Buying Your First Business: What No One Tells You | 008
Want to own a business—but don’t have a world-changing startup idea?
There’s a faster, more proven way: entrepreneurship through acquisition (ETA). In this episode of The Unsexy Entrepreneur, Charles Harris CPA and Dr. Seth Jenson introduce the powerful path of buying an existing business instead of building one from scratch.
🚀 In this episode, you’ll learn:
- What entrepreneurship through acquisition actually is
- Why buying a business can be smarter (and less risky) than starting one
- The key things to look for in a small business before you buy
- What makes a business worth acquiring (and what to avoid)
- How your accounting, sales, or operations skills could make you a great fit for ETA
- How ETA puts you on the fast-track to financial freedom
💬 Charles and Seth also share:
- Common myths and misconceptions about business acquisition
- Real-life examples of people who skipped the startup hustle by buying a profitable business
- Why this path is especially powerful for millennials tired of corporate life
Whether you’re a frustrated professional dreaming of freedom, or a side-hustler looking to make your move—this episode will open your eyes to a less-hyped but highly strategic path to ownership.
Transcript
Welcome to the unsexy entrepreneurship podcast. Today we're going to talk about through acquisition versus a zero to one. the sake of this, we're going to call entrepreneurship through acquisition as ETA. of the hip term these days. what I'm talking about. We hear about it all the time. ⁓ it is, I think MBAs go straight from their MBA to ETA sometimes. that.
That would make me nervous as an investor or those giving a loan, but to do that. And then zero to one, I think is what we think about when we say starting a business. break it down. What is entrepreneurship through acquisition?
Seth Jenson (:Yeah, so basically it's saying, I don't want to build something from scratch. There's all these businesses in the world that are looking for new homes, so to speak, people that are retiring, people that are just tired, want to get out of the game or want to do something else with their life. So they're looking to sell a business and you can come in and purchase it and kind of step into that operator owner role right day one. But it's still kind of entrepreneurship.
because ⁓
you're taking over this new, somebody else's baby and taking on all the baggage and rebuilding that comes with that, right? So you're still able to, usually there's an eye towards, okay, how do I grow this business? How do I improve the operations? You have to take a very entrepreneurial mindset, even though hopefully it's got some good cashflow already happening, it might already have some structure. So it's applying that entrepreneurial hat to an existing business and kind of stepping in day 1,000 instead of day one.
Charles (:think Dybell is probably voice in the field for ETA. don't know. That might be wrong too. I've seen at least. And I think the real benefits is you have cashflow right at the beginning. We're going to talk about the pros and cons. mentioned earlier, think before we got online, was how many owners are getting older, let's say, to be nice.
Seth Jenson (:Yeah,
absolutely.
Charles (:Do you have statistics
for the US or just Utah?
Seth Jenson (:Yeah, right before we logged on here, I was meeting with a bunch of local universities and investors. We're building out a whole program that's helping students acquire businesses, along with some mentors and investors. But in my state, 40 % of all the businesses in this state are owned by people 55 and older.
So that's crazy because it means in the next 20 years, probably more realistically, the next 10 years, 40 % of businesses are going to change ownership because most people don't want to be waking up and open up shop at 75 years old. They want to exit the business, move to the Bahamas and let that big payout kind of pay for their lifestyle. So
40 % of businesses in my state are going to get passed down in the family, get sold to some private equity firm, or go on the market for someone to buy and kind of become, again, an owner operator. And I think it's important to recognize as we think about this ETA space, there's some businesses that are really hard to find homes for. And these are good businesses. These are businesses that are cash flowing, know, half a million to, you know, even
three, four, five million dollars a year, but they're still small enough or, you know, unique enough that big firms don't want to buy them, private equity firms whose job are literally buying businesses, improving them and selling them. They're not interested in businesses up to scale. So if you're an individual wanting to do ETA, the number of businesses in that kind of mid, I mean, it's really small by business standards range.
there's a lot of opportunities there. There's less competition for them. And again, because of that generational change, it's going to hopefully be a big flood of them available to aspiring entrepreneurs.
Charles (:I mean, this is the big reason why I wanted to focus on millennials. mean, partly that we are, because I think have constantly complained that we've always hit bad economic, ⁓ the 2008 recession, 2009 COVID and all these things as, as during our prime earning years and getting into them, we've kind of missed a lot,
Seth Jenson (:Yeah.
Charles (:into business for yourself and buying these businesses of ways can make up lost ground pretty significantly, pretty quickly. just a really cool opportunity. It doesn't mean that we should do it necessarily got to make sure it's the right situation. ⁓ just don't go out and buy a business, but, is a cool opportunity. I heard too, and don't know if it's a hundred percent right, but I have, several business brokers, ⁓ that I with and I
with, said about 90 % of businesses go unsold.
Seth Jenson (:Yeah, I believe it.
Charles (:that there's a huge opportunity if you can get yourself into the right situation, talk to the right people. entrepreneurship through acquisition, we think it has to be on a buy sell or something like that. And that's just not the case. Sometimes it just going to the people where they are. been, don't know if I will ever.
Seth Jenson (:you
Charles (:buy a business, but I've been talking to older CPAs that I'm around and networking with and just saying, Hey, if you're ever going to sell give me a holler, let me know. of the time they don't have a plan. They don't know what to do just getting any money from the sale would be useful. through acquisition is a really cool avenue. to talk about it more in a second. The other side of the coin.
Seth Jenson (:Yeah.
Charles (:is probably the more well-known or most thought of as entrepreneurship, zero to one. we mean when we say zero to one? Why is that the term for this type of business?
Seth Jenson (:Yeah, so the kind of traditional path we might think of entrepreneurship is, hey, I've got an idea. I've got this dream for how the world could be. It's not like that now. It doesn't exist, but I'm going to go hustle and make it happen. Maybe it's a product that doesn't exist or I want to be a competitor in a space or whatever it is. But you basically take an idea, you validate the idea, you organize the component parts to bring it about in the world, and then you launch and sell it to the world.
I think zero to one is actually a really good term because sometimes it feels like negative one to one. The inertia it takes to get something that's just a dream into the real world can be painful. It's a labor of love often, but it's usually a lot of lifting and difficulty. But that's where innovation happens so often. Our economy thrives on people.
Charles (:You
Seth Jenson (:bringing things to life in it, making things better and new. And it can be incredibly lucrative, right? Like when we think of the big entrepreneurs that have shaped society, they struggled through the early Amazon bookselling years to get to the Amazon behemoth that's putting satellites into the, to give us internet or whatever it might be. That traditional path is...
Charles (:you
Seth Jenson (:you know, we'll go into the pros and cons, but it's kind of the American dream, make something from nothing story.
Charles (:Yeah.
think zero to one has to be that risky. ⁓ but we'll, we'll talk about that more in a second, but really love about to one you get that one, this is why I love the, I, how we phrase it is when you get that one, it is life changing. that one random sell online. ⁓ I worked for a startup, own they,
of putting their on the market that first sale. And just everyone like cheering and going crazy. is such a big deal. And it turns an idea into something almost. And I mean, one isn't going to prove anything, but such a like step.
Seth Jenson (:Yeah.
Mm-hmm.
Charles (:so I love that moment and that sale is just so invigorating.
Seth Jenson (:Yes.
I call it the light bulb moment for my students. It is, it's life changing. And Steve Jobs, know we referenced, we've already referenced Steve Jobs like three times too many in this podcast. It's so cliche. But he's got this amazing interview he did, a very young Steve Jobs. It's, you can find it on YouTube. But he basically says that everyone kind of grows up sticking the world.
is just the way it is, you know, that has always been that way. But eventually you'll realize that everything you see was made by somebody just like you. Like every amazing business you respect, every product that you use, somebody built that. And it's the way it is because they made it that way. And he puts it like, we realize you poke life, something comes out the other end. And that's just really empowering that you can shape it, right? You can bring something to life and shape communities.
Charles (:Yeah.
Seth Jenson (:build a fan base, it's incredibly, that's why entrepreneurship is so inspirational, right? It's this combination of art and business all in one place. So I think that's, I love that you talk about that moment when somebody first hands over that dollar bill or a million dollar bill to buy your product and you're like.
They're only able to do that because I built this. Like I built something in the world and people love it so much they're desperate to give me their money for it. That's cool.
Charles (:it's, it's bizarre that it happens. let's go through some of the pros and the cons of both of these. Cause these are kind of the two main ways of entrepreneurship. aware of any other types, but I'm not going to give a, an absolute because I'm an accountant. what are, let's go through some of the pros of ETA. I'm going to speak from my side because
you're buying a business, have cash flow. is the fancy term for you receive revenue and then you spend money. And then what's left over is the cash flow. we want a bigger cash flow because then it means we're putting more money in the bank than we're spending. little bit different than income in the fact that this is actual physical cash, not just
or expenses that we will pay that that goes into more of an accounting world but love about this is
Seth Jenson (:I love hearing your little accounting brain, not a little, your prodigious accounting brain
see the world in inflows and outflows. only an accountant would be like, your revenue is not real, you know, because for an entrepreneur they're like, yes, we just did a million in revenue. And the accountant's like, yeah, but you only get to keep a hundred thousand of it. So it's not like, you know, not real, but it's a valuable.
Charles (:but cashflow is awesome.
Yeah, well, and that's a whole other problem
that we'll talk about, I'm sure, is revenue is not real. net income and cash flow are real and kind of synonymous. For this example, we're going to keep them kind of the same. Obviously, they're different. love is the cash flow comes in. a client, I can't tell you names or anything like that, but bought a business, cash flowing.
a month. after loans, after paying all of his all the other expenses. is a big deal for an entrepreneur. That gives you space to then grow the business, experiment, figure things out, ⁓ pay yourself, which you can't do at a zero to one. If you sell one product, it's not, well, depends on the product. it's not gonna pay the bills.
Seth Jenson (:Hey yourself.
Charles (:a huge advantage of ETA you get that cash flow right off the bat.
Seth Jenson (:Definitely. And it kind of speaks to this other pro, which is it's proven, right? You're buying a business that has a history to it. And that included in that history is a sales history that shows that people want this product, right? And we'll go in depth in future podcasts about going through the financials of businesses you're looking to buy and really understanding what it should look like, what's good, what's bad, where they might be trying to.
know, hide things, those types of things. But when you buy a business, they show you your books and you're like, wow, there's tens, hundreds, thousands, millions of customers that have been buying this consistently for these years. So you're able to say, yes, my product is valued. Yes, I can build a business on this because.
it already has been done. it's, it's, just need, as long as they don't break it, it's going to keep doing, you know, providing this value for customers. And that's huge, right? ⁓ Because zero to one, you don't have that guarantee and you could build something that you're really excited about that seems really validated as you kind of experiment in those early stages, but there's just no,
Charles (:You
Seth Jenson (:Time bound guarantee you're going to be successful I think any zero to one you can eventually be successful But it could take two years or it could take two months two years five years 20 years, Whereas if you're buying the business the concepts already proven which is Also, just a relief like some people aren't need that
Charles (:Yeah.
Seth Jenson (:they're willing to accept that risk profile of running a business as opposed to the risk profile of starting a business. And so think that's a great way to kind of litmus test your own personality and path.
Charles (:Yeah.
I'll reference Walker Diabell a few times during the ETA section. ⁓ cause his book by them build is, a great resource. specifically talks about how that are ETA versus zero to one, ETA fail less of the time than zero to one. we will argue that point a little bit in zero to one too, cause I have strong feelings on that.
I think if you're looking for a strong business, have a boss, but you also wanna make sure you have a business that works, I think ETA can be a really good option. with this, to think about what the purpose of ETA is. you can it, kinda like buying a job, think is a little bit of a con, you can also,
laugh at this day and age in: Seth Jenson (:Yeah.
Right.
Charles (:grow the business, right? So it's not just, you're buying a business doesn't mean you're not an entrepreneur. It's just changing the look of it a little bit.
Seth Jenson (:Exactly.
Absolutely. And to your point, there's so many awesome businesses with good bones, so to speak, you know, a really great product, you know, consistent customer base. And yet these huge areas for improvement for those that are, like you say, entrepreneurial or operationally minded. You know, there's some kind of.
glow up opportunities if we're going to, if we want to use it, you know, that, you can really glow up a business and, know, in some cases, double, triple, quadruple sales from some very well-known safe adjustments to the kind of the business plan or the strategy. It's now, I will say people always buy businesses with these big dreams.
Charles (:You
Seth Jenson (:You tend to find out that the previous owners of the businesses weren't as stupid as you like to think they are in their head. Turns out they've probably tried half the things you're about to try, right? it's, you know, go in it humbly is my suggestion because it's always, it's, seems like it's going to be so easy before you actually officially put on the manager badge and go actually experience it for yourself. But that being said, yeah, there's usually some great ways that you can really.
Charles (:Hahaha
Seth Jenson (:know, glow up the business, level it up and increase, you know, improve your margins, grow the customer base, improve retention. You've already got something to work with. And so it's about improving and scaling as opposed to inventing, which is, which is awesome.
Charles (:that scares me about ETA personally, going to depend on the business and we're going to talk more about that, but to be careful about what business you're buying. you have to make the full jump. It's usually not like, ⁓ this business and work on it hours a week. generally speaking, you kind of have to jump in. There are some businesses you can buy that are only five hours a week, but those are and.
Seth Jenson (:Yeah.
Charles (:They're not really an entrepreneur business in some ways. I think that is a concern too, that I've seen, right? You're going to jump in, you're going to quit your job and then you're going to be at a loss if it doesn't work, ⁓ which can be a little bit scary too. about less you're jumping in fully, I think in a lot of ways it's just as high.
Seth Jenson (:Yeah.
Well, and think of it as buying, like, and you're going zero to one, you're just slowly onboarding responsibilities as you grow. You know, you can go and be like, I'm just playing around with this idea and then, I'm gonna, you know, invest some money.
to get it prototyped and that's a little bit of responsibility. You know, I'm going to hire my first person that's a little responsibility. When you're buying a business through ETA, you're just buying a ton of responsibility all at once. Like you're just taking the whole package. So, you know, it's that case you're going from zero to a hundred on the responsibility scale. And to your point, that usually means you can't just kind of go in, you know, one foot in and one foot out. You've got to, you know, full butt it if you're going to use a almost crass term. ⁓
Charles (:You
can be really good for, you know, someone that's been in corporate operations for the last 12 years. not really, they don't really feel like they have any ideas. They're not really an entrepreneur, right? ETA can be awesome for that. else I want to talk about too is for ETA, there's going to be cash upfront.
going to hear influencers and people say, Hey, you don't need any money to buy a business. that might be true in less than 1 % of the deals. and I mean, if you can find it where it's a hundred percent. lent seller financing. By all means power to you. Um, generally speaking, you're going to have to put at least 10 % down.
Seth Jenson (:seller financing.
Charles (:even at a company that's only generating $500,000 a year, you're looking at least at $50,000 probably. if not more. there is more of a cost to ETA in a lot of ways. And if you're not saving a lot of money, if you're not being frugal now, it's really hard to get into that, that space.
Seth Jenson (:You're exactly right. And the less you put in, most of the time it means the less you own because you're going to have to, I mean, sometimes you can get a loan that'll cover, you know, but SBA loans are very difficult to get. Like it's not an easy process. You have to have really good credit. You usually need to put down collateral. Like it is not a walk in the park to get loans. And so if you're bringing on an investor, definitely.
Charles (:And they can take like a year to get to, they can take a really long
time.
Seth Jenson (:Yeah. And maybe you have that opportunities dried up by then, right? And it's timing, timing can be an issue. Um, so you might mean you bring on a co-investor, right? That puts up the money and you kind of put in the sweat equity. Uh, but now all of a sudden you own less of that company. So the upside for you is less and the control is less. Someone else is whispering in your ear what needs to be done. Um, and, and again, exactly. Right. And, and I think that's really important and that's true of zero to one.
Charles (:just turns into a job, which is a concern.
Seth Jenson (:and ETA, at some point, especially if you take investors, you're going to have a boss. If you bootstrap the entire thing, you can go almost boss free throughout the entrepreneurship experience, although in some ways you're beholding to your clients. There's usually some group of stakeholders that are telling you what to do. so,
Charles (:Yeah.
Seth Jenson (:there's kind of an asterisk next to that boss free thing, right? You may not have a boss, but someone still expects you to answer the phone at 3 a.m. sometimes. And maybe that's not your boss, but it's still someone who's making you get out of bed and wire transfer some money to India or something. But investors, as you go through that ETA process, if you're not able to put significant money down, that might mean you're giving away part of your company.
Charles (:You
Seth Jenson (:You might be risking your home or something to put down the collateral for the loan. There are, and you alluded to these, we talked about de-risking. By all means, go be creative. Go see if you can establish really great sellers, note type situations, sellers financing. De-risk the financing and buying process in the same way you de-risk any element of your business.
but there are limitations to it, right? And sometimes sellers will only sell a certain path and that makes sense. So that cash upfront or that necessary investment to get started is definitely one con compared to the zero to one. And then the last con I would maybe tack onto our list here, which I think is so important is the skeletons in the closet of
Charles (:Yeah.
Seth Jenson (:If you buy a business, you're buying some baggage and you might not be aware of all the baggage when you first sign that agreement.
Charles (:I have so many stories on this
ETA client I've ever worked with has some baggage of it is okay and some of it is terrifying. so the simplest example, owner had everyone as a contractor when they were clearly employees, an easy switch, but it changes of the company.
Seth Jenson (:Yeah. Give us some examples.
Charles (:are more expensive, you have to pay taxes, ⁓ 7.65 % additionally on everyone's salary. there are other benefits included too, like off and things that you just have to offer if you want to have employees. don't have to, but good luck keeping employees. ⁓
Seth Jenson (:And to be clear, that distinction is a legal one, right? it wasn't like they had a, like, they were basically, it was almost illegal, what they were doing, right? Like these were people that were operating as employees.
Charles (:Yeah.
Right, right. The IRS could have come in.
Yeah, the IRS could have come in, him a ton of money he would have been in big trouble. one of the first things after he bought the business was switch everyone to employees, the profitability of the company. doing okay, but it's a lot tighter than the hypothetical of the company.
in his situation, I don't think he did enough research into that side or understood enough, right? He didn't have the right people in his corner until post purchase, also be a concern. other side, which there was another one that I worked with, or I work with. knew what they were doing when they bought the company. there were skeletons in the closet.
reporting less income than they were, receiving. this mainly to avoid taxation. it didn't hurt my client very much, not liable for past mistakes. a lower purchase price.
it was valued less because you use tax returns to value a company &L and if they're not reporting it, then it's worth less. And so the previous owner actually was the one that kind of and dinged on that one. could have gotten significantly more money revenue went up about 20%. ⁓ But there was a sticky note with real revenue numbers what was reported, right?
Seth Jenson (:Interesting.
man. ⁓
gosh.
Charles (:Just,
just crazy. and again, like I said, I don't think it hurt my client getting the SBA loan took a little bit longer because something was going on, but you know, we couldn't figure out exactly what was happening. for them, it worked out. Okay.
Seth Jenson (:But you can imagine the reverse being true too, right? Where, you know, they've been operating on these assumptions, but they're really kind of fudging or mis-reporting. Yeah.
Charles (:Yeah.
to inflate price, right? They could have been aware
that they were going to sell it in the next two years started inflating numbers. it could have turned out really bad for my client. luckily it didn't, they weren't that sophisticated.
can be a big deal. Those are the two stories that come to mind immediately. I would be shocked if there's any transaction where you don't find something that's a little bit funny.
Seth Jenson (:ones that come to my mind are, you've got this big, beautiful client list that they're like, ⁓ you're going to have all of these. then as soon as you buy that company, you realize that 90 % of these are really just straw men, right? Like they're past customers that haven't been involved for years, or they're all in the middle of a transition to a different company. Another one comes to mind is really onerous financing things where you're...
the debt structure of the company is such that you're locked into these terms that could really sink the company. Again, in your due diligence process, none of this should come as a surprise, but sometimes there's some fine print and stuff where at the end of the day when reality meets, you know, hits the road, so to speak, it's usually not as pretty a picture as it was in the room when you signed the agreement.
Charles (:Yeah.
Seth Jenson (:And so it involves pivoting and rebuilding and kind of adjusting. But yeah, I think it's a pretty good list. So the pros we listed for ETA were, man, that cashflow is really nice to have day one. You've got a proven concept. You're not wondering, my gosh, are people going to buy this? Is it going to work out? Can I get stakeholders involved? It's really good if you're operationally minded, there's room for entrepreneurship and improvement. You can go in there and grow a company and
And so if you're kind of, that's your jam, is going in and fixing things, improving processes, it's a really fun place to play. The cons we listed...
In some sense, you're buying a job, ⁓ might have a boss day one in certain circumstances, depending on your financing and things. You really have to go all in. You can't just kind of have this be a side project as you continue on your normal career, so to speak, or your previous career. It's cash intensive. You're gonna need to come up with money to purchase this.
And I'll just add to that. was just in a room literally before this with two investors that have acquired numerous businesses between them. And anytime they're bringing on an operator to help them run their business, they require them to put money in. Even if the bulk of the money is coming from the investor, they want that operator to have skin in the game.
Charles (:Mm.
Seth Jenson (:I think that really goes to show there's no free lunch when it comes to ETA. You have to be ready to commit resources upfront. And then the last con we talked about was those skeletons in the closet and those unpleasant surprises post purchase that you're definitely going to run into. But yeah, let's talk about some of zero to one pros then. So why is zero to one special?
Charles (:Yeah,
I love zero to one because you can de-risk the whole process. And I know we talked about this before, but you can get that first client while still having a full-time job. It's safe in that sense. people jobs and try and do zero to one, which...
is really risky and terrifying. But if you're smart about it, you can side hustle it, you can make sure it works, that it's a proven concept before you make the leap. to me that's one of the advantages that I saw when I did it myself. months the first client and when I quit. And so...
Seth Jenson (:Thanks.
Charles (:safe, because worst case scenario, my clients hate me, they all quit, have a nice paying job. a little bit sad and disappointed, but be the end of the world.
Seth Jenson (:Yeah.
Real quick, Tri, I'm curious to hear what was it like wearing both of those hats simultaneously? You know, you were an entrepreneur by night and an accountant by day. How did that feel?
Charles (:exhausting, interesting, right? Like, I'm lucky my wife pretty on board with it too, because I had kids and I was less available than I was before. it was hard too, right? Like...
I hopefully no one from my previous company listens to this, on Friday to work from home day and I would slip out, go to a networking event in the morning then get back to work at like nine, nine 30. no one noticed and that it was okay. And I know.
Seth Jenson (:So rebellious, Charlie. Those 30 minutes, my goodness.
I should report you.
Charles (:But I mean, it was, it was hard, I definitely do not think side hustling is easy.
it was so much safer. think the biggest problem I ran into doing a side hustle the last month or two.
really didn't care about my job. And I think people are better than me, but I, like to think about the future. like to move forward constantly. so it was very hard to focus on my normal job that I was getting paid a lot more money for, side hustle that I was barely making any money with. that was the hardest, point for me.
Seth Jenson (:Yeah.
It's true and you know...
aside hustler right like my my consulting practice happens outside of my nine to five hours and I love my nine to five job and you know there might come a day when my consulting work builds up to the point where I just feel more passionate about that I love my current job too much to let my consulting practice eat it currently but that might flip right but there's definitely those moments where you're torn between the two you've only got one
pool of emotional and mental resources and you've got both of those things pulling from it. So I do think that's really important. That's kind of, we're listing both a pro and a con for this first one here because you know, I'm able to take really big swings ⁓ in my consulting practice and go after kind of the biggest, highest clientele base because I don't have to pay the bills. I've got this safe thing and so I'm actually able to be more entrepreneurial and more ambitious.
Charles (:Yeah.
Mm.
Seth Jenson (:in my side hustle because of that nine to five, which if I were transitioning would make that transition in some ways potentially even easier because I'm able to almost assume more risk on the entrepreneurial side than I would if this was needing to pay the bills and I just had to take whatever came through the door. But anyway, so there's pros and cons. It's exhausting to be wearing both hats at the same time, but it's, you know.
a riskless proposition if you've got this nine to five as well and you're just letting this grow. you know, Charlie and I are both in service based businesses, but I've seen people build incredible e-commerce empires while full-time students, for example, they're going and taking a test and coming home and checking their e-commerce stats and watching that growth grow. So whether it's a CPG product or a service based business or anything, even a
Charles (:Yeah.
Seth Jenson (:a food truck, since you're going to turn into a restaurant, it can often start in that kind of minimum viable product early stage where you've got revenue, but it's not yet requiring your full time, which is different than that ETA situation. So I completely agree with you that that can be a huge pro for the zero to one.
Charles (:Yeah.
And you're right. It can be a con, right? It's, pretty hard to do both. is an advantage to jumping in fully is that you don't have to juggle. knowing all the secrets is another pro. talked about the things that happen,
gonna know your business well, You're gonna know every number, you're gonna know every client you've ever talked to, ⁓ especially at the early stages. It's so easy to know all 100 people you've talked to a company with a list where everyone is maybe...
it to a number instead of a personal relationship.
Seth Jenson (:Yeah. And I'll lump that in with another major pro for me, which is
That zero to one process because you're involved in all those details is the best education you don't have to pay for. mean, it's the best education you can get really. Like you are going to learn and grow so much in those early stages. Now don't get me wrong, in ETA you're going to learn and grow a lot as well, but there's really no substitute for having to solve all the problems and wear all the hats to become an expert networker and to structure your business, to bring in the help you need.
incredible journey that zero to one and it's a confidence builder. We talk all the time on this podcast about expertise.
A lot of expertise is built in that zero to one journey that you go for. You understand your customers deeply. You understand your supply chain deeply because you were the one that had to organize it and sit down and meet with them and sell at that farmer's market before you got your big break or whatever it is. There's just so much value in those early moments in terms of your human capital as an entrepreneur. But there's some major cons to that pathway as well. ⁓
Charles (:Yeah.
you
Seth Jenson (:I think the one that's most obvious is you've got to prove you're right about it. The uncertainty is just huge, right? Like you could be spending years trying to bring something about never knowing when it's going to catch fire. And that's obviously a stressful situation to be in.
Charles (:it was last episode. You talked about the Ferris wheels in every, state and every city. it's going to be big. that might not work. ⁓ clot or the customer might not care. Right. And that's, biggest worry about zero to one. ⁓ and that's why even if to be super risky in a side hustle, I always recommend selling that first one before you even consider jumping.
Seth Jenson (:It's gonna be big! ⁓
Charles (:it starts as a side hustle and even if it's time consuming and hard, you have a proof of concept first least one client to kind of base it off. one, yeah.
Seth Jenson (:really like to tell people
just real quick, I think the risk of failure can be zero. I can guarantee if you're committed to the entrepreneurial process, I can guarantee you will be successful, but I cannot tell you the timeframe in which you will be successful. And that's the uncertainty you're accepting. If you're all in, you can find a market, can...
cater to a customer base, you can build the product or the service, like you can be successful, you can do it, you can build something big, you can build a trillion dollar company.
but I cannot tell you how long it's gonna take you. And you can't possibly predict a lot of the time. You've only got 24 hours in the day. And even if you're the fastest moving, hardest working entrepreneur in the world, there might be 10 pivots between you and success. And those 10 pivots could happen over a 20 year time span in some cases. Or two months, right? But that's what important since you don't.
have a proven track record like an ETA, you're accepting the uncertainty and the timeframe that you're kind of unaware of.
Charles (:then kind of going into that too, right? Like salary and revenue, going to be able to pay yourself? are you putting most of that money back into the business to kind of grow it, to get that initial setup? have to pay for manufacturing, like that's expensive. a little bit upfront.
if you can do any selling, then that probably goes to your contracts. probably doesn't go to your pocket and it's going to take a while before you see dividends from your business. Boy.
Seth Jenson (:I work with
a lot of very successful entrepreneurs and the early years of their companies tend to be really depressing. Like they are living off of a mortgaged home and just draining their savings or eating ramen. There's usually some lean times. And it's not true of every industry. Again, your path has been surprisingly lucrative for you, much quicker than you thought those early days panned out better than you expected.
but you still took a hit to your day job right out the gate.
Charles (:And I think that's important to understand too, right? Like I don't think. there are probably exceptions to this and probably quite a few, but most of what I've seen is it takes a long time before. long time is relative. It takes some time before you can actually see the revenue. if it's a year to five years, it really can depend and vary ETA kind of wins out on that front. I think in a lot of ways. that's.
Seth Jenson (:for sure.
Charles (:of my clients are ETA focused is because of that. a lot of the zero to ones, they've been in business a long time and they need help now. Whereas ETA it's like, hey, I need help at the beginning to understand what's going on. And so it's just on how it works. think of the fastest zero to one client I have. from zero to one? Yeah.
Seth Jenson (:So I've got,
I helped some students who launched their business in September and by December I think they had 200K ARR, annual recurring revenue. And I think 12 months, well it hasn't been 12 months later, so what has it been?
Charles (:That's impressive.
Seth Jenson (:10 months later, I think they're closer to half a million ARR. This is a two person team. ⁓ It's a very low touch business in some cases. I think by the end of the year, they're expecting to have seven figures ARR. So, and again, that was truly a zero to one, but they did have industry experience that informed their path, right? So I've had other students have a...
Charles (:Wow.
Seth Jenson (:raise over a million dollars within eight months of them starting their company. But between those first eight months, their salary was zero.
and now they're just now closing. That's a very quick timeframe to close venture capital, but they'll finally have that salary if they choose. They might not even choose to pay themselves a salary yet if they can get away with it. Venture capital does not mean lush lifestyle for most entrepreneurs, but so those are two examples of pretty quick timeframes, you four to eight months and they're cash flowing enough or I've raised enough that they can pay themselves decently well.
Charles (:kind of to that point too, right? We talked about the timeline it takes, really include how much time you're spending. And we touched on it a little bit about my side hustle, but I was spending 10 to 20 hours a week of my nine to five. kids and it wasn't necessarily the most fun, a huge time investment, even on a zero to one side hustle.
endeavor if you want to make it a full-time gig.
Seth Jenson (:Yeah.
Charles (:be curious how much those students worked before they could actually get to that point, because it was quite a bit.
Seth Jenson (:It's
Right, yeah, there's the time when you officially start your business and there's the time all the months beforehand that you were organizing and getting it ready. Yeah, that's a good distinction to make. And those are the unseen hours, right? Those are the, you know, for every that those two emails that ended up landing you that client where there was the thousand you sent before and the agonizing hours you spent structuring those pitch emails, right? Like there, I always tell people.
Charles (:Yeah.
Yeah.
changing everyone's name
to be personalized and making sure you were something from their LinkedIn profile into the message so that they knew. Yeah.
Seth Jenson (:You
Exactly, stocking them on LinkedIn, classic, yeah.
I always tell people your business will try to eat all of your time. It's like a needy child. It will crawl up onto your lap and be like, but what about me? Like there's client emails to answer. There's taxes to start looking into. Even before you've launched, it'll try to eat up as much of your time. And you've only got 24 hours in the day. So that zero to one.
Compared to the ETA, the 0-1 will try to eat all 24 of your hours, essentially. It's a little bit easier to give yourself a 9-5 in that ETA space. A little bit easier.
Charles (:Yeah. Well, it's, it's so
a little sometimes it depends. into a lot of paperwork that you have to get done that you didn't know about or, funny. We're talking about this because even just I my wife, better or worse into starting a business.
off. haven't made that first sale yet. we're really, this is totally new. going to divulge too much. Hopefully at some point we can talk about it. Cause I, been really fun for me. her, Hey, I'll do the whole backend. ⁓ that's what my expertise is in. she just has to create the product.
Seth Jenson (:I didn't know this, this is exciting.
Charles (:and she's an expert in the field. So it totally works. It's. we'll be a good business, but we'll see. But I just got off the phone to her, with her for lunch and saying this is consuming her mind. This is what she's thinking about constantly. working in nine to five and she has a great job and she loves her job. is not for her to quit anytime soon.
Seth Jenson (:yeah. Yep.
Charles (:cause now she's kind of appreciating what I was always about is like, this consumes my mind. It's all I can think about. It's constantly what I'm coming back to. talking to her about it. She probably hated my guts the first year, six months as I was just talking about it incessantly. think talk about time investment as of work, 10 hours.
Seth Jenson (:Yeah.
Mm-hmm.
Charles (:But I think
in a lot of ways it consumes a lot more of your time than you realize too.
Seth Jenson (:Last week I officially landed a client for about a contract that's in the range of about $50,000. And it took me a full nine months of work.
to finally start that project. Now they're not paying me for the nine months it took me to just get them as a client, okay? So if they'd said no, that would have been nine months of work that I would never have anything to show for, right? And now that I've got them after that nine months of work, they're paying me $50,000 for the work I will do for them, right? And so it's, I'm really, you know, it's a great client. I'm really excited about the project I'm doing for them.
Charles (:You
Seth Jenson (:But that was a long nine months. It was a lot of mental energy, emotional energy, time. I had so many meetings with them where we were starting back at square one for no apparent reason. Where I was, you know, footballed off to a different decision maker. And, you know, it was just this kind of purgatory that maybe never would have yielded fruits. And that's just the nature of zero to one.
is you spend so much time and energy on things that may never yield fruit. And you don't know which of all of these things you're working on are gonna be the successful, you know, finally the breakthrough, so to speak. So yeah, I think not having that blueprint or that ⁓ kind of existing customer base that ETA has means, you know, your time investment and your emotional investment, your mind space investment.
Charles (:Yeah.
Yeah.
Seth Jenson (:in zero to one is huge and that can definitely be a pretty big cost. So let's think about it. the pros we listed for zero to one, easy to start as a side hustle. That's nice. You can dip your toe. You can grow with your business. You know all the secrets of your business. You're in the weeds with it, which means you're developing expertise and a familiarity with every aspect of your business that can give you confidence moving forward and really inform your strategy.
Some cons. Do want to go over some of the cons?
Charles (:you have to prove the concept. It has to actually work. what me and my wife are struggling with right now is trying to get that MVP out the door and sold. a ton of, a loss of salary. And it's going to take a while to get that salary. just the uncertainty the time investment that you have to give to something that might not even work, be.
difficult and are some pretty big cons to work with. we've talked about ETA and zero to one. I wanna talk about I've seen in the industry know everyone, but there's a lot of times that people will say ETA is the only way or they'll say zero to one is the only way. I don't believe that's true.
want to talk a little bit about what businesses work really well in the zero to one what businesses work really well in the ETA. And that's not saying that there's not overlap and there's not differences. because we say it works better as a zero to one doesn't mean that you can't do an ETA. of want to break this down a little bit for people to understand when to pursue which path.
Seth Jenson (:Yeah.
And yeah, I think we'll definitely continue this conversation on other podcasts going in the weeds of again, you know, if you're about buying a business, should have these characteristics and these types of things. But I think the big question to answer is, especially with ETA, how much would it take for me to recreate what I'm buying here, right?
Charles (:Yeah.
Seth Jenson (:Because there's some businesses where it's like, sure, you could buy this business for, say, $500,000, or you could spend six months and just recreate everything that they've got. So what are you actually buying in this business? And how difficult is it to reproduce? Because...
There's some things that are very hard to reproduce. If you've got branding that is, you your customers love and they know where to look for your product, that's huge. If you've got, you know, customers that you've got fixed contracts with, you know, that's awesome. But if you're just a logo and some equipment and a plucky team, that's something that you can just create on your own with relatively low effort and risk. And it doesn't necessarily make sense to buy that. And so
Some industries fall more or less in these categories. And it's really a case by case basis. I'm not sure there's a blanket rule that we can apply to this.
Charles (:Yeah, there's there's
definitely not and it depends on the size too, right? So I usually use the example of zero to one being better for cleaning business or a lawn care there are just so many people in the market if you bought the business, there's no guarantee people are going to stay pretty easy to find clients. to hold on to clients than it is to find them.
that, if you purchased a $10 million lawn care company that owns swath, right. And has multiple operators, that's a different story completely. hundred percent agree that not everything fits. can kind of tell you my side of it, right? So I offered to buy a CPA firm,
Seth Jenson (:Yeah, exactly.
Charles (:I ended up not doing it because of the we talked about above. at the point where have bought it, I realized it would take me or less to get to the same revenue number. wouldn't have had to deal with all the skeletons and I wouldn't have had to deal with the debt that would have been significant.
it, for me, it was very much. I do this? take out a loan on myself, if you will, right. To build up the business a better deal. you know, I, I couldn't go out and buy a $5 million CPA firm. If I had that kind of money, then maybe that would have been a different discussion. at than $500,000, right? Which is, been in my purchasing power, but.
Seth Jenson (:Nothing.
Yeah.
Charles (:really make any sense because I could build up to that pretty quickly.
Seth Jenson (:Yeah, yep. think that's exactly the logic, right? And we've talked about what makes, where competitive advantage comes from, right? And as you're purchasing a business, that's what you've got to ask, is there something advantageous here, right? Do they have some resource that's unique to this firm where it's like, man, if I had that, whether it's a ⁓ patent or whether it's a customer relationship.
Charles (:Yeah.
Seth Jenson (:Again, a really strong brand that I'll never be able to really compete with. If they've got those types of things, that's really what you're buying a lot of the time. And again, every case is so different, right? Well, a business at a certain price might be a no-brainer, which at another price would not be worth touching with a 10-foot pole. So it's the devil's in the details, which is why working with...
Someone like Charlie who could really go into the details of what the structure of this company is, what the financials, what are their assets, these types of things are really key and we'll do whole episodes on it. ⁓ But you posed the question, what businesses make sense and what don't? And I think that's a good question, but I had to end on the thought of what makes sense for you? And there's a lot that plays into that, but as you think about these pros and cons about your risk profile,
Charles (:You
Seth Jenson (:Are you, you know, a visionary? I want to build something that's never been done before. Are you operationally minded where you're like, I just want to take over and tinker and improve and build, you know, different people be drawn to different entrepreneurial paths. And there's really not a right one. They're all good. They all can be life changing. They can all be, you know, just transformational, honestly, in every sense, your satisfaction in your life.
your financial trajectory, the impact you're having in your community, like truly transformational. So as we've gone through these pros and cons, what feels right to you? What fits your soul and your heart and your goals and your current needs, so to speak, let that guide you kind of as you decide.
