from Detroit that was as my Mother says “Born in the shadow of a Ford manufacturing plant’s smokestack.” How far I’ve come has only been limited by my ability to imagine, visualize, and then take action. At one of our Boot Camps a few years back in Las Vegas, one of the participants accurately summarized that “Success takes blood, sweat, and tears!” The conversation morphed to one of “Blood, Sweat, and Spears!” which has stuck with us ever since (We’re running another Boot Camp starting 2.21.2021 for those seeking Entrepreneurship Through Acquisition). 

SUMMARY

These past 9-years have taught me so much, and I know that the next year will be even more insightful.  I’m determined to further establish in our ninth year the foundation that will drive the firm forward for the next two decades. I recognize that what worked in the past might not necessarily work in the future, so we will have to continue to evolve.  It is my goal to build an institution that outlasts me and continues serving entrepreneurs for generations to come. 

Sam Palazzolo