Entrepreneurs Have Many Choices in Iowa
From 2015 Iowa Small Business Report
The following was published in the 2015 Iowa Small Business Report by the Center For Business Growth and Innovation at the University of Northern Iowa. I was honored to be interviewed for this important study, which follows.
All eyes have been on Iowa startup companies in recent years, but that may soon change. Growing trends in business succession activity suggest that business acquisition may be a viable model for would-be entrepreneurs to pursue in coming years. Nearly half of the 2015 Iowa survey respondents self-identified themselves as being in business for more than ten years, and the number of businesses who have reported themselves as ten years or older is up 13% since the 2013 survey. In addition, 56% of business owners surveyed in 2015 reported themselves to be 50 or older in age. So what does that mean when these business owners prepare to step aside?
Business consultant and broker Maurie Cashman of Aspen Grove Investments in Cedar Rapids specializes in growing business value and facilitating successful ownership transitions for midwestern companies. â€œIt isnâ€™t a matter of if these business owners are going to transition out of ownership,â€ he says, â€œit is simply a matter of when.â€ According to Cashman, the rewards of a well thought out succession can be substantial to both a buyer and a seller.
Sales of companies to strangers off the street or even to competitors has fallen in recent years as more business owners seek to safeguard their companies for their employees and to benefit their local community, especially in rural regions. One of the strongest transition strategies, notes Cashman, is an executive incentive plan. The process typically includes the buyer purchasing a portion of a company (perhaps 20% equity or similar) at the onset of succession, then over a predetermined period of time, working as the incoming CEO to gain experience and mentoring from the existing CEO. At the exit date, sometimes 3-5 years on the horizon, the entrepreneur purchases the remaining equity in the business. By the time the final transition takes place, the entrepreneur is often more bankable, greatly experienced and specifically trained in the nuances associated with the company he or she is purchasing; far better prepared to lead than if they had shopped and secured a company in one fell swoop.
Cashman notes there are many tangible benefits to acquiring an existing business vs. engaging in startup activity. He speaks from experience; he launched his own startup â€“ Aspen Grove Investments â€“ nearly a decade ago and also led a multi-million dollar corporate spin off at Land Oâ€™ Lakes that he likened to being â€˜strapped to a rocketâ€™. Acquiring an existing business he says, offers a special set of benefits that can play to the strengths of an entrepreneur and maximize profitability. Benefits include immediate cash flow, an existing customer and supplier base, a proven business model and an existing workforce. The real magic however, comes from marrying the specific expertise of the entrepreneur with the right business opportunity.
â€œManagement skills are needed across industry,â€ says Cashman, â€œbut not every business needs someone with global market analysis skills or advanced manufacturing expertise.â€ (See accompanying story of Janette Larkin, publisher at the Des Moines business journal, on the next page.) A wise entrepreneur, says Cashman, can maximize their specific expertise to springboard a company into exceptional profits. He notes too, that there is no shortage of opportunity. He expects more than 40% of the midwestern companies in his market segment in Iowa to change hands in the next five years.