Buy or Build: Deciding the best path after choosing your market

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Fatemeh

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This is the third article in our “What to Consider Before Buying a Business” series. In Part 1, we discussed the high-level considerations of business acquisition, and in Part 2, we explored how to assess the commercial attractiveness of a market. Now, we’re tackling one of the most pivotal questions you’ll face: Should you buy an existing business or build one from scratch? This critical decision, often referred to as the buy or build dilemma, will define your path to success and depends on your goals, resources, and risk tolerance. In the next part, we give you our guidelines for defining the best criteria to evaluate the target businesses against.

For immigrants or first-time entrepreneurs, the choice between buying and building a business becomes even more nuanced. Buying offers immediate market access and an established foundation, while building provides creative freedom and control. This article delves into the advantages and challenges of both approaches, helping you decide which option aligns with your unique circumstances.

Buying an existing business: The shortcut to market access

One of the most appealing aspects of buying a business is its potential to fast-track your entry into the market. By acquiring an established business, you inherit existing structures, operations, and customer relationships. This can be particularly beneficial in stable or mature markets. Here are the key advantages of the buy option:

Immediate Market Access: You gain access to an established customer base and market presence without starting from scratch.
Established Revenue Streams: Acquired businesses often come with predictable cash flow, reducing the uncertainty of new ventures.
Operational Systems in Place: From supply chains to proven processes, buying allows you to step into a business with established systems.

However, buying a business isn’t without its challenges:

High Initial Costs: Acquisitions typically require significant capital upfront, and you may inherit hidden liabilities or debt.
Cultural and Operational Integration: Adapting the business to your vision or aligning it with local norms can be challenging, especially for immigrants.
Limited Flexibility: The existing business model may restrict your ability to innovate or implement major changes.

Example: In 2007, Colombian entrepreneur Woods Staton acquired 1,560 McDonald’s restaurants across Latin America and the Caribbean, forming Arcos Dorados. Leveraging his extensive experience with McDonald’s operations in the region, Staton modernized the franchise by expanding its footprint to over 2,000 locations, introducing McCafés, and targeting lower-income customers. These strategic moves transformed Arcos Dorados into the largest McDonald’s franchisee globally, driving growth and profitability while maintaining competitive pricing in a volatile economic landscape.

Buying is often the preferred choice in stable industries or saturated markets where innovation may not be the primary driver of success. However, this decision depends on whether the market aligns with your overall strategy—a concept we explored in Part 2 of this series.

Building a business from scratch: The freedom to innovate

If creative control and the ability to innovate are priorities, building a business from scratch might be the better choice. This approach allows you to design every aspect of your business to fit your vision. Here are the primary benefits of the build option:

Full Control: You have complete authority over the business model, branding, and operations.
Customization: Tailor your products, services, and brand identity to align with your values and market needs.
Unique Market Positioning: Building from scratch lets you carve out a niche and establish a distinct competitive advantage.

However, building comes with significant risks and challenges:

Slower Market Entry: Establishing your business takes time, especially when competing against well-established players.
High Risk: Success is uncertain, as you need to validate your idea, attract customers, and build a revenue stream.
Resource Intensive: Starting from scratch requires significant financial investment, effort, and time. Immigrants may also face hurdles like navigating local regulations, securing financing, or building a network.

Example: Canadian entrepreneur Luna Yu founded Genecis, a cleantech company focused on converting food waste into biodegradable plastics. After years of overcoming challenges, the innovative solution tapped into rising sustainability trends and achieved significant success in the competitive cleantech market.

Building is particularly well-suited to dynamic industries like tech, where innovation drives growth, or emerging markets where new opportunities are abundant.

The buy or build decision framework

Deciding between buying or building a business can feel overwhelming. A structured approach, like a Pro/Con matrix, can help you weigh the options objectively. Below is a comparison of key factors for both approaches:

Factor	Buying an Existing Business	Building a Business from Scratch
Market Access	Immediate entry into an established market.	You need to create your own market presence.
Revenue Streams	Established income and predictable cash flow.	Revenue is uncertain in the beginning stages.
Operational Systems	Inherited systems and processes.	You must build systems from scratch.
Innovation & Control	Limited ability to innovate or customize.	Full control over innovation and business direction.
Risk Level	Lower operational risk if the business is solid.	Higher risk due to uncertainty and competition.
Financial Investment	Significant upfront capital required.	Lower initial costs, but higher ongoing resource demands.
Local Knowledge	Requires moderate understanding of the local market.	Needs deeper knowledge of local regulations and preferences.

Using this framework, you can evaluate your priorities, goals, and available resources to determine whether buy or build is the right path for you.

Assessing your fit as an immigrant

For immigrants, the buy or build decision involves additional considerations:

Buying: Provides a smoother entry into a market with established operations and customer bases. However, you’ll need to navigate cultural differences and adapt the business to your vision.
Building: Offers greater control but requires a deeper understanding of local regulations, market preferences, and networks.

Example: An immigrant purchasing a business may focus on integrating their unique cultural insights to enhance customer experience, while building allows them to design a business that reflects their values from the start.

Your decision should consider your background, expertise, and access to resources. For instance, if you’re entering a highly competitive industry with little local knowledge, buying might provide a safer and faster path to success.

Real-world examples: Buy vs. build in action

Buying: Kenneth “Hap” Klopp, an immigrant from the United States, acquired The North Face in 1968, when it was a small retail store selling climbing gear in San Francisco. Klopp recognized the potential of the brand and turned it into a global leader in outdoor apparel. He streamlined operations, expanded product lines, and focused on brand building. Under his leadership, The North Face expanded internationally and grew into one of the most well-known outdoor brands worldwide. Klopp’s strategic decisions and vision helped transform a small niche business into a successful global brand.
Building: In 2009, Ethan Brown, an entrepreneur and founder of Beyond Meat, set out to create a plant-based meat alternative that could compete with traditional animal products. Starting from scratch, Brown faced the challenge of building consumer trust in plant-based meat and scaling production. However, as demand for sustainable and eco-friendly food options grew, Beyond Meat’s innovative products gained widespread attention. Despite the initial hurdles of market acceptance, the company eventually became a leader in the plant-based protein space, expanding its product offerings and securing partnerships with major food chains and retailers. Beyond Meat’s growth led to a successful IPO in 2019, solidifying its place as a major player in the competitive food industry.

Both examples illustrate how the buy or build decision hinges on your goals and the specific market dynamics.

Final word: Deciding to buy or build

The buy or build decision is one of the most critical choices you’ll make in your entrepreneurial journey. Buying provides immediate market access and reduces some risks, while building offers the freedom to innovate and create something unique.

Ultimately, the right choice depends on your resources, risk tolerance, and long-term goals. As we explored in Part 2 of this series, understanding market dynamics is crucial to this decision. In the next installment, we’ll dive into structuring your acquisition deal and ensuring a smooth transition, whether you choose to buy or build. Stay tuned!

This article is a part of our Business beyond borders series: Business acquisition, with published parts being:

In Part 1, we established strategic foundations for business acquisition.
In Part 2, we explored how to select the best markets.
In Part 3, we evaluated whether to build or buy a business.
In Part 4, we defined target criteria to guide your acquisition strategy.
In Part 5, we guided you on ways to build a strong target pipeline.
In Part 6, we showed you how to do an initial strategic filtering by doing commercial due diligence.
In Part 7, we gave you keys to do a financial due diligence/ financial evaluation on your acquisition targets.

Before you go

If you haven’t already, we strongly suggest you to read the other parts of the Business beyond border: Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7
As a (future) business owner, we suggest you to read about Top CEO secrets to success by McKinsey
Read about how your competitors might use Black PR to diminish your success