TSN #8 - Acquisition, 0-1 & Community-Based Entrepreneurship: Navigating the Middleman's Demise

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Hey! Slavo here 👋

Couple of weeks ago in TSN#5 we talked about different approaches to “entrepreneurship”.

The big question is: should you start a business from scratch or acquire one?

I've tried both, so let me share my experiences on a micro scale, plus introduce a recently popular third way.

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So, what are the 3 basic options?

1. Acquisition Entrepreneurship: The "I'll Take It From Here" Approach

Picture this: You waltz in, buy a business, and boom – instant cash flow. Sounds dreamy, right? Small-scale acquisition entrepreneurship was popularized by Walker Deibel with his book "Buy Then Build."

The main idea is to buy a business from someone who is retiring. You are purchasing a business that already generates cash flow and has an established customer base. The strategy involves introducing technology and focusing on growth.

Pros:

• Ready-made customer base (hello, money!).

• Established processes (no reinventing the wheel).

• Lower risk of face-planting at the starting line.

• Can be bought using an SBA loan (US) and some equivalents in Europe.

Cons:

• You must have (some) capital. There are stories of $0 down acquisition, but this is not common.

• Price probably set by EBITDA multiple.

• Due diligence and potential skeletons in the closet (surprise lawsuits, anyone?).

• You must have operational experience, negotiation skills and soft skills to transition the company to your vision.

I’ve done this on micro scale before, it’s not as easy as it sounds. Even in small businesses you will encounter politics, people unwilling to change, skeletons in the closer etc. Will you get a company with value, sure, existing customers you can upsell, sure, is it easy? No. Should you do it as your first thing? Probably not.

Interested? Google “search funds” and get Buy Then Build as your next resource.

2. 0-1 Entrepreneurship: The "I Built This From Scratch" Flex

This is the approach where you start with a clean slate. You identify a problem, identify a customer, pitch them (ideally before you generate costs) and take it from there. You can either go for a full on startup or choose one of the alternatives I wrote about in TSN#5.

Pros:

• Total control (it's your baby, after all).

• Time to market & revenue depends purely on the type of business you go for (Startups have longer path to cashflow as opposed to service businesses, but higher exit values if they get there).

• You can do it alone or in a team, up to you.

• With AI agents, you can get far on your own.

Cons:

• You will have to push yourself to get the first customer, first revenue, processes & everything else.

• You will wear all the hats at first.

• Failure rate is higher compared to acquisition approach.

You obviously don’t have to just directly into building a huge company if you are starting up, even a small consulting practice in your expert field is enough to gather initial experience. Just, keep in mind all the variables in a lean canvas.

3. Community-Based Entrepreneurship: The "Power to the People" Play

Imagine having a cheering squad before you even start. That's community-based entrepreneurship for ya. I would consider this a mixed approach, which has recently become popular.

The basic idea is to first build a niche community of super fans. Since it is a niche community, the shared pain point provides an opportunity to develop a few businesses from this. Consider vertical micro SaaS, paid communities, courses, events, etc.

Pros:

• Built-in fan base (instant beta testers!).

• Easy idea validation (no shooting in the dark).

• Word-of-mouth marketing on steroids.

• Products you would spin up are probably low costs, so no need to external financing.

Cons:

• Having a community first, this can be tough, or not, depending on your skills.

• Bad experience = bad retention, word in the community spreads fast.

• This will take time if you don’t have skills building a community in the firsts place.

I like this mix of building a group of “super followers” and then based on their pain building a custom fit product. Plus, there are thousands of niches you can focus on. This approach not only ensures a dedicated customer base but also allows for continuous product ideation to meet specific needs.

Impact of the “Death of a Middleman”

Now, let's talk about a game-changer that's reshaping both 0-1 and acquisition strategies, The Death of the Middleman. I found this graphics from Greg Isenberg for you:

This timeline shows how rapidly technology is eliminating traditional middlemen roles. Let's break it down:

For 0-1 Entrepreneurs:

• Yesterday's challenges of hiring designers, video editors, and developers for every little task? Gone.

• Today's tools like Canva, Figma, VEED, and no-code platforms are slashing entry barriers.

• Tomorrow's AI assistants will make starting up even easier, handling complex tasks with simple instructions.

What this means for you: Lower startup costs, faster time to market, and the ability to compete with bigger players right out of the gate.

For Acquisition Entrepreneurs:

• Businesses relying on outdated models (like being the middleman for design or dev work) are still profitable but might be becoming obsolete.

• Look for companies that are adapting to this shift – they're gold mines waiting to be optimized.

• When evaluating a business, consider how AI and no-code tools could streamline operations and boost profitability. Think of increasing your EBITDA multiples.

The opportunity: Acquire a business still doing things the "Yesterday" way, modernize it with "Today's" tools, and prepare it for "Tomorrow's" AI revolution. You could potentially 10x its value in record time.

That's all for this week. Let me know how you liked this one!

- Slavo

P.S.: If you’re looking for some more inspiration, click the link below: