These days, it seems that most business articles are focused on entrepreneurs. Not that there’s anything wrong with that — it’s estimated that over 627,000 new businesses are started each year in the United States alone.
However, for entrepreneurs to “level-up,” they need to evolve from being the owner-operator to becoming the owner-investor. Entrepreneurs thrive on change. That’s why so many come up with business ideas of their own, ideas they’re passionate about.
Staff and customers, however? Not so much …
More often than not, once entrepreneurs start running and growing a business of their own, every few months or so, they tend to try and reinvent everything, heavily interfering with their business in the process. For this reason, you’ve likely heard of entrepreneurs needing to “get out of their own way” in order to see greater success.
So what should an entrepreneur do? How do they scratch that itch to change and adapt?
By positioning yourself as a shareholder in your business, you can begin to move up the entrepreneurial ladder, while simultaneously saving yourself from a great deal of the blood, sweat, and tears that are part of building a viable business.
Be a shareholder. Be more resourceful. You’ve heard it before, but focus on your business, instead of working in your business. You see, it’s only when you start planning (and acting) more strategically that you are exposed to new and exciting opportunities.
It shouldn’t be too much of a surprise, then, that many of the most successful investors draw from their own entrepreneurial experiences to guide their decisions.
This became abundantly clear during a recent interview with Jeremy Harbour, founder of The Harbour Club — during our conversation, he highlighted some key principles that enable entrepreneurs to make this exciting (and necessary) change:
To Become an Expert, You Must Start as a Novice
Before you can make the full transition to becoming an investor, you need to leverage your existing business and the skills that helped you build it — quite often, that means shifting your mindset. According to Harbour, proper investing strategies are essential for ensuring that you buy or sell a business without buying yourself a job or selling yourself along with it.
“When you buy a company, the key is to find someone who is hungry and ambitious, and who has the ability to run your business. And the easiest way to do that is to merge with another company that is similar to yours and has a good CEO. Then, let that CEO take on that leadership role after the merger. This allows you to take a step back into more of a shareholder role so you can then sell the business without needing to stay in that CEO position yourself.”
If you own a business, then selling it gives you two valuable assets: time and money. Both are indispensable when it comes to repositioning yourself as an investor. You will be able to pursue new opportunities while being able to cover your monthly expenses.
Reducing your responsibilities within your own startup will first allow you to determine what type of investment approach you want to take. Do you prefer a hands-on approach, where you acquire a business, make needed improvements to the organization, and then sell it for a profit?
Or, would you rather have more of a venture capitalist role, providing funding for other entrepreneurs to help get their ideas off the ground?
This will also give you the opportunity to learn more about sound investing practices so you can have a greater likelihood of turning a profit from your efforts. “There are many tactics you can use to add to the profitability of your investments,” Harbour notes.
“For example, you can structure your business into different entities to better balance profits and losses and gain access to additional tax advantages. That type of financial engineering can improve your profitability by 10 to 15 percent on its own.”
While many of these tactics are used by entrepreneurs to balance their finances, they become even more important as an investor. Doing your research to better understand such tactics will make it easier to identify ways to improve the companies you acquire so you can maximize their profitability.
Focus on Motivation — Not Money
As an investor in small to medium-sized businesses, acquisitions and exits are typically the key drivers behind your financial growth. While you might think you need to have a lot of money set aside to acquire a business, this often isn’t the case. In fact, Harbour got his start as an investor by buying a business with no money down.
“When you’re willing to put yourself out there and talk about your interest in buying a business, you’ll be amazed at the opportunities that come up,” Harbour says.
“There are many motivated sellers out there, even when their company isn’t officially for sale. For example, I was once able to acquire a company that was overdrawn by £85,000 and had payroll due in a week. We were able to structure a deal in which we acquired the business by getting their overdraft to zero, cancelling their bank guarantee, and meeting their payroll — and doing it all in a way that required no money out of pocket.”
This case study is actually similar to a tactic many entrepreneurs use when marketing their products, finding the target’s pain points. When you can identify a business owner’s pain points and offer a convenient solution, they will be much more likely to sell.
“Finding companies who are looking for investors — or who are looking to sell — isn’t as hard as you might think,” Harbour adds. “You could go to a business networking meeting and introduce yourself as an investor, and you will find more people wanting to talk to you than you can handle. Simply positioning yourself as who you want to be will go a long way in getting those initial opportunities.”
Not every business will be worth pursuing, but as you do your research to identify pain points, you can find acquisition opportunities that won’t require going into debt.
Making the transition from entrepreneur to investor isn’t necessarily easy — it is an experience that will require constant learning as you find businesses that you can acquire and make profitable. However, as you master these principles of investing in other businesses, you will be able to grow a profitable financial future.