buying a business > building from scratch (5 reasons)

5 reasons why buying a business is better than building one

1. Existing Product-Market Fit

When you buy a business, you’re getting a proven product.

The PMF already exist, you don’t need to find it

For example, when we purchased Ana, it had over 15,000 registered users and 4,000 monthly active users.

This gave us product market fit with an established problem statement of helping the users learn a new language and active users to work with.

2. Revenue and Customers

You step into a business with existing users and streams of income.

This gives you a good amount of previous history to play with along with feedback from the users to iterate.

You're not just acquiring the website but also its customer trust and proven sales funnel.

3. Proven Profits

The business model is tested and profitable, most probably has been for a while.

You aren’t trying to reinvent the wheel, just make the existing processes more efficient while adding your own skills to it.

Acquiring a software company with a history of profitability removes the guesswork, providing a solid foundation to build on.

4. Learn from Previous Mistakes

Benefit from the previous owner’s mistakes and experiments without making those mistakes yourself.

The beauty of buying a business is leveraging their trial-and-error phase, saving your time and resources.

Think about the countless failed experiments you can skip by buying a proven business.

5. Higher Success Rate + less chance to go to 0

The chances of success when buying a business are statistically higher compared to starting a new business.

The U.S. Small Business Administration reports that about 50% of new businesses fail within the first five years.

In contrast, the 2024 Stanford study reported an aggregate pre-tax internal rate of return (IRR) of 35.1% for all search funds since 1984.

Since 1986, 73% of search fund investments have yielded positive returns.

Search funds are an investment vehicle through which an entrepreneur raises funds from investors in order to acquire and run a company.

Stats aside, I strongly believe purchasing an existing business with a proven track record dramatically increases your odds of success.

At the same time, buying a business is not a shortcut. It’s never a guaranteed success.

Buying a business is just a lever. You have to know how to use it and it’s a lot of hard work.

There’s a lot of different ways to approach buying a business. Different types of businesses, different deal sizes, different levels of debt.

Buying a business isn’t a new concept but the access we now have to small digital businesses is unparalleled.

That’s what I’ve chosen to experiment with.

I’m sorry I’ve been MIA for a while. I was super focused on video content for my insta and procrastinated a lot on sending a newsletter.

I hope you genuinely look into buying a business, there’s so many opportunities out there. You can expect regular content from me to help you out. Lmk if you have any questions.

If you want to work with me you can apply here. This only mkaes sense if you have resources and are looking to acquire a business in the next 30-90 days. If we’re a fit then I’ll reach out. Aight see you 😁 

Bonus:

Here’s the distribution of returns from the Stanford Search Fund study

Distribution of Returns

• 69% of acquisitions resulted in a gain for investors.

• 31% of acquisitions resulted in a partial or total loss.

• Among the successful acquisitions:

  • 27% achieved 1-2x ROI

  • 36% achieved 2-5x ROI

  • 25% achieved 5-10x ROI

  • 11% achieved >10x ROI

Please feel free to reply to this email with your thoughts, I’d love to hear them and share it with anyone who may like it!