Entrepreneurship Through Apprenticeship
January 16, 2025
by a searcher from Pennsylvania State University in Chicago, IL, USA
Has anyone seen successful examples of someone who deliberately pursued an "entrepreneurship through apprenticeship" model rather than a more traditional "entrepreneurship through acquisition" search?
I'm particularly interested in cases where individuals sought out roles under owners / operators with the explicit intent of acquiring the business after working in it for several years - I think that, hypothetically, an apprenticeship approach could offer advantages for both the seller and the aspiring entrepreneur compared to a standard acquisition, but I'm skeptical about how it stacks up against reality.
For the seller, I'd imagine an apprenticeship model would provide more confidence in who will carry forward the legacy of their business. It could also eliminate the time and dollar expense of engaging a broker or bank for the sale. Because the aspiring entrepreneur would be embedded in the business, employees / customers would presumably be familiar with them, minimizing disruptions to the business during the transaction. In terms of the sale itself, the seller would give up the price discovery that a brokered sale would provide but - if they value a smooth transition over maximizing sale price - maybe they're OK with that.
For the aspiring entrepreneur, you could look at the apprenticeship as paid due diligence over several years (and a long-term job interview), hopefully ensuring a strong personal fit before the transaction. If the entrepreneur plans to use an SBA loan, the apprenticeship could give them confidence in their ability to service the debt and take on a personal guarantee. A drawback is that they would ultimately have to pay for any growth in the business that occurs during their apprenticeship, potentially misaligning incentives (i.e., they may be inclined to delay value-creating initiatives until after their purchase).
Given all of this, it would seem particularly important to i) find the right owner / business to apprentice under and ii) be thoughtful and transparent about the apprenticeship arrangement. Regarding the apprenticeship arrangement, I'd imagine both parties would want the ability to walk away from a transaction if they don't want to go through with it and - if price discovery is very important for the seller - perhaps they could agree to run a more formal sale process but give the aspiring entrepreneur a ROFR on any offers that come in.
Where the approach might break down in reality is that: i) when an owner emotionally decides to sell, they probably don't want to wait several years for a transaction, ii) the average aspiring entrepreneur likely won't want to trade several low-salary years at an SMB in exchange for a (potentially) good look at a deal, and iii) the average aspiring entrepreneur probably doesn't want to risk getting strung along for years by an owner who "wants" to sell but ultimately kicks the can on the transaction.
I’d love to hear if anyone has firsthand experience with this approach or has seen it successfully executed. Thank you.
from The University of Chicago in Chicago, IL, USA
A typical search funnel looks like this:
Lead > Screening > Financial Review > LOI > Diligence > Closing > Operating > Exit
and the numbers might look something like this (example from my search):
5,542 Lead > 322 Screening > 94 Financial Review > 8 LOI > 2 Diligence > 1 Closed
To find an apprenticeship opportunity, you still need to do everything up to at least the LOI level. If you are going to commit 1-2 years of your life to working in a small business with the hopes of acquiring, you should look before you leap. If you go deeper into diligence before agreeing to an apprenticeship model, you might as well buy the company then.
In my opinion, the challenge is the trade off between increased certainty/reduced information asymmetry in the apprenticeship model vs. the opportunity cost of time. An apprentice can diligence a lot of the unknowns that require a leap of faith in an acquisition model. However, the time cost is very high. If the likelihood of closing an acquisition after working in the business is similar to a normal search funnel, you have a ~1/8 chance of closing (example above). A searcher/acquirer can cycle through many more opportunities over the 1-2 years and has a higher chance of closing a deal during that time.
Additionally, I would consider that as an apprentice, you may drive a lot of growth/value during your apprenticeship period. You then have to pay a multiple on value that you created, which isn't fun.
Bottom line - I'd be open to alternative possibilities during a self-funded search but would not deliberately seek out this apprenticeship model because of the high opportunity cost of time.
from United States Naval Academy in Austin, TX, USA