Pedestrians walking south on Yonge St. walk into a spot brightened by light reflected off a nearby building.Fred Lum/the Globe and Mail
Scott Stirrett is the founder and chief executive officer of Venture for Canada.
Facing a tidal wave of retirements, many Canadian small businesses risk vanishing unless a new generation of entrepreneurs steps up to carry their legacy forward.
Research by the Canadian Federation of Independent Business (CFIB) found that 76 per cent of small-business owners are planning to exit their businesses over the next decade, marking a potential transfer of over $2-trillion in business assets. If these firms are not sold, they risk going out of business, resulting in billions of dollars of economic losses and the destruction of countless jobs.
While there are thousands of organizations across the country focused on helping people launch new businesses, there is insufficient support for entrepreneurs looking to acquire existing businesses. Entrepreneurship Through Acquisition (ETA), a strategy where individuals or groups acquire and manage existing companies rather than starting new ventures from scratch, is an underappreciated path.
ETA not only saves businesses from potential closings, it stimulates economic growth by revitalizing existing businesses, injecting fresh ideas and capital. This approach not only accelerates wealth creation for individuals but also invigorates local economies through job creation and improved business practices.
Younger entrepreneurs, with their fresh ideas and tech-savviness, are especially well positioned to modernize existing businesses. Therefore, ETA is about more than just ensuring existing small businesses stay open; it’s also about catalyzing the Canadian economy through expanding existing firms. A study from Relay Investments, an American firm that invests in entrepreneurs who acquire firms, found that 88 per cent of firms purchased through ETA create jobs after being acquired, with 46 per cent of these firms more than doubling their head count.
As Canada has 100,000 fewer entrepreneurs than two decades ago, we desperately need more people choosing to be entrepreneurs. Increasing support for ETA will increase the number of people pursuing entrepreneurship in Canada, which will increase Canadian labour productivity and overall economic growth.
By facilitating the acquisition of existing businesses, ETA offers a more accessible path to business ownership compared with the high barriers of starting from scratch. We need to increase Canada’s investment in supporting these individuals with training and access to capital.
Acquiring an established business means stepping into a venture with an existing customer base, proven revenue streams and existing operational systems. This reduces the uncertainties and challenges typically associated with new startups, where the failure rate is notably high.
ETA can also be a tool for individuals from underrepresented communities to own and expand existing businesses, bypassing startup challenges. This approach can accelerate wealth creation and business success, reducing inequality by providing more equitable access to entrepreneurship and its financial rewards.
In my work leading Venture for Canada, a national charity that supports young Canadians in developing entrepreneurial skills, I see firsthand how many people desire to be entrepreneurs but don’t necessarily want to start something from scratch. Promoting awareness of ETA will expand the pool of Canadians willing to pursue entrepreneurship.
To unlock ETA’s full potential, a multifaceted approach is necessary. This includes the development of educational initiatives that inform and inspire potential entrepreneurs about the opportunities and processes involved in ETA. Such education should not only be part of business-school curricula but also integrated into various platforms accessible to a broader audience.
Moreover, there is a pressing need for financial incentives and support structures. This could take the form of favourable loan terms, tax incentives or grant programs specifically designed for entrepreneurs looking to acquire and revitalize existing businesses. These financial mechanisms can lower the entry barriers and make the acquisition process more feasible for young and emerging entrepreneurs.
In the United States, entrepreneurs can much more easily access capital to buy businesses through the Small Business Administration’s loan guarantees. Canadian policy makers should consider creating equivalent guarantees to incentivize financial institutions to lend more to entrepreneurs looking to buy small businesses.
Mentorship is another critical component. Establishing mentorship programs that connect aspiring entrepreneurs with seasoned business owners and professionals can provide invaluable insights, advice and networking opportunities. These relationships can significantly enhance the success rate of businesses under new management, ensuring a smoother transition and continuous growth.
As Canada stands on the brink of a small-business succession crisis, the time for action is now. Entrepreneurship Through Acquisition is not merely a lifeline for existing small businesses; it’s a launchpad for a new era of economic rejuvenation and innovation. By fostering an environment where ETA is not just possible but encouraged, we can safeguard the legacy of our small-business community while simultaneously propelling a new generation of entrepreneurs toward success.