I was asked this question by a friend and was surprised at the length of our discussion.  I started bouncing statistics and theories for a while until we finally boiled it down to his definition of a successful business.  Each business owner has their own goals for being an entrepreneur, whether it is freedom of time, control, following a passion, potential financial gain, education, or any other reason.  Regardless of the reason why someone starts a business, the success is in the eye of the beholder. 

I, being more pragmatic and numerical in my judgments, define success as maintaining a business venture until you voluntarily choose to leave it.  What I’m getting at is that passion comes and goes, financial gains come and go, and need for control comes and goes, but if you can keep your business afloat so it fulfills your predetermined goals until you choose to close it, then it is a success.  The problem is, most businesses close before the owner… wants it to because they run out of capital (cash).  This is business 101, you need capital to have a successful business.

For most start ups, the number one reason for failure is they run out of cash.  Not passion, drive, desire, time, energy, product, support, skill, intelligence or aptitude, just not enough cash.  It takes cash to start a business and then even more to grow your business.  Everyone who has ever run a business understands the term “cash is king!”

If you follow me on this logic then I think it is better to buy an existing business then start new.  Statistics show that over 50% of the start ups fail but only 30% of the acquired companies fail.  The whole market of buying a franchise is based on this fact.  I think the main reason for the higher success rate is that the existing businesses have already gone through the learning curve and cash flow high risk growth problems.  If you take the same exact business and start it from scratch or take it over 5 years down the road, I personally believe the acquired business is a smarter way to start.  Please don’t mistake what I’m saying. Not all existing businesses are run well, have no cash flow issues, and are better than starting debt free, just that if all else is equal, I will take debt to acquire the business over the years to start and make the business.  If you disagree, then why are so many start ups failing right now and those that make it are being purchased by an existing, bigger company?  Success breeds success and failure breeds failure.  Find a successful business and you will start off the entrepreneurial race running strong.

This entry was posted on Sunday, May 3rd, 2009 at 10:51 pm and is filed under Professional Advice, Buy a Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.