Motivations for Owning a Business
Guest column from Gregory Kovsky, IBA Business Brokers
An introductory conversation between adults locally will often include an inquiry about each person’s occupation. Common answers include “I work for Boeing, Microsoft, Amazon, Costco, Starbucks, the University of Washington”, or any of the numerous other entities offering employment in the Seattle metropolitan area. A rare answer to receive is “I own XYZ business”. Think about it a minute, how many people do you know that own a business and create employment rather than working for someone else. My guess is that the number is significantly less than the number of people you know that are employed. Now think about the people you know that own a business. Do you admire them? The common answer is “YES”. Why is that true? One reason is that entrepreneurs are traditionally confident & optimistic. Two personality attributes that attract friends & followers.
Confidence & optimism are fundamental characteristics of successful business owners. However, they are also characteristics found in quarterbacks, doctors, attorneys, military officers, and corporate executives. The question is what motivates an individual with these attributes to become an entrepreneur. In my 24 years as a business broker, I have identified the following four primary motivations for owning a business:
Freedom
Freedom is one of the great human motivators in history. Freedom to openly practice a religion of choice motivated people to leave England and lay the foundation blocks for the United States of America. Freedom to execute their vision for selling high demand consumer products at a discounted price motivated Jeff Brotman & Jim Sinegal to create Costco, one of the greatest entrepreneurial success stories in retail history. Entrepreneurship at its core is about the freedom to execute a business plan to an individual’s or group’s vision. This desire has motivated many entrepreneurs to risk time, energy, and resources to make a dream a reality.
Control
The desire to control one’s future and work environment is a strong motivating force. The most common manifestation of this desire is to seek employment in a preferred location, industry, or with a specific company. A less common action is to take control of one’s life path by creating or buying a business. Examples of business acquisitions motivated by control witnessed at IBA have included corporate executives buying businesses before they are relocated or replaced with less expensive alternatives; gay & lesbian individuals buying businesses to create a desired corporate culture; and parents buying businesses to create leadership & income opportunities for children.
Investment
The desire to build a better life is a strong motivating force for many people. A common component in constructing a better life is increased personal income. The reality of employment in a capitalist economic system is that for a job to be offered an employer needs to make money off the production of the position. Entrepreneurship offers a road to income above “market value” for their labor contribution for individuals with the knowledge, experience, and skill to compete successfully in business. It is common for parties purchasing privately held companies from IBA to make a 20 – 40% return on their investment after “fair market” compensation for their labor contribution to the business. This salary plus high investment return dividend compensation is a strong motivation for buying a business from IBA. In addition to this short-term return, unlike a job, a business can be sold when an entrepreneur retires. It is common for IBA clients to receive 6, 7, & 8 figure sale prices for their privately held companies and family owned businesses, a great nest egg for estate planning or retirement.
Lack of Alternatives
Many individuals immigrate to America annually from around the globe. These individuals come to United States with a spectrum of knowledge, experience, and skills. Unfortunately, language and a lack of uniformity in licensing for professionals can limit employment opportunities for new immigrants and their families. However, the good news for individuals with appropriate confidence, work ethic, capital, and skill is the sky is the limit in terms of what is possible as an entrepreneur. Favorite success stories at IBA for individuals who became entrepreneurs because they lacked an alternative path to financial security and professional fulfillment include a Moroccan electrical engineer who created a component level repair business for computers, a Russian entrepreneur who went from selling cigarettes at the end of communism in Moscow to operating a chain of florist shops known for their artistic quality, and a Korean professionally trained dog groomer who runs one of Seattle’s best canine beauty parlors. Nothing is more rewarding as a business broker than seeing people live the “American Dream” and take advantage of the unique ladder of opportunity that exists in our country for everyone. It should be noted that Wan Kim, my friend, who bought the dog grooming business with financial support from family in the 1990’s, used that business to send both of his daughters through medical school. A multiple generational, uniquely American success story that gives me great pride.
Entrepreneurship is the path not taken by many people during their working career. However, for those with the proper motivation, skill set, knowledge, and experience it is a path that can result in a life of opportunity, freedom, and financial reward.
Gregory Kovsky of IBA (www.ibainc.com), the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”. Mr. Kovsky can be contacted directly at (425) 454-3052 or gregory@ibainc.com.
