A Start Up Business Buyer Type Is Probably Looking For Something Different From Most Other Buyers.
This buyer is named start up business buyer because he is considering starting a business from scratch, as well as buying an existing business. He may have investigated start ups, and found that he didn't like the odds for success. The failure rate on new businesses in the first few years became discouraging.
Most attracted to starting their own businesses do so in the expectation of exceptionally high earning from the business. They see starting a business as an activity with high potential. They want to make a lot of money. They believe that they have the capability of meeting almost any challenge.
Start up business buyers are likely to either have strong management experience, a unique technical or market orientation, or be completely unrealistic about the business. And each of these creates a unique set of circumstances that you as a seller have to deal with. Your challenge is to understand the unique sets of circumstances, and to understand how you plan to deal with each.
Lets explore this in the order presented, starting with the prospect with strong management experience. That means that he has likely progressed beyond being merely a manager focused in one area, and has experience in several areas like marketing, production etc. He could also have experience as a general manager, responsible for most functions. He will not be overwhelmed by the challenges of a start up, including developing, implementing and documenting the various systems critical to operating a business. He believes that the potential rewards will more than reward the work involved.
A strong manager is highly likely to have good or better analytical skills. He will not be thrilled with the odds of success for a start up, even though he is sure he will be one of those success stories. He is capable of understanding a case for applying his expertise and energy to expanding and improving an existing business. Particularly if the business economics are highly favorable to increased revenue, such that each percentage increase in revenue will yield a greater percentage increase in profit. And the downside risk will be lower because it is an established business that is unlikely to fail.
A buyer with a unique technical or market orientation is another sort of challenge. However it is unlikely that this type of buyer would be in any way attracted to your business unless it offered the opportunity to validate his particular focus. So you have a prospective buyer believing he has unique insights into technology you currently use, or that you could use in your business or market. You need to be careful and determine which.
If his unique insights involve technology you currently use, you have an opportunity to help him see how his insights will be most productive when applied to an existing operation. If other aspects of your business are functioning very well, and you can demonstrate this with proven, documented systems, he will be able to focus on his unique expertise. And you can show him that his realistic expectation will be much higher with your business, than with starting something himself. Because of the high failure risk among start up businesses.
If his insights involve something that could be used in your business or market, he may well be on a fishing trip. He may be trying to gain a better understanding of your business area or market, to validate his views. He may want to go into competition with you. But you still have the opportunity of mounting an argument that he will be better off buying your business and implementing his unique technology in the stable platform that your business provides. You can use the failure rate among start up businesses to compare the relative risks.
A prospect who is completely unrealistic about your business or market is not a very good prospect unless he has lots of cash. If he has lots of cash you can probably come up with an argument that will cause him to exchange his cash for your business. If he is open to rational argument, the failure rate among start up businesses should work. However if he is completely unrealistic, that may not matter.
If he hasn't the capital to buy your business without financing, he is unlikely to be able to raise additional capital from conventional sources. And even unconventional sources will be unlikely to advance the needed capital unless they have a hidden wish to own your business. So without cash in hand, recognize the difficulties with this type, and don't let them waste your time.
On balance a start up business buyer will provide you with a good opportunity to sell your business. He brings a slightly different perspective than people seeking to buy an existing business. When you properly present the relative risk issue along with the potential your business can provide someone with his unique perspective, he may be prepared to pay a bit more than some other buyers. And if he has a strong background as discussed earlier, he will have easy access to capital for growth and expansion.
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