The news hit Monday morning and “Microsoft Buys LinkedIn,” headlines ran across media publications and social networks like wildfire. For $26.1 billion, the software giant acquired the go-to professional social connectivity platform in a remarkably sized cash deal. LinkedIn, the social network for professionals, was founded by Reid Hoffman in 2002; has 433 million members worldwide; more than 7 million active job listings; and, 60 percent of its users access via mobile devices. Of course, speculation about why the software corporation purchased an existing social network instead of building its own ranged widely. The question you as an entrepreneur might be asking is, “Microsoft buys LinkedIn, should I do the same?”
Microsoft Buys LinkedIn, should You Do the Same?
People buy existing businesses primarily because it’s a way to acquire an immediate income and supposedly, because all the “hard word has been done.” Unfortunately, it’s just not that simple. Sure, there might be demonstrable profits on the ledger and plenty of loyal customers frequenting the business, but this doesn’t guarantee the future. In fact, there’s not an accurate way to predict if a business is in its prime or peaked. It could well be headed for trouble as consumer trends change or the economy takes an unexpected turn.
For some entrepreneurs, buying an existing business represents less of a risk than starting a new business from scratch. While the opportunity may be less risky in some aspects, you must perform due diligence to ensure that you are fully aware of the terms of the purchase. If you have decided to buy an existing business, you will want to be sure you are making the right choice in your new venture. Only you can determine the right business for your needs… — Small Business Administration
So, the first lesson is to only consider businesses which are not only currently stable, but in stable demand. For instance, there will always be a need for certain products and services, like a property management company or a clothing store. Be careful about niche businesses because these typically experience wild fluctuations; and while there are ways to deal with change, it’s not an enviable position. Luxury products do well when the economy is on a roll but very poorly when disposable incomes begin to decline.
Tips for Buying a Business
Buying a business is nearly always a risk, even if it has a good track record. Sadly, too many would-be entrepreneurs jump into a business enthusiastically and emotionally. They are expecting one set of circumstances and get something else entirely different. Because there is no way to know for sure what’s going to unfold, it’s smart to be skeptical but it’s equally wise to be in-the-know as much as possible about the business’ past and its present condition. Here are some helpful tips for buying a business:
- Know your budget. Home remodeling projects spiral out of control because people do not stick to their budget. If it’s a good improvement, it will add value to the home. The same cannot necessarily be said for busting a business purchase budget. There are just too many dynamics in-play. Carefully calculate your budget and do not stretch it thin or you’ll wind-up with buyer’s remorse.
- Understand the industry. A huge, colossal, immense, and unnecessary mistake is to purchase a business you are not intimately familiar with — inside and out. The learn-as-you-go theory will probably teach you a cold, hard lesson. If you don’t really know the industry, consult a business coach and speak with people in the industry to learn as much as you can about it.
- Learn about its customers. Every business has its own “personality.” Customers are often diverse and have different wants and needs. Before you buy a business, try to get to know its customers. By doing so, you’ll not only learn about the business itself but also, how it’s perceived among its patrons.
- Look carefully at the competition. This isn’t restricted to market share, it also includes knowing how your competition operates and if it will take business from you or send more customers your way. Visit your competition and ask people you trust to do the same and share their experiences.
- Have alternative plans in advance. “Do or die,” might be a great motivational motto, but it’s completely unrealistic in business. Sometimes, it’s not worth the fight and other times, it only takes a strategic pivot in a different direction to get it to work. Have workable alternative plans ready to go.
Have you bought a business? What was the condition before and after you bought the company? How did you know buying the business was the right decision? Please comment and join the discussion.