Many entrepreneurs think about the value of acquiring a business to overcome the challenges of starting it from scratch as the business landscape continues to evolve. Michael Frew, a technology veteran with more than 20 years of experience in the industry, has a refreshing perspective on the traditional startup narrative.

In this episode of the #shifthappens podcast, Dux Raymond Sy, AvePoint's Chief Brand Officer, and Mario Carvajal, AvePoint's Chief Marketing and Strategy Officer, discusses with Michael the pros and cons of business acquisition and the challenges that come with ownership.

Michael also highlights the importance of prioritizing growth and learning as integral parts of the entrepreneurial process. His approach is deeply rooted in the belief that the journey holds as much value, if not more, than the end product. "I've learned so much more from buying the wrong business and then having to sell it to someone else who would be a better operator than myself," Michael reflected. "It makes you so much more thorough on future businesses to make sure that it's the right fit."

He has recognized the concept of buying established companies complete with existing cash flow, marketing strategies, and product-market fit offers a compelling alternative to starting a business but never getting it off the ground or never make money off it. But how to get started?

Evaluating Potential Acquisitions

When considering potential acquisitions, Michael emphasizes the importance of finding companies that align with his interests and expertise. "The first question I have is, would this be fun to do?" he explains. "I don't even look at the financials unless I can answer yes on that."

Beyond personal achievement, Michael evaluates a business based on three key areas: scalability, marketing, and customer service. He looks for companies that cater to fellow engineers, often in the infrastructure tools and developer services, where he can leverage his knowledge and establish a strong product-led growth strategy.

Once an acquisition is complete, Michael aims to build systems that can accommodate growth, implement effective marketing strategies, and prioritize personalized customer interactions. "I don't want anything between me and my engineers talking to the customers because that's where we get the best feedback, and that's where the customers can actually get their questions answered quickly," Michael said.

Impact of AI on Business Valuations

As the conversation shifted to the topic of artificial intelligence (AI), Michael shared his perspective on how this rapidly evolving technology might influence business valuations.

"I have some hesitation about buying a very AI-focused business," Michael explained. "For one, I know that the coding churn to keep that is going to be expensive and tough." His approach favors infrastructure and developer businesses, which he perceives as less vulnerable to the disruptive effects of AI innovations.

This stresses the importance of continuous learning and keeping up with emerging technologies and trends. By remaining open to new possibilities and seeking opportunities for growth, Michael positions himself and his businesses to successfully navigate the ever-changing landscape.

Fostering the Importance of Talent

Michael’s commitment to growth extends beyond his personal endeavors. He also considers career development for the employees of companies he acquires and actively seeks to cultivate an environment that nurtures their expertise or interest in becoming investors themselves. Regular check-ins and access to training resources ensure that employees remain engaged and continue to learn professionally.

"I'm always trying to make sure that they can at least get new skills," Michael stated. "Some people on my team are only interested in engineering and it's a real advantage. I know I got pushed out of development and engineering as I moved up and that happens in corporate. Whereas in this opportunity, they just want to stay in the box and work on the code."

Recognizing and catering to the individual aspirations of each employee creates a culture that values personal growth. Giving employees an opportunity to learn both sides where they've invested in the businesses and actually working on the project is a key driver contributing to the overall business goals.

Embracing Failures as Stepping Stones

Michael’s journey has not been without its share of missteps and setbacks. He has had hundreds of domains of business that he wanted to start but never got off the ground and dozens of projects that he never made any income. Yet, he embraces these experiences as crucial components of learning and development.

He shares an instance when he acquired a business that proved to be a poor fit, necessitating its eventual sale to a more suitable operator. Rather than viewing failures as definitive endpoints, Michael perceives them as valuable opportunities for self-evaluation and course correction. It challenges us to reframe our perspective, to find joy in the process, and to embrace the transformative power of growth as guiding principles on our journeys towards fulfillment.

Whether navigating the complexities of business acquisitions, fostering a culture of continuous learning within employees, or adapting to the evolving landscape of technology, Michael’s emphasis on growth and learning paves the way for a more rewarding outcome that extend far beyond traditional definitions of success.

Advice for Aspiring Business Owners

As we navigate our own paths, exploring unconventional ways and alternative routes may inspire you to create more impact. For those interested in pursuing the entrepreneurial path, Michael offers three practical tips to navigate the world of business acquisitions:

• Build awareness. Knowing that business acquisition is a viable option and seeking out resources from buyers, who can provide insights into the process, financing options, and potential pitfalls to avoid is key to getting started.

• Set the right mindset. Ask yourself — what would I be good at? How do I finance this? Why would somebody sell? This mindset aligned with the idea that experience and knowledge often emerge from the most challenging circumstances, shaping the future.

• Build financial literacy. Gradually saving funds for an acquisition, as you would save money to buy a house, will also go a long way.

Having corporate experience also carries weight to set a foundation to become a good business leader in the future. You can get to know how different departments function – like marketing and bookkeeping – to help you better prepare when you decide to jump careers. By cultivating awareness, seeking knowledge, and taking deliberate steps, you can position yourself for success while embracing the transformative power of growth and learning.