Bootstrapping a startup is the usual route taken by prospective business owners. Yet, startup failure rates are high, with almost half of new companies shuttering before their fifth year of operation, according to the U.S. Bureau of Labor Statistics.
Case Western Reserve University professor Scot Lowry is offering an alternative for aspiring founders – an unconventional strategy where participants utilize investor support to find, acquire and lead a company. The Entrepreneurship Through Acquisition program facilitates direct connections between owners and investors, who provide mentorship throughout the search and operational phases.
Though investors may stay on with a business as advisors, entrepreneurs take the lead in daily operations, noted Lowry, professor of entrepreneurship at the Weatherhead School of Management at Case Western.
Purchased companies are on the smaller side, generating about $5 million-$15 million in revenue at time of sale, said Lowry, himself co-founder of PromiseOne Companies, which guides first-time entrepreneurs through the buying process, then facilitates growth of the acquired business through coaching and mentoring.
Lowry discovered ETA while earning his MBA at Case Western Reserve. While he’d previously dabbled in entrepreneurship through a remodeling startup, Lowry admits to lacking a clear understanding of what genuine business ownership entailed.
“I still hadn’t come up with an idea for a startup that made sense to me,” Lowry said. “And frankly, it seemed a little bit irresponsible. I was 30 years old, I had my first child. I couldn’t imagine how I’d start and fund a company without taking a paycheck.”
In 2001, Lowry took a class with Richard Osborne, a Case Western Reserve entrepreneurship professor and pioneer of the ETA strategy. Osborne brought on Invacare Corp. CEO Aaron Malachi Mixon as guest speaker – Lowry was amazed to learn that Mixon - with an initial $8,000 investment alongside an investor who covered remaining costs - had transformed an $8 million medical equipment manufacturer into a hundred-million dollar enterprise.
“(Mal Mixon) found an investor who provided capital and mentorship to help him figure out how to approach the company and buy it,” said Lowry. “I’m sitting there going, ‘Wait a minute, you’re Mal Mixon today, and you got started with $8,000, and you went and bought an $8 million company. How do you do that?’ I immediately knew that I had to figure that out.”
Lowry began his own company search, spending years developing a business plan before purchasing Fathom, a digital marketing and analytics firm, from founder Bill Fox. Although Lowry bought the business with investor Kevin Shaw, Fox helped run operations until his sudden death in 2010.
“I ran Fathom as CEO for ten years,” said Lowry. “When Professor Osborne died in 2016, Case Western asked me to take over one of his entrepreneurship classes. Then in 2023, the school created a professorship and asked me to take that on. It’s just surreal how the whole thing started.”
Not just starting from scratch
Osborne launched the Promise Partners ETA accelerator in 1992. Over 30 years later – with Lowry now leading the network – 75 participants have gone on to become owners of 111 companies.
Five questions must be answered by would-be entrepreneurs before initiating a company search, said Lowry: What kind of business do you want to buy? How will you fund the purchase? How will you find the right company? How will you close the deal? Are you ready to run the business you want to buy?
“People who do the hard work to prepare - who thoughtfully answer these five questions - show up as credible buyers,” said Lowry. “That credibility is key. Sellers want to know their business will be in good hands, and often play a direct role in financing the deal.”
Joe Soltis founded ChoiceLocal, a Cleveland digital and franchise marketing firm, shortly after he and his wife, Becky, lost their child. 10% of all profits go to philanthropic organizations, keeping up with a founding promise to assist 10,000 disadvantaged and underprivileged children annually.
Soltis’ ETA story is a bit different, as he incubated ChoiceLocal while working at Fathom, with his bosses Lowry and Kevin Shaw providing capital investment. In the years since, ChoiceLocal has become a $1 million-a-year business through services including recruiting, reputation management and search engine optimization. Meanwhile, Lowry and Shaw remain on as strategic advisors.
“Scot and Kevin are pro-entrepreneur, and they have this whole philosophy that your dream is their dream,” said Soltis. “I could not ask for better mentors.”
Ultimately, ETA gave Soltis a jump start he wouldn't have had with a conventional startup, he said.
“What’s powerful about entrepreneurship through acquisition is you’re acquiring a business that has customers, has revenue and most often has profits,” Soltis said. “Then you can just level it up - put in systems, put in processes and make the culture better. You can really improve the performance of the business, and it’s much less risky than doing a startup, because there’s already something successful there. If you’re smart, you can make it better.”
Lowry would like to see the ETA model duplicated, particularly as aging Northeast Ohio owners begin laying out their succession plans. A cavalcade of retiring owners will ensure that entrepreneurial acquisition remains a viable alternative to starting from scratch, he said.
“I’m doing this because I value autonomy,” said Lowry. “I want to learn, and I want to challenge myself. I want to live my values through my work. These are all the promises of business ownership and entrepreneurship. I get calls from universities, or business people from different cities, that are seeing what’s going on in Cleveland, and want to replicate that. We’ll give them the playbook if they want to replicate this.”
