1Every year in France thousands of small firms change hands, many of which would make excellent entrepreneurial opportunities for young business school graduates. According to INSEE, [1] there are approximately 960,000 independent (non-subsidiary) micro enterprises, which are firms with between 1 and 10 employees and less then 2 million Euros in revenue. In 2013 these firms employed 2.45 million people and generated 827 billion Euros in revenue, of which 81 billion came from exports. That was 22% of France’s GDP that year and 19% of its employment. The association Cédants et repreneurs d’affaires (CRA) estimates that 20,000 firms come on the market each year, the vast majority of them microenterprises, with 7,000 of these having greater than five employees [2]. The CRA’s numbers do not include artisanal or shop-keeping businesses, nor do they include those firms that change hands without coming on the market, for example ones that are acquired by family members or employees. When those figures are included the total number of enterprises with one or more employees that could change hands in any given year in France is estimated to be at least 60,000 [3]. That is a churn rate of approximately 6% among independent micro enterprises that employ at least one person.

2This paper makes the case for why and how business schools should step into this dynamic market for micro enterprises by training students in entrepreneurial acquisition, which is defined herein as the acquisition of a firm with the express intent to develop and diversify its operations from the outset. The paper begins by making the connection between acquisition and innovation, as Schumpeter defined it, showing that even seemingly mundane firms, like shops or restaurants, can act as platforms for innovation in multiple forms. It then explains why entrepreneurial acquisition provides an excellent pathway to entrepreneurship for young people with a management profile, who often lack Eureka-style ideas for new products and services but who have excellent skills. Micro enterprise acquisition is well suited to young people because of four intrinsic factors that help to reduce risk: tangible and intangible assets, information, accompaniment and financial aid. Each in its own way facilitates the acquisition process and helps young people to compensate for the lack of experience, resources and networks that is naturally endemic to their cohort.

When acquisition leads to entrepreneurship

3The act of acquiring and managing an existing firm is not in itself entrepreneurial, yet even the most modest of acquired firms, like bakeries and barbershops for example, can act as launch pads for entrepreneurship. Schumpeter defined innovation, and entrepreneurship as well, as the commercial application of new ideas [4]. The ingenuity of his entrepreneur-innovator lies in the way in which he or she brings ideas to market, not in his or her ability to come up with ideas or to self-finance their commercialization. He is clear on this point: the entrepreneur may be the originator of the idea; he or she may even self-finance the idea’s development, but the entrepreneur’s raison d’être is the nuts-and-bolts process of commercialization.

4Schumpeter [5] identified five types of innovation, all of which can figure in post-acquisition development. The first and most well known is product or service innovation. In this case the acquirer of the firm uses it to launch a new product or service. For example, when the author acquired Latour-Marliac, a small plant nursery, it served as a platform for launching a restaurant activity. Existing firms have a built-in clientele, brand equity and distribution networks, all of which could be a match for new products and services, even ones that appear radically different from the baseline business activity. And existing infrastructure and resources can be used to produce, and even finance, the new product or service, potentially making commercialization more efficient than if it were undertaken via a de novo start-up.

5The second type of innovation involves the commercial application of a new method of production or marketing. Here an acquirer may leave the existing product or service range unchanged, altering only the way in which it is produced or sold. Perhaps the acquirer is an engineer who has developed a proprietary system; perhaps he or she is applying methods seen in other industries or markets. New forms of automation, for example, can make it possible to produce goods at a price point that will enable an old firm to compete anew. Such methods have given new life to agricultural businesses. In the Lot-et-Garonne department of France, tomato and strawberry production has prospered even as low-cost foreign competition has captured large parts of the market. Farms may lack the glamour of Silicon Valley start-ups, but they contain as much potential for innovation. And applying a new method of production in an existing enterprise may again be more efficient than founding a new company.

6The third type of innovation is the opening of a new market for a product or service. Here the original product or service may go unchanged, but if it is introduced in a market where it is currently absent, innovation is occurring and development will follow. This may involve opening new branches of a services-based business elsewhere, as in franchising, or it may involve exporting products. This is one area where a business that may be labeled as mundane or of limited development potential, like an artisanal business or a restaurant, may demonstrate otherwise. Indeed, many of the biggest franchises in the world involve types of business, like restaurants and shops, which are excluded from the CRA’s count of firms of interest for sale in France.

7The fourth type of innovation is the finding of new sources of supply, either raw materials or manufactured inputs. Outsourcing is the most common manifestation of this type of innovation. Where automation may keep a production activity in-house, shifting production to a low-cost foreign firm may keep a business alive or give it an edge over competitors. In 1994, when Laurent Vronski acquired Ervor, a manufacturer of industrial air compressors, he devoted much of his time early on to creating a global network of suppliers. He was one of the first people to explore sourcing opportunities in Eastern Europe after the collapse of the Soviet Union. He shifted production operations in France to assembly only, and redirected resources to research, development and marketing. This kind of innovation does not always have to be about efficiency, it can also be about novelty and quality. It may involve a retail business getting an exclusive distribution agreement with a foreign supplier that has come out with a new consumer product. Or, if consumers are demanding eco-friendly products, it may involve being the first company to find a supply of certified organic or fair trade material. However it occurs, novel sources of supply can transform existing companies, delivering new sources of efficiency and revenue.

8The last type of innovation is the reorganization of an industry. This may seem like a tall order coming from a micro enterprise. Yet the entrepreneur who develops a new method of production or marketing or who finds a new source of supply could apply it to other firms of that type, conducting an industry ‘roll-up,’ i.e. buying up and transforming businesses of that type throughout the market. It has happened many times before, for example with funeral homes, flower shops and coffee shops. In 1971, for example, Starbucks was but a single shop in Seattle. The same entrepreneur could disrupt an industry giant. Warby Parker, a seller of eyewear, has been doing that in the United States since it was founded in 2010. While the company was created as a start-up, it could just as well have emerged from the acquisition of a small eyewear shop. Warby Parker innovated mainly on the marketing side, and did so in four ways: 1) by selling glasses online, 2) by offering customers a virtual try-on option, as well a free home try-on option, and 3) by giving one pair to charity for every pair purchased, and last but by no means least, 4) by making their glasses a fraction of the cost of the competition. The competition in this case is Luxottica, a 10 billion dollar company that has a virtual monopoly in the sector. In 2015, or in just five years, Warby Parker generated over 100 million dollars in sales and was valued at 1 billion dollars, enough for Luxottica to take notice.

Designing a business school specialization in entrepreneurial acquisition

16In France the CRA, with its multiple branches and years of experience, currently has what amounts to a monopoly in training programs for those wishing to acquire small firms. This may be why some business schools have hesitated to develop curricula in this area. However, a study of the CRA’s database from 2010 to 2014 shows that the average CRA acquirer is male, 46 years of age, and able to make a personal investment of between 150 thousand and 1 million Euros. The firms they are acquiring have average annual revenues of 1.7 million Euros and a staff of 13 people [8]. In other words, the CRA is firmly positioned in the small, not micro, category, which is the category of firms that has between 10 and 50 employees and less than 10 million Euros in revenue. The CRA generally excludes acquisitions of firms with fewer than five employees prior to acquisition, and those businesses that fall into the artisanal or shop-keeping categories. That means that the large majority of micro enterprises, which make up the large majority of all firms in France, lie beyond their remit. Since these are the firms that make the most appropriate acquisition targets for young graduates, it follows that this is where business schools should focus most of their efforts related to training in entrepreneurial acquisition.

17An effective business school specialization in entrepreneurial acquisition should have three basic components: training in entrepreneurship, training in general business and management skills tailored to small firms, and an applied element that contains a mechanism for pairing students with the owners of firms who intend to sell. The program should take the form of a one-year specialized Master’s program, or occur as a specialization in the second year of a two-year Master’s or MBA program.

18Training in entrepreneurship. Almost any course in entrepreneurship is potentially relevant for entrepreneurial acquisition, but there are some basics that should not be excluded. For example, students should be able to write a convincing business plan, one that shows how existing activities will be managed over time, and how and why new activities will be introduced. They should understand different methods and best practices for funding an acquisition, from calling on banks to angel investors. A course should be included on the legal and technical process of small firm acquisition, from initial negotiations to the close. Students should be able to assess the commercial potential of ideas through market testing. Network theory and practices should have relatively more emphasis in the context of acquisition entrepreneurship than they do in start-up entrepreneurship given the number, importance and complexity of the many stakeholders that are involved when a going concern changes hands. And last but not least, students should be well versed in cash flow management techniques and principles.

19General business and management training tailored to small firms. Business schools have a natural and appropriate bias toward training that is geared to mid-size and large firms, where most of their graduates go on to have careers. In an entrepreneurial acquisition specialization, basic courses in finance, marketing, strategy and human resources must therefore be adapted to the micro enterprise. For example, in finance, valuation is a highly relevant subject, but the usual techniques taught, like net present value and real options may not be the most useful given the micro enterprise context. A similar lack of utility may be found in other subjects – the marketing mix is universally useful, but less so if it is applied using the usual corporate case studies. Strategy may also take on a different character when it comes to micro enterprises. Such firms often serve small, local markets, where the dynamics of competition may be quite different from those faced by a large multinational. Human resources must also be taught differently. Not only does the acquisition itself pose specific HR challenges, but what comes after does as well, since continuous change and development are the express intent of the new owner.

20The applied element – pairing students with the owners of firms who intend to sell. Not all students enrolled in the specialization would want to acquire a firm right after graduation, but all would benefit from working with a firm that is or will be on the market. The solution is to elicit the participation of the owners of micro enterprises who wish to sell their companies. They would be paired with students who, over the course of the specialization, would elaborate a project based on the firm and its sale, which would include a business acquisition plan. The owner would receive valuable information and analysis on his or her firm that would be helpful in its eventual sale. The student would receive a practical experience. Some students may wish to acquire the firm on which their project was based. In these cases, and if the business owner were amenable, the student would typically work at the firm for at least one year following graduation, with the understanding that an acquisition would occur thereafter. This period would allow the young acquirer to gain targeted experience, and in particular to make sure the he or she is able to take on and benefit from the seller’s network of stakeholders, including current employees, clients, suppliers and local political and business contacts [9]. In order to participate in the program firms would agree in principle to this eventuality beforehand. A small but significant number of students in the specialization will be planning on taking over the operation of a family enterprise. These students should follow the same formula, constructing a project based on the firm in question, and going to work for it in the lead up to acquisition. During the transition period, students could have access to the school’s incubator, where they would plan ways to manage and develop the company while building networks and accumulating resources.

21A would-be acquirer who has undergone this kind of tripartite training process would not only be technically prepared for the task, but also better able to manage the emotional and psychological aspects of it as well, which are not negligible. The transmission of a firm brings about radical change in the lives of both the seller and the acquirer [10]. The former is moving on and out, while the latter is moving in and up. The training in entrepreneurial and small-firm managerial skills gives confidence to both parties that the transfer will be smooth and successful, or at least without major surprises. It is in the transition period during which any fears the seller has about the experience and capability of the young acquirer will be dispelled. And it is during that time that the would-be acquirer gets a sense of what he or she is actually taking on. The transition period, however, can also carry pit falls, mainly because the nature of the exercise is that the acquirer will change the seller’s enterprise. If he or she already has development plans these may be hidden from the seller for fear they would affect the selling price, or for fear that the seller may not agree with the medium- and long-term vision and back out.

22Indeed, it would be naïve to think that the would-be acquirer and the seller will or should have a 100% transparent relationship leading up to the acquisition, but they need not be closed off from one another either. The reality is that any pre-ordained development plans of the intended acquirer are necessarily tentative in nature. They will be implicitly put to the test during the transition period, as he or she gets to know the company and its markets. In other words, they will change, and not only that but new ideas for innovation will emerge during this time. What both the would-be acquirer and the seller need to keep in mind is that the purpose of the insertion of the former into the firm prior to transmission is to learn how to operate the existing business, not to plan its future with the seller. What comes after the acquisition is in another category, one where the seller will and should be absent. To this end, clear boundaries should be set as to the nature and duration of the transition period and the two parties should strive to be as transparent as possible with regard to current operations during that time.

Entrepreneurial acquisition, a new frontier for business schools

27While entrepreneurship programs have proliferated over the last thirty years in almost every business school, and continue to do so, a little-mentioned fact among even the most prestigious and well-established programs is that only the tiniest fraction of graduates actually go on to become entrepreneurs and start firms. This is as true in France as it is in the United States and elsewhere. This article discussed the likely causes of this state of affairs, suggesting that graduates’ lack of experience, resources and networks coupled with an elevated risk of failure and the absence of actionable ideas play a significant role. Entrepreneurial acquisition remedies some of these issues. It offers business schools, whose raison d’être is to produce managers of existing businesses rather than creators of new ones, an opportunity to leverage their strengths and have a greater impact than they currently do on the entrepreneurial landscape. It offers business school graduates with an entrepreneurial profile a path to entrepreneurship that is a good fit with their attributes and skill sets. It offers business owners a new way of finding a worthy successor and ensuring the survival of their firms. So what are we waiting for?