Fail less by acquiring instead of building

Entrepreneurship Through Acquisition (ETA) is on the rise, largely thanks to acquisition platforms making it more accessible to everyday people. If you haven't already considered it, now might be a good time to do so.

I caught up with experts and indie hackers who are actively buying companies to understand what their side of the table looks like. They gave me the scoop on what to look for in a company and how to do ETA right. 👇

The benefits of buying over building

👤 Andrew Gazdecki of Acquire.com:

Entrepreneurship through acquisition is a jumping-on point for people just getting started.

Kickstart your entrepreneurial journey

👤 John Demian of Eyelet.io:

I see it as a high-risk, high-reward strategy to kickstart one's entrepreneurial journey.

Less risk, more validation

👤 Roman Beylin of DueDilio:

Building has a higher risk with no guaranteed customer base.

👤 Andrew Gazdecki of Acquire.com:

It’s relatively safer than starting a business from scratch, but it’s also a commitment.

👤 Andrew Pierno of XO Capital:

You don't have to guess what people will pay for — buy something they're already paying for.

Revenue from day #1

👤 Andrew Pierno of XO Capital:

As a developer, my #1 blind spot is building something nobody wants — I've launched over 40 products that nobody wanted. What a waste!

By buying a business with some initial revenue and customer base, I get to overcome a weakness of mine.

That's pretty amazing.

👤 Roman Beylin of DueDilio:

You get immediate cash flow and revenue. Established customer base and market presence. Brand recognition and market position.

Product-market fit from day #1

👤 Andrew Gazdecki of Acquire.com:

You don’t need to worry about finding product-market fit to start making money. You acquire that from day one.

Bypass the testing and guesswork

👤 Andrew Pierno of XO Capital:

I love that I've "bought" a year's worth of experimentation and guesswork.

You have some history of traffic, growth experiments, customer support tickets (for new feature ideas), etc. This stuff is gold.

I might pay a little extra money because of that but I think it's worth it to save myself the time.

👤 Andrew Gazdecki of Acquire.com:

You don’t waste a year or more building and testing different business models or pricing strategies.

Out-of-the-box systems

👤 Roman Beylin of DueDilio:

You get existing operational systems and employee expertise.

Faster return on investment

👤 Roman Beylin of DueDilio:

Building is time-consuming with slower return on investment.

Skip the 0-1 skillset

👤 John Demian of Eyelet.io:

Building a product requires a certain set of skills. Not everyone has that.

Wear fewer hats

👤 Andrew Gazdecki of Acquire.com:

You don’t need to wear so many hats. You might acquire the founder’s team (perhaps even the founder!) to help run the business. Or maybe it’ll run more or less independently.

Indie-hacker friendly

👤 Roman Beylin of DueDilio:

Indie hackers are uniquely positioned to excel in the world of ETA. Their diverse skill set provides a significant advantage over those without such hands-on business experience.  I think it’s also fair to say that indie hackers have a higher risk tolerance compared to the overall population.

The problems with building over buying

A different kind of risk

👤 Andrew Pierno of XO Capital:

Four out of the ten businesses that I bought straight up did not work out, though we were able to profitably exit three of them (currently trying to offload the fourth). And it was really difficult to tell during diligence that they were not going to be a good fit for us.

This is a new kind of risk not typically encountered when you start from scratch.

Up front cash

👤 Roman Beylin of DueDilio:

There's a higher up front capital requirement.

The cost of capital is increasing and SBA loans require a personal guarantee.

Your fingerprints aren't on it

👤 Roman Beylin of DueDilio:

You miss the opportunity to shape company culture and operations from the start.

Less flexibility

👤 Roman Beylin of DueDilio:

You have less flexibility to pivot and adapt the business model.

Due diligence is hard

👤 Roman Beylin of DueDilio:

Due diligence is crucial and can be complex.

Unpleasant surprises

👤 Andrew Pierno of XO Capital:

You're probably going to discover something you really don't like about the business after you buy it.

👤 Andrew Gazdecki of Acquire.com:

One of the biggest drawbacks is it was never your business. You’re bound to encounter surprises, no matter how diligent you were during the acquisition process. Those surprises might become problems if you’re unsure how to respond to them.

👤 Roman Beylin of DueDilio:

There's potential for inherited problems (e.g., outdated practices, underperforming staff).

2nd-hand code

👤 John Demian of Eyelet.io:

You'll have to work within someone else's code and processes, and that's going to be a tough adjustment.

The deep end

👤 Andrew Pierno of XO Capital:

M&A is a skill. We've done ten deals and still feel like we learn something new every day.

👤 John Demian of Eyelet.io:

You are thrown into deep waters right off the bat.

It's not as easy as it looks

👤 John Demian of Eyelet.io:

Buying a product sometimes can speed things up, but it's almost never that easy.

👉 Subscribe for more how-tos, roundtables, and interviews with people in the thick of it.

How to buy the right products

Products with product-buyer fit

👤 Andrew Gazdecki of Acquire.com:

My main advice would be to look for synergy. Let’s say you’re a marketer getting into the SaaS game. You might not know your Python from your Javascript, but you’re an inbound expert with impressive SEO and demand generation stripes. How should you approach ETA?

Look for low-maintenance SaaS businesses with no to low marketing prowess. Explain your vision to the founder. Ask for a maintenance walkthrough to keep bugs at bay. Consult with an engineer if necessary. Acquire the business, run your marketing playbooks, and then exit.

The same works if you’re a coder. Look for businesses whose tech is buggy or inefficient. Search for manual-process-led businesses you could automate. Consider how your technical expertise could help juice revenue by improving the customer experience. So many possibilities!

👤 Roman Beylin of DueDilio:

The key to achieving high returns on investment in business acquisitions lies in finding a synergy between the buyer and the business.

Craft a buyer profile: Analyze your strengths, experience, and objectives to define clear criteria for potential business acquisitions. Tools like ChatGPT are great at this type of analysis. It's crucial to target businesses that align with your skill set, passions, and long-term ambitions. A buyer profile will help to quickly filter through opportunities.

Products with stable cash flow

👤 Roman Beylin of DueDilio:

Target businesses that demonstrate a history of steady cash flow, especially those that have maintained financial stability across varying economic conditions.

👤 Andrew Pierno of XO Capital:

I would not start by buying something with zero revenue.

Products with scalable business models

👤 Roman Beylin of DueDilio:

Look for businesses that have the potential for growth without a corresponding significant increase in costs. Scalability is a critical factor for long-term value creation.

Products that were first to market

👤 Andrew Gazdecki of Acquire.com:

Big returns can happen if the target business was first to market, or has yet to scale or tap an expansion opportunity.

Products with untapped market potential

👤 Roman Beylin of DueDilio:

Seek out businesses in niche markets that have not yet fully penetrated their market but show high growth potential. These businesses often offer a unique opportunity for expansion.

Products with working marketing channels

👤 Andrew Pierno of XO Capital:

I love buying an initial channel that's working. Ask yourself, "How did the founders get their initial customers? And can I keep doing that?"

Products that make people money

👤 Andrew Pierno of XO Capital:

Tools that help people make money are best.

Our two most profitable and least effort products to own and grow have been developer tools. Close behind are sales tools.

Products with customer loyalty

👤 Roman Beylin of DueDilio:

Businesses with a loyal and diverse customer base present less risk. Particularly valuable are those with high customer retention or high switching costs, as they ensure a more predictable revenue stream.

Products with inefficiencies

👤 Roman Beylin of DueDilio:

Identify businesses where you can add significant value through improvements in operations, marketing strategies, or technology. These inefficiencies represent untapped potential for enhancing profitability.

Products that are pivotable

👤 John Demian of Eyelet.io:

When I bought my first company, I knew I wanted to go the venture route where I'd raise money. So instead of spending months building an MVP, I purchased a tool that was close to what I envisioned and after a couple of weeks of rebranding, I started pitching to investors.

Most of them were very impressed by the route I took. And the plan worked, I closed the pre-seed round in less than 6 weeks.

Products with higher valuations

👤 Roman Beylin of DueDilio:

There's a prevailing wisdom in ETA to aim for the largest feasible transaction. The effort required to close and manage a $500k deal is often comparable to that of a $2M deal. Larger acquisitions not only offer greater potential returns but also demand similar operational efforts, so aim high.

Products with lower valuations

👤 John Demian of Eyelet.io:

I'd target the pre-revenue companies, just because the cost of acquisition is very low. You'll usually find these products made by developers who might have a great idea for a product but little to no insight into what it takes to actually run and grow a business.

Products with exit potential

👤 Roman Beylin of DueDilio:

Consider businesses that operate in markets with evident exit strategies, such as acquisition by strategic buyers or investor groups like private equity firms. Having a clear exit path can significantly influence the ROI.

Tips for doing ETA right

Educate yourself

👤 Roman Beylin of DueDilio:

Education and resources:

• Essential Reading: "Buy Then Build" by Walker Deibel is a foundational book for understanding the business buying process.

• Community Engagement: Engage with relevant online communities such as Indie Hackers, Searchfunder, Facebook Groups, Reddit, and X (Twitter).

• Stay Informed: Subscribe to newsletters like The Business Inquirer, SMB Deal Hunter, XO Capital, and They Got Acquired for ongoing insights and updates on ETA.

Team up and start small

👤 Andrew Pierno of XO Capital:

If you're interested in ETA I would start just like XO did. We got 3 people together and bought one deal for $25k (~$8k each) which was acceptable for us to lose. Adjust that number as needed.

Prepare yourself (and set goals)

👤 Andrew Gazdecki of Acquire.com:

Plan your acquisition carefully. Don’t think: “I’m going to acquire this business because I can grow it.” Factor in the next exit event. Think: “I’m going to acquire this business because I can grow it sufficiently to exit again in three years.” Or five years. Or one year. The choice is yours.

👤 Roman Beylin of DueDilio:

Be prepared for business acquisition. This includes establishing clear acquisition criteria, maintaining a professional online presence, securing a loan pre-qualification letter (if necessary), and assembling a proficient deal team.

Like entrepreneurship, ETA can be stressful and take a toll both mentally and physically. Make sure to take care of your health throughout the process.

Vet the products (and your goals)

👤 John Demian of Eyelet.io:

Indie hackers need to take their time and vet the product before they purchase.

👤 Roman Beylin of DueDilio:

Make sure you understand how a business actually makes money

👤 Roman Beylin of DueDilio:

Do your due diligence. Consider independent evaluation or platforms like DueDilio. Over 40% of businesses experiencing some form of financial discrepancy or fraud, expert due diligence is essential to identify and avoid potential pitfalls.

Run the numbers

👤 Andrew Gazdecki of Acquire.com:

Quantify the opportunity financially. How much can you grow revenue and profits with your available time and resources?

It might be easier, for example, to quickly grow a company that’s only a year old and still gathering sales momentum. An established business of five years, on the other hand, might already have exhausted many of its potential growth channels. It varies from business to business.

Have a plan

👤 Roman Beylin of DueDilio:

Have a well-thought-out plan for how you will operate and scale the business post-acquisition. Ideally, this strategy should include operational improvements, market expansion plans, and long-term growth objectives.

Start your search (in the right place)

👤 Andrew Pierno of XO Capital:

Cold outreach is great. Microns for smaller (sometimes zero-rev) products. Acquire.com for everything else.

👤 John Demian of Eyelet.io:

There are two routes. One is going directly at the owner and pitching them a price. This usually works best for personal projects. The second option is sites like acquire.com or flippa.com. I bought mine through flippa.

👤 Roman Beylin of DueDilio:

The effectiveness of a deal sourcing strategy largely hinges on your specific buyer profile and the type of businesses you are targeting. Different marketplaces cater to varied business niches, so your choice should align with your acquisition goals.

If you're pursuing online opportunities, platforms like Acquire, Flippa, and Empire Flippers are known for their focus on digital businesses. Niche marketplaces such as Microns and Tiny Acquisitions may also be appropriate for those pursuing smaller transactions.

Be decisive

👤 Roman Beylin of DueDilio:

Don’t fall into analysis paralysis. If you've found a deal that aligns well with your criteria and shows good potential, be decisive and pursue it.

Don't forget escrow

👤 John Demian of Eyelet.io:

Make sure you have some sort of escrow.

Bake in founder support

👤 John Demian of Eyelet.io:

Work out a plan with the seller where they can offer a certain number of hours for support.

Prepare for disappointment

👤 Andrew Pierno of XO Capital:

You're probably going to discover something you really don't like about the business after you buy it. Prepare for it. Manage your downside. Structure your deals carefully to minimize downside.

Prepare for a small decline

👤 Roman Beylin of DueDilio:

Have a margin of safety. Very often, business performance temporarily declines when new ownership takes over. Be prepared.

Reinvest your earnings

👤 Andrew Gazdecki of Acquire.com:

You can also reinvest earnings into further growth, speeding up a flywheel is easier when it’s already moving.

Don't be afraid to offload it

👤 Andrew Pierno of XO Capital:

If you like the work (i.e. you just bought a job, enjoy!), then scale up. But if you don't like it, you should be able to offload it in < 3 months.

Prepare for an exit

👤 Andrew Gazdecki of Acquire.com:

Your biggest payday will be that next exit event. Forget hunting for the next unicorn. Play the odds in your favor. Acquire a business you’re passionate enough to grow for a few years and then sell for a handsome reward.

That’s SETA. Serial entrepreneurship through acquisition.

Learn from your experience

👤 John Demian of Eyelet.io:

Think of your first ETA as a business degree. Instead of going to college and spending thousands of dollars, this exercise will give way more experience and, if you do it wisely, you'll most likely grow a network of people that are worth their weight in gold.

👤 Andrew Pierno of XO Capital:

Nothing is going to teach you more than doing a small deal yourself.

Take care of yourself

👤 Roman Beylin of DueDilio:

Take care of your health and relationships.

And don't forget to subscribe :)