Don’t Start a Business (Buy One Instead)

Half of all business start-ups fail in their first 5 years, which means if you start from scratch, you risk losing more than just your salary.

So in this article I’ll show you how buying an established business helps you avoid the biggest mistakes people make when they start from scratch, and how that dramatically improves your odds of success.

I learned this lesson the hard way.

I was working in London as a Chartered Accountant at a large firm, on good money, and I’d decided to walk away from it to start my own business.

Two partners called me into their offices to try to talk me out of it, and warned me about the high risk of starting a business.

They even offered me a move into corporate finance, with a promotion and a pay rise.

But I was determined, as I wanted to be an entrepreneur.

So I walked away, set up an office, bought the equipment, and started a graphic design business.

But it never really took off, as I could never seem to get enough customers.

And looking back, it’s obvious why…I wasn’t seen as a graphic designer, I was a Chartered Accountant who liked painting.

S = 
M =
I = 
L = 
E = 

That’s the risk of starting from zero, you lose your personal cash flow, whilst you’re trying to prove demand.

After that failed, I started a software business selling reserve fund software to property management companies.

It made no money, and I lost every pound I’d put into it.

That failure stuck with me.

So when I faced that choice again, I knew there had to be a better way.

Instead of creating another start-up, I decided to buy a business, which already had 27 employees, with over £1.6 million in sales, and making £120,000 in profit each year.

Which meant I was making money from day one.

Here’s the hard truth; when I started the software business, I didn’t have a reliable income.

I was propping myself up with self-employed consulting, assuming the business would replace that income over time.

For nearly two years, it didn’t, and I still had a mortgage to pay.

And that leads me to the first huge mistake.

Mistake #1: Income (Or Cash Flow)

If you give up your job to start a business from scratch, your salary and personal cash stops immediately.

And here’s the hard truth: with a start-up, you’ll have no certainty over when your salary will be replaced, if ever.

Whereas if you buy a profitable business with existing cash flow, your 9–5 salary is replaced immediately.

Which means your new business will pay you from day one.

This leads to the next big mistake and an important question: “Does your start-up idea actually have a proven market?”

When I started the software business, I was the one making the dreaded cold calls.

And the hardest part, none of those calls resulted in a single client signing up for the software.

Which meant no sales and zero cash flow from the business.

I’d spent my hard-earned savings trying to prove a market, that simply didn’t exist in the UK for that software.

That’s why this next mistake is such a killer.

Mistake #2: Market

When you start from scratch, you’re guessing whether there’s even a market for your product or service in the first place.

You’ll have no certainty over how much demand there’ll be for the product or services your start-up sells.

And you’ll be the “new business on the block”, not always knowing how much to charge for your products or services.

Here’s the contrast, when you buy a business, the market is already proven.

But here’s the big difference, when I bought my business, its existing £1.6 million sales proved the market already existed, which is what gives you certainty.

So this leads onto the next big mistake, which is even when demand exists, scale is where most start-ups hit a brick wall.

When I started my accounting practice, I had big expectations that this one would finally scale.

But growth had stalled, and sales never broke through the £200,000 pound mark.

I’d hit the same ceiling most small businesses seem to hit.

And here’s the lesson I learned the hard way:

Very few businesses ever reach £1 million in sales.

It’s like trying to push a boulder uphill from a standstill.

Whereas when you buy a business already doing £1 million in sales, the boulder is already moving.

That difference changes everything.

Which is why if you avoid this next mistake, you can save yourself years. 

Mistake #3 – Expansion (Or the ability to Scale)

If you start from zero, you’ve chosen the hardest possible version of entrepreneurship.

Because to get from zero to £1 million in sales, you have to solve everything at once.

Which is to build something people want, prove demand actually exists, work out pricing and try to survive long enough to scale.

But when you buy a business that’s already doing over £1 million in sales, you skip the hardest part of the journey, because all those problems have already been solved.

Your job then is to push that boulder along and build on what already exists, where growing from £1 million to £2 million is far easier than getting to £1 million.

But this next mistake is the most brutal of all, which I also learned the hard way.

I believed starting from scratch was the right way to build a business.

My first business failed because I simply couldn’t find enough paying customers and my second business failed because a market never even existed.

This equals two attempts and two failures, and years of effort wasted trying to create demand from nothing.

That’s why this next mistake is one of the biggest.

Mistake 4#: Survival

Here’s the hard reality: even if a start-up finds demand and gets traction, the odds of long-term survival are still stacked against it.

And the statistics don’t lie.

For example, according to the Guardian, roughly 2 out of 3 businesses fail within 10 years.

That’s why starting from zero is so risky.

Whereas buying a business removes the most fragile phase of the journey and you’re given a huge head start.

But here’s the thing, this risk can be fixed very easily.

All you have to do is to buy a business that’s already been trading for more than 10 years.

When it comes to proving a business idea, time is your friend and longevity is your filter.

With everything else being equal, it’s far safer for you to buy an older business because it’s already been through downturns and survived.

So instead of betting on something unproven and hoping it will survive, buy a business that’s already proved it can take hits and keep going.

But there’s another big mistake many people make when they go into entrepreneurship. I made it too, and it cost me more than just money.

When your wife tells you she loves you, but she’s no longer in love with you, everything stops.

It hit me like a brick wall.

It was the moment I realised my marriage was over.

I was a workaholic.

My business depended on me, so I worked all hours, day and night, including weekends.

I genuinely believed I was doing the right thing.

I thought I was building a better life for my wife and my daughter.

But the life I was building wasn’t the life my wife wanted.

And I learned that the hardest way possible.

If the business can’t run without you, it doesn’t just put the business at risk, it puts your life at risk too.

So you have to step back and build a business that doesn’t depend on you.

And if you don’t, the cost isn’t just financial.

Which is why this next mistake isn’t about money, it’s about what a business can do to your life.

Mistake #5: Lifestyle

If you start a business from scratch, it’s likely to consume you and massively reshape your lifestyle.

And if you’re not careful, it can start to consume your whole life.

In the early stages, the business needs you for everything, not because you’re bad at delegation, but because you simply don’t have anyone to delegate to.

Which leads to working long hours because the business is entirely dependent on you being there.

So, if you build a business that needs you for everything, you end up owning a job.

But if you buy a business that already runs without you, that has employees, and ideally a layer of management, you own an asset.

When you use these five mistakes to filter your deals, what I call the SMILE test, you protect yourself against some of the biggest risks in business.

S = Survival
M = Market
I = Income
L = Lifestyle
E = Expansion