Welcome back to Becoming a Better Business Broker in 30 Days!
This concise series title describes exactly what we hope you get out it - becoming a broker that can close more deals with less work.
I know you can hardly wait, but before you read today's article, make sure to check out yesterday: How to Protect Confidentiality.
Today, we're channelling our inner David Blaine to learn how to read the minds of our clients and understand, The Psychology of Selling.
Selling a business is a highly emotional process. So much so, it is not uncommon to hear a client refer to their business as, 'they're baby" despite their actual human children at home 😂
This emotional tie to their business can cause clients to make- errrm how do we put it - irrational decisions sometimes. This makes our jobs as brokers super important, often keeping our clients from becoming this meme during a deal:
Learn how to prevent this self-destructive behaviour below 👇
Understanding the Source of Emotional Attachment
First things first, recognising the emotional attachment your client has to their business is crucial. As it can vary depending on the client's situation. For example, consider how different each of the following, "reasons for selling" are:
- Retirement
- Serious illness of the Seller or Seller's loved ones
- Selling a failing business
- Selling a successful business
- Current owner is the Founder of the business
- The current owner is a private equity firm or investor
Each of these reasons (and there are many more) has a significant emotional impact on the Seller. Let's break it down further:
- Retirement: Seller is concerned about their legacy + if they will have enough for retirement.
- Illness: Seller is likely very distracted, they may have medical bills to cover, and this external stress could seriously sway their decision-making.
- Failing Business: Seller's valuation expectations (most likely) don't match reality. They are probably concerned if they will get enough money to cover their debt, would like to avoid bankruptcy, again a lot of external stress that will impact their decision-making.
- Successful Business: the Seller might not need the money, which could also make their valuation expectations inflated. Preserving their legacy and seeing a continued expansion of their business (beyond their current abilities) are emotional factors that will provide motivation of the sale.
- Founder-Owned: these Seller's remember the hard years when they were out grinding for every dollar, constantly teetering on the verge of bankruptcy, and nobody was there to support them. This is often evident in working capital negotiations where the Seller will state, "Why would I give the Buyer any cash? I didn't get that much cash to start this business". While this approach is incorrect - it gives you insight into how the Seller is viewing what is a 'fair' transaction.
- Investor Owned: the motivations for these Sellers are pretty clear - getting as much money for the business as possible for their investors. Due to the fact these Sellers are more sophisticated and have sat on the other side of the negotiation table, they are often less emotional but with high expectations for results.
Understanding where your Seller is coming from is a big step toward understanding the psychology of the sale. Building on this understanding, here are 4 techniques to manage and leverage these emotions effectively:
1) Empathetic Communication
Establish yourself as not just a Broker, but their trusted advisor. When your Seller feels understood, they are more likely to trust your guidance. Use empathetic listening to acknowledge their feelings without judgment. For example, if a client is retiring, discuss their concerns about legacy and reassure them about finding a buyer who values their life’s work. This will also allow you to
Dealing with a highly emotional Seller who seems to change their mind every minute? Try this simple tactic: repeat their words back to them - and then say nothing else. Sometimes, these Sellers need to hear themselves out loud to understand that perhaps their demands are unreasonable. If that doesn't work, put yourself in the position of Devil's Advocate and then talk about what is typical in a transaction (especially if your client has never done a deal before).
2) Setting Realistic Expectations
One of the most common pitfalls in selling a business is the mismatch between the seller's expectations and market reality. As we covered in Clients to Avoid and How To Filter Sell-Side Leads - it's your responsibility to filter your clients.
Use data and your professional experience to paint a realistic picture of the market, potential buyers, and the selling process. This can help prevent disappointment and frustration down the line.
3) Managing Emotional Negotiations
Like a toddler, when emotions run high, rational decision-making doesn't exist. This is where you, as a Broker, need to step in and gently steer your clients back on track. Remind them of their goals for selling (as per the above list), re-iterate feedback you are getting from Buyers and other deal professionals, and the potential negative consequences of their emotional decision.
The classic example, is the Seller who wants to 'kill the deal' every time there is a slight inconvenience in due diligence. Unfortunately, it always seems to be the Sellers with only 1 interested Buyers who act this way. Making it important to gently remind these Sellers that the sale of their business is currently a 1-horse race - with no guarantee a 2nd horse is going to appear.
4) Managing Stress and Decision Fatigue
High-stress situations like selling a business can lead to decision fatigue, where the quality of decisions deteriorates after a long session of decision-making. Add in an intensive few weeks (or months) of due diligence to really toast your Seller's brain.
Help manage this by breaking down decisions into smaller, manageable parts during negotiations. For example, instead of sending them a 10+ page LOI filled with red-line edits, send them the 3 key terms via email (in plain English) and get their feedback. Once those are addressed, talk about the other major changes. Implement those changes, remove the redlines, and then walk through the rest of the smaller edits (and an overview of the entire LOI template) on a call. This way they aren't waterboarded with legal language, which (from our experience) can freak out a lot of Sellers.
This approach can prevent rash decisions made out of fatigue.
Conclusion: The Heart of the Deal
Understanding the psychology of selling is crucial for navigating the complex emotional landscape of business transactions. By acknowledging the emotional ties, communicating effectively, setting realistic expectations, managing emotional decisions, and celebrating the legacy, you can guide your clients through this challenging process with empathy and professionalism.
Stay tuned for Day 23, where we'll dive into Overcoming Deal Barriers. As we continue our journey to becoming better business brokers, remember, that you are often an emotional partner in the sale of your client's business, extending your title & responsibilities beyond Excel Monkey.
If you want to learn more about automating your business brokerage with DealBuilder, please visit our site or book a demo here.
