Starting a business from scratch is not the only way to own a company.

Entrepreneurship through acquisition is gaining ground in recent years and the shift to digital services has made digital entrepreneurship through acquisition (dETA) an appealing opportunity for many investors.

How does it work and what do you need to do for your first acquisition?

What is dETA?

Entrepreneurship through Acquisition (ETA) is the process of buying and managing an established business as the path to becoming an entrepreneur. Instead of starting a company from scratch, you acquire a business and run it as a CEO.

As more digital opportunities come up, there is digital Entrepreneurship through Acquisition (dETA), which is the path to buying an online business to manage it and grow it.

Just like that, you are becoming an entrepreneur with a digital focus. As with every other business, your goal is to either grow and sell your startup or continue running it in the longer term.

Is dETA right for you?

You might be wondering, what does it take to become a digital entrepreneur?

First of all, digital entrepreneurship through acquisition suits someone who is ready to go beyond the traditional paths. You can instantly become the CEO of a company so you need to be prepared to take on the responsibilities.

Leadership is essential when exploring the prospect of following this path. You can’t run a business if you are not able to lead a team. Confidence is helpful but humility is also important when you join a team of professionals who know more about the business.

If you’re ready to take on this challenge, here’s what you need to consider.

Identify your strengths

The first step is to identify your strengths. What are you good at? Where can you add the most value?

Not many entrepreneurs start by asking these questions before acquiring a startup but self-reflection can be very helpful at this point.

Map out the skills and experience you can bring to the table and what the ideal acquisition looks like for you.

Confirm your objectives

Before you are ready to buy a business, you need to know what you want to get out of it. Do you plan to buy and manage the business? Is your goal to turn into a serial entrepreneur by acquiring several smaller startups?

Think how your first acquisition will bring you closer to your long-term goals. The more focused you are on your plan, the easier it will be to find the ideal acquisition for your interests and ambitions.

Choose businesses you can make a difference

Now that you’ve identified your strengths, it’s time to think how to use your skills to grow a business.

What can you add to the team? How do your skills complement the existing team?

You don’t need to do everything on your own but it’s still useful to know how you can help based on your skill set.

Start small

Your first acquisition should be small and simple. You’re still learning and you don’t want to take big risks yet.

Focus on small businesses that require smaller investments until you are ready to expand. You can invest, for example, $30,000 in a small business rather than starting with an investment of $300,000 in your first acquisition.

Make it easy to match your current expertise to take the time to understand the process to make the return on investment easier.

There will be many unknown things during the acquisition process. LOIs, negotiations, and due diligence can be time-consuming so be prepared to dedicate a lot of time to the learning process.

Be patient

You can’t rush an acquisition, especially when it’s your first one. You know better than anyone your ambitions and how dETA can work best for you.

It can take time to find the best fit for you so don’t feel the urge to get involved in the first appealing prospect you’ll come across.

Where to find acquisition opportunities

You’re ready to give dETA a try – how do you find acquisition opportunities?

Here are a few ideas to consider:

• Facebook (News - Alert) groups - Use Facebook to search for terms like “buying businesses” or “buy online businesses” to get a list of relevant groups to join. Start engaging in the groups to learn from others and explore interesting opportunities.
• Marketplaces like MicroAcquire - Marketplaces make it easy to buy a startup with filters for sale price, business type, revenue/profit generated to find the right acquisition for you.
• Leverage your network - Connect with founders through social media (Twitter (News - Alert) or Linkedin) and start engaging in conversations with relevant industries that you want to be in.
• Cold outreach - Build a list of potential companies you’d like to buy. Expand on the list by finding competitors and supplementary businesses to reach out.

What constitutes a good acquisition target

It’s important to know what you’re looking for in acquisition to increase your chances of an ROI.

First of all, you need to know the reasons you want to buy an online business. What makes digital entrepreneurship appealing?

SaaS (News - Alert) businesses can be very lucrative

The SaaS industry can be very lucrative especially when you have the right skills in the team at the start. You don’t need a big team to scale provided you get your priorities right.

When acquiring a startup, it’s important to ask the right questions to make the most out of the deal. Ask for details about their numbers, the growth, the MRR, ARR, and churn rate to understand where they stand and how profitable they can be.

SaaS businesses rely on technology and the right skills

A SaaS business can go to market with the minimum viable product (MVP) and it’s all up to the right skill set to make it grow. Everything starts from a great product but the growth is still not guaranteed if you lack the right skills.

For example, there could be a business with an obvious market fit that you think would go extremely well with the right push. If they have a software engineer in place and you can add marketing skills to the team, the scale can be faster with the right support.

That’s a big reason to buy an existing business you believe in as you’re saving time from doing the initial work. It’s an easy path to entrepreneurship provided you find the right fit to use your skills and make it scale.

What to look out for in your first acquisition

Research is important before your first acquisition if you want to increase your chances of success. There are many things you’re still learning so skipping due diligence may make your investment very risky.

Here’s everything you need to focus on before making an offer.

Find your right fit

Start your research by focusing on the areas and skills that would make the right fit for you in a potential acquisition. Ideally, you want to choose an industry you’re familiar with to maximize the chances of adding value.

Think of the skills you bring to the table and find a business that would benefit from your expertise.

Growth potential

Every entrepreneur wants to know the potential of growth in their investments. This is even more important for your first acquisition where you want to minimize the risk.

The business you’re acquiring should be around for a few years. It should guarantee future viability with a series of metrics that make it profitable and offer room for scaling.

Find more about the revenue and the cash flows, the reasons the owner wants to sell it and the current valuation to confirm if it matches your ambitions and the level of risk you want to take. 

Technology

The product and the use of technology play a key role in dETA. You can’t scale an online business if the product or the tech is not equally good with the brand or the customer service.

Don’t worry, you don’t need to be a coder to understand the basics of how the product works on a high level. You still want to make sure that there is a strong development team in place and that the code is modern and well-organized to maximise the chances of scaling. If coding is not in your skill set, you can bring a friend or consultant on board to help you in this stage of research.

Customers

A good sign of profitability is a strong customer base. Loyal customers and good customer experience can make any business stand out and this is what you want to look out for in your search for your first acquisition.

If the business is at an early stage, loyalty and customer engagement help shape the product and build it with the customer in mind. For more established businesses, a good customer experience can reduce churn and improve the chances of up-selling. The more happy customers they have, the easier scaling becomes with the power of word of mouth and social proof.

Wondering what customers think of a business? Look at testimonials and online reviews or reach out to a few of them directly. You can even try the product on your own to test the customer experience and how it helps you engage with the product.

Churn

The best way to measure customer engagement is to look at the customer churn and the percentage of lost clients and revenue on a monthly or annual basis.

A sudden growth in churn may not be a good indication of a company’s scalability and you can get a better idea by benchmarking the numbers with businesses of similar sizes.

You should also dive deeper into customer metrics by looking at the LTV (lifetime value of a customer) and the CAC (customer acquisition cost). The lifetime value of a customer indicates the potential revenue you can generate from a client and you can compare it with the customer acquisition cost to calculate the profit you get out of every client.

Funding strategies for dETA

There are different ways to fund your first acquisition.

The obvious one is to fund the purchase on your own. This is the so-called self-funded acquisition and it’s usually of a smaller scale.

If you have the funds to do so, start small to learn out of the process and use the learnings to improve the process in your future acquisition.

Interested in dETA but don’t have the funds to buy your first business? Here are two ideas to consider.

SBA loans

Small Business Acquisition (SBA) loans are common in the United States for financing a startup acquisition.

You can borrow up to $5 million with competitive rates, which makes them appealing to dETA entrepreneurs.

Revenue financing

For more established businesses, you can use your recurring revenue to fund your growth and avoid the process of taking a loan.

You can use Pipe, a platform that helps startups convert their recurring revenue to upfront capital by linking them to investors who are willing to provide the capital.

No matter which option you choose, remember, that the journey to digital Entrepreneurship Through Acquisition can feel long at first but it will feel rewarding once you get it right.

Andrew Gazdecki is a 4x founder with 3x exits, former CRO, and founder of MicroAcquire. Gazdecki has been featured in The New York Times, Forbes, Wall Street Journal, and Entrepreneur Magazine, as well as prominent industry blogs such as Axios, TechCrunch and VentureBeat.