These St. Louisans are taking a different route to owning a company

In the world of entrepreneurship, a typical early step is to come up with an innovative idea or research breakthrough. From there comes the hard part of growing the business, finding customers, generating revenue, and achieving profitability.

A growing number of people nationally and in St. Louis are choosing to flip that process on its head. Their path is called “entrepreneurship through acquisition,” and it’s tailored for folks who have business savvy, but may not have a breakthrough idea.

“A lot of younger people always thought about entrepreneurship through the lens of greenfielding or starting up a new small business, but a lot of folks don’t have that novel idea, and starting a business is really hard,” says Brian Wolfe, managing partner of Funded Ventures, an investment firm that seeks to acquire and grow long-lasting small businesses. He cites figures that less than 10 percent of new businesses reach $1 million in annual revenue, and a fraction of those hit $10 million.

Wolfe is an ardent supporter of entrepreneurship through acquisition, having done it himself and taught courses on the subject at WashU and other universities. He says it came out of leading business schools, including those at Stanford and Harvard, where students would choose instead of consulting or investment banking to “raise a fund, search for and ultimately acquire a small Main Street operating company.” 

Those kinds of acquisitions can be a less precarious way to success, says August Felker, CEO Oberly Risk Strategies, a specialty insurance broker in the St. Louis-area that caters to entrepreneurs making acquisitions.

“The idea is you search for a couple years, look for a business to buy, and you buy a business that’s stable, has consistent cash flows, recurring revenue,” he says. “Your odds of being successful are much higher if you buy an existing, durable business versus buying something that’s just a startup.”

Felker has personal experience with the process, having relocated from the West Coast to the Milwaukee area to run an insurance business he bought in 2010. He found it was no easy task to persuade a business owner to sell their company to a stranger cold-calling them.

“You get a lot of people that hang up on you, that don’t answer your phone calls, your emails,” he says. “You have to be gritty, disciplined, organized, and resourceful.”

Cold calling isn’t the only way to find a company to acquire. 

Nick Akers began his search for an acquisition in this fashion, but found it wasn’t working fast enough. He says he switched to a “brokered approach,” where he looked for businesses that were actively on the market.  

It’s how he found STL Communications, the company he eventually acquired two and a half years ago and later rebranded as Inzo Technologies, which provides IT, cybersecurity, and VoIP services to businesses.

“This company was actively on the market [and] I found the broker,” he says. “Dealing with brokers is very challenging, because the main thing that they’re trying to screen for is: Do you have any money? Can you get a deal done?”

Akers found that he was able to break through because his search for a company had capital backing from Novastone Capital Advisors.

“They were bringing the money to the situation and convincing the broker that we can really bring a deal to the finish line,” he explains.

And once the acquisition is finished, the real rewarding part of running a business can start, says Felker. 

“It’s really hard day-to-day running a business, but it’s really fun to build a team,” he says. “It’s really fun to put your fingerprints on a business, and a lot of times it’s hard to do that when you’re working for a bigger company or a corporation.”  

Wolfe says he sees a larger trend today of people in the middle of their careers deciding they want to become owner-operators.

This was the experience for Akers, who had been wanting to return to the world of entrepreneurship but not wanting to run a startup again, he says. 

Akers previously founded Akermin Inc., which he exited before the company later shut down. “My startup experience was kind of pure luck,” he says. “I was in graduate school in chemistry, and just happened to invent something that was of interest to other people. I’m just not going to happen to invent something again.”

Buying Inzo offered another route and allowed him to create the lifestyle he was searching for. He explains, “I have young kids. I’m very involved in their activities. I coach all their sports. I pick my kids up from school every day.”

For other locals, an acquisition is an opportunity to further their business acumen. Adrian Allen says he decided to search for a business to purchase after successfully managing the financial modeling and projections for real estate investments he made in south St. Louis. He eventually found Landmark Sign Company and acquired it in 2020.

“I made an intentional decision to buy a smaller business that I could be 100 percent owner of,” Allen says. “Really what struck me [about Landmark] was the numbers. The financials were very clean. The business was not in distress. It felt like it had a lot of runway to grow.”

In the five years since, Allen says he’s modernized some of the systems, like transitioning paper records to digital ones, and upgraded the company’s fleet of vehicles. All of this, he says, has generated greater profits.

Wolfe cautions to be strategic about what changes a new owner wants to make. 

“How do you muck these things up? You try to make these businesses flashy,” he says. “The first rule in all this stuff is, do no harm. This business has been resilient, often, probably for a bunch of years.”

Often, Wolfe says a business that fits the model for acquisition isn’t flashy.

“You’ve got to be comfortable going to that event for your kids’ school, and while everyone’s talking about being lawyers or investment bankers or whatever, you’re telling them about the pest control business you bought, which is an awesome business, but that’s a mentality,” he says. “These small businesses are really resilient and robust and add a lot of value to our local communities. They’re important.”

Wolfe adds that St. Louis is well-situated for such acquisitions, having “a great rich history of these small, resilient, family-owned businesses.”

More people are raising money to acquire companies in this fashion, according to research from Stanford. That makes differentiating yourself to a potential seller paramount, says Chris Hoffmann, CEO of HB Solutions Group, the parent of home service brands in St. Louis and Colorado, including Hoffmann Brothers, Ferguson Roofing, and Blue Sky Plumbing. He acquired the latter two after they were already successful.

“It’s an incredibly crowded landscape. [Entrepreneurship through acquisition] is more popular today than it’s ever been, and it’ll probably be more popular even next year than it is today, which means there are a ton of people looking to get in the game,” Hoffmann says.

He says business owners who may be looking to sell will have certain values or expectations, whether that’s a certain price or a desire for customers or team members to be taken care of. Aligning with those priorities becomes a way to differentiate yourself from other potential buyers, Hoffmann says. He says his track record at Hoffmann Brothers has also been a key selling point to subsequent acquisitions, and that being a family-owned business committed to not going public helps.

“I would say having your first business done, like having a foothold in the space that you’re in, that makes your second and third and fourth and fifth and every follow-on deal a lot easier, especially if you’ve demonstrated a track record of how to operate your core, original business,” he says. 

He says any small business is going to be a bit messy below the surface and will require someone who’s committed to solving those challenges.