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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.

Micro enterprises can be more than just platforms for new products and services. All five of Schumpeter’s types of innovation can be deployed after the acquisition of a micro enterprise, leading to growth and development

1) A new product or service may be launched. An acquired firm’s client list might be relevant for new products and services that have nothing to do with its current offer.
2) A new method of production or marketing could be applied. Think of the potential for novelty with automation on the production side, or with the Internet on the marketing side.
3) A new market may be opened. The new owner may be the first to offer the product or service in a foreign country, or to serve a new domestic demographic.
4) A new source of supply may be found. The acquirer may be the first to locate a source of inputs, perhaps from abroad, or to train a subcontractor to provide a service.
5) A new industrial order may occur. It is the story of David and Goliath – small firms have gone on to disrupt industry giants, or even to become ones themselves.

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.

An Ideal Pathway to Entrepreneurship for Recent Business School Graduates

9Business school graduates are people with a well-rounded education in business and management, which is a virtual prerequisite for managing a small firm. They have training that covers everything from managing people to marketing and accounting, which is what sets them apart from otherwise capable students in engineering and other schools. What is more, those who self-select into the entrepreneurship category in business schools tend to have two other prerequisites for entrepreneurial acquisition: leadership ability and creativity. Yet far too often young people with this promising profile abandon or shy away from the entrepreneurial path for lack of an idea. Entrepreneurial acquisition solves that problem, providing an actionable pathway to entrepreneurship for students who lack actionable ideas.

10Even if the way in which a firm will be developed is not clear at the outset, once acquired existing firms become laboratories where numerous opportunities for innovation will arise according to the history, structure, content and resources attached to the firm and its internal and external markets. Some of these may be apparent before the acquisition, others will not have been. For example, there was no mention of a restaurant in the business plan used to acquire Latour-Marliac, which the author acquired in 2007, yet today that activity comprises almost one-third of revenue. Indeed, once an acquisition has been made, the acquirer may find him or herself awash in potential opportunities for innovation. The challenge then becomes how to assess them, choose which to pursue, how and when. Put another way, it is only a matter of time before the acquirer of a firm becomes that Schumpterian entrepreneur whose main function is the commercial application of new ideas, rather than just the management of a going concern.

The key factors that make acquisition a viable pathway to entrepreneurship for young business school graduates are the following

Assets – Existing firms carry tangible and intangible assets that make the project more realistic in the minds of potential stakeholders, especially investors and lenders.
Information – Unlike in start-up projects, information about the past performance of an existing firm’s current business activities is readily available. This can greatly reduce uncertainty and again motivate potential investors and lenders.
Accompaniment – It is often the case the seller will accompany the acquirer before and just after the firm’s transmission, a key part of making sure that the value of existing networks and savoir-faire is preserved.
Aid – The French government has made it a priority to improve outcomes in firm transmission, particularly for small firms, and particularly for acquirers under 30. Financial and other aid will be forthcoming in the years ahead.

11There are four factors that make entrepreneurial acquisition well suited for recent business school graduates: assets, information, accompaniment and aid. None of these factors is as routinely or as directly present in traditional start-up entrepreneurship as they are in entrepreneurial acquisition. This is especially true when it comes to the acquisition of micro enterprises. These factors are crucial for making up the difference in what young people lack, which is essentially resources, networks and experience. Together they combine to reduce risk, helping to make entrepreneurial acquisition a realistic option.

12Assets. Existing firms always come with tangible and/or intangible assets attached, which the acquiring entrepreneur can put to use in various ways to facilitate the acquisition. Tangible assets, like property, plant and equipment may be used to obtain bank financing. Banks are much more comfortable loaning money against collateral than against the speculative promise of the acquirer’s business plan and his or her curriculum vitae. Assets can also help rally support from stakeholders, be they equity investors or government agencies. A beloved brand or product, a beautiful piece of land or a building, or even a street address with cachet, can be powerfully motivating to investors and others because they can see and touch the value – it is not potential in nature or abstract, as it would be in a start-up situation. This certainly played a role in the case of Parfums d’Orsay, a storied Parisian perfume company founded in the early 19th century. In 2007 it was on the verge of bankruptcy when Marie Huet, a business school graduate in her late 20s, acquired the company and brought it back to life.

13Information. Another important asset (or possibly liability) in an acquisition is information about the past performance of the firm. One of the biggest challenges that start-up entrepreneurs face is related to convincing would-be stakeholders that there is sufficient demand for the proposed product or service. That requires reducing the uncertainty associated with demand, something that is difficult and often impossible to do with a new product or service. Acquirers face no such challenge – they can use past financial statements to predict the future. All things being equal, next year will probably resemble the previous year and the year before that. This can be a double-edged sword, however. If past performance shows downward trends in revenue, profit or market share – or all of the above – then the onus will be on the acquirer to demonstrate to the bank and potential investors that he or she knows how to reverse this trend, and quickly. That this puts the acquirer in a similar position to the start-up entrepreneur is one reason why a potential acquirer-entrepreneur should aim to purchase a firm that is financially sound.

14Accompaniment. Many micro enterprises that come on the market do so because the current owner wishes to retire. Among the firms surveyed by the association CRA this is the case 70% of the time. Indeed, directors over the age of 60 are currently in charge of no less than 20% of the small firms in France [6]. More often than not, those who have invested much of their lives in developing and operating a firm will want to ensure its continuity in any way that they can. That is why it is relatively commonplace for sellers to offer to accompany the acquirer in the weeks and months leading up to and following the acquisition. These people are fonts of information about how the firm works and their involvement ensures that the value of their experience and networks may be passed on to the acquirer [7]. It can also ensure a smooth transition with current employees, who will need reassurance from both parties to the transaction that their jobs are secure and that forthcoming changes will be positive. All this helps the young acquirer avoid costly mistakes, saving considerable time and money.

15Aid. In addition to accompanying the acquirer, sellers may also help to finance the acquisition. When bank loans or private investment is impossible or insufficient, sometimes sellers will cede their enterprise in exchange for payment over time rather than up-front payment. Arrangements like this can make all the difference for young people who may face skepticism from banks due to lack of experience. And other sources of aid appear to be on the way. The French government has recently come around to the fact that the transmission of firms represents a significant lever for economic development. Not only that, it has recognized that people under 30 have an important place at the table. In a 2015 report commissioned by Prime Minister Manuel Valls, National Assembly member Fanny Dombre-Coste reckons that over the next ten years one-third of small firms for sale could be reasonably acquired by young people. This recognition is important because it goes against the conventional wisdom that young people are not mature and experienced enough to manage a going concern. In her report, Dombre-Coste recommends that the government take immediate action to develop programs that assist sellers and acquirers of small firms, including training programs and financial assistance. In the latter category, BpiFrance and other government financial organizations will be called upon to guarantee loans for small firm acquisition and to provide other services to sellers and buyers. It appears therefore that help is on the way, and help that is specifically intended in part to assist young people who wish to engage in entrepreneurial acquisition.

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.

Anticipating and overcoming obstacles

23In order for the type of program described above to exist and prosper the individual proposing the program, probably a professor, will require the enthusiastic participation of business school administrators, students and micro-enterprise owners. Each of these three groups may have reservations about such a program, which will need to be addressed. Business school administrators may feel that there will be insufficient demand from students for this type of training. What administrators should keep in mind is that students are likely to be unaware of this career path because it is rarely spoken of as an option for them, which means that communicating about it should generate demand over time. In addition to communications, demand-side risk may be further managed by starting small. For example, by adding an entrepreneurial acquisition track to an existing entrepreneurship program before creating a stand-alone program.

24Students who are interested in entrepreneurship may have reservations about the attractiveness, relevance or feasibility of entrepreneurial acquisition. Here students should ask themselves why they have chosen to pursue studies in entrepreneurship in the first place. Is it to have and operate a company, to be one’s own boss, or is it rooted in a desire to create something? Entrepreneurial acquisition offers all of the above, and it solves the perennial problem that most business school entrepreneurship students face, which is that they have no actionable idea that will allow them to do any of the above.

25Micro-enterprise owners are likely to say that they would not feel confident putting their firm in the hands of a young person because such people lack experience. While recent graduates with a specialization in entrepreneurial acquisition may not have years of industry experience, they would have targeted training in acquisition processes and management dynamics. This is something that older, more experienced people will lack, and which may be critical to success. Not only that, such graduates would benefit from a transition period under the owner’s tutelage, further reducing the learning curve.

26Beyond that, skeptical firm owners need to ask themselves why they lack confidence in young people in this situation. Is it difficult to countenance being replaced by someone so much younger, or to imagine someone so young managing current employees? The age of an acquirer certainly will affect the future of the acquired firm, but it is impossible to know how it will. The weaknesses associated with youth, like lack of experience and impulsiveness, may be outweighed by the strengths associated with it, like energy and enthusiasm. These strengths and weaknesses may in turn be complemented or counter-balanced by person-specific qualities that transcend age, such as leadership ability, rigor, empathy, tenacity and vision. Whatever role age ultimately plays, young entrepreneurs have been successfully making a go of it for a long time. The paradigmatic entrepreneur is, after all, a young person in his or her twenties, a standard set and maintained in the popular imagination by Silicon Valley. If an owner wants his or her firm to develop and prosper into the future, the wise choice may therefore be the counter-intuitive one.

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?


  • [1]
    Les entreprises en France, édition 2016 – Insee Références. Fiche Thématique – structure du système productif
  • [2]
  • [3]
    Dombrecoste, Fanny (2015). Rapport sur la transmission d’entreprises.
  • [4]
    Schumpeter, J.A. (2008). The theory of economic development, 1934. New Brunswick, NJ: Transaction Publishers.
  • [5]
  • [6]
    Dombre-Coste, Fanny (2015). Favoriser la transmission d’entreprise en France: Diagnostic et propositions. Report commissioned by the Ministère de l’économie, de l’industrie et du numérique.
  • [7]
    The importance of transferring the seller’s network to the acquirer and the best practices associated with it are discussed in detail in the 2012 article “S’approprier le réseau du cédant après une reprise,” by Sebastien Geindre in Entreprendre et Innover, 2012/2 No. 14, 40-48.
  • [8]
    Cédants et repreneurs d’Affaires (2015). Observatoire CRA de la transmission des TPE-PME.
  • [9]
    Geindre, S. (2012). S’approprier le réseau du cédant après une reprise. Entreprendre et Innover, (2)14, 40-48.
  • [10]
    For a detailed analysis of the emotional and psychological aspects of firm transmission see the 2012 article, “L’épreuve de la cession/reprise, rupture de vie pour le duo d’acteurs?” by Sonia Boussaguet in Entreprendre et Innover, (2)14, 20-29.
Robert Charles Sheldon
Escp Europe
This is the latest publication of the author on cairn.
Uploaded on on 01/06/2018
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