Soapbox

August 21, 2012 10:30 am

Lessons on buy-ins as well as lessons on start-ups are needed

Entrepreneurship teaching is too often limited to an academic exercise on business plan writing

Jumping on the bandwagon set in motion by prestigious business schools, many business schools have embraced entrepreneurship as a core area in which they want to excel. Most of these programmes focus on how to set up and grow a new business. The ultimate goal, they claim, is to see a sizeable fraction of their graduates opt for a career as an entrepreneur and start a new venture.

This goal, however, is hard to achieve. The route to starting and building a successful new venture is fraught with difficulties. Finding a value-creating business opportunity is not easy, especially for non-technical individuals operating outside technology clusters. And it is common knowledge that most of these ventures never achieve the growth hoped for in their business plan. Some may survive, others will be killed off due to lack of customer interest, finance, or the impossibility of delivering at acceptable costs. As a result, for many MBA graduates, entrepreneurship is limited to an academic exercise on business plan writing.

But is this the only way to teach entrepreneurship? More and more MBA students aspire to be independent, rather than spending their professional career as managers in large companies being accountable to numerous layers of bosses. Another way to realise their entrepreneurial potential is to take over an existing company through a management buy-in. Given the huge number of company founders and owners who will retire in the coming decade, focusing on management buy-ins might prove a more fruitful route to put business students’ entrepreneurial skills to work, for the students as well as the economy at large.

In many business schools the course focus on start-up entrepreneurship and related business plan competitions has led to too little attention being placed on this fruitful avenue to entrepreneurial success.

The risk in this type of operation is much lower than setting up a business from scratch: the company has already a product or service, there is a customer and supplier base, organisational routines have been developed, and so on. Business schools might teach their students how to take over companies as an alternative route to pursuing their entrepreneurial aspirations. This would include topics such as how to target a take-over candidate, how to perform due diligence, how to finance the deal, how to define a new strategic course to create value and how to replace the previous management.

Focusing on entrepreneurial buy-ins is not only beneficial for students, but also from a wider economic perspective. Research has shown that mature companies largely benefit from this kind of change. New owners come with a new vision for the company. They often use the existing operations as a platform to develop new products and services and address new markets. In particular highly educated MBA graduates could develop new strategies to bring the companies to higher levels of efficiency and economic value. Moreover, hundreds of thousands of current company owners will be retiring in the coming years in both Europe and the US. Whereas company owners hitherto expected their sons or daughters to take over their family business, succession within the family is less and less assured.

Finally, more and more private equity investors embrace these transactions compared with investing in high-risk start-ups. Hence, equipping MBA students with the skills to acquire an existing company may be especially valuable for students and companies alike. Additionally, this would provide an MBA programme with the opportunity to give a more realistic perspective on entrepreneurship and a business school a relevant route to differentiate itself from its peers.

Sophie Manigart is professor of entrepreneurial finance at Vlerick Leuven Gent Management School and Miguel Meuleman is professor of entrepreneurship at the same school.

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