Wendy Dickinson – Psychology of the M & A Process

Wendy Dickinson – Psychology of the M & A Process

Wendy Dickinson - Psychology of the M & A Process

In this week’s episode, Ed had the opportunity to talk to Wendy Dickinson. Those people who are in the valuation and sale work like Ed, so much of the challenges that you face are emotional. Wendy’s practice, Ascend to Sell, hits this head-on.

For those of you thinking about selling in the next 30 days or 30 months, this is one of those episodes you want to listen to. This interview is chockful of all kinds of good things and tips about preparing yourself emotionally for what’s coming down the road. Enjoy this conversation!


Show Notes

1:30 – Who is Wendy Dickinson
4:05 – How To Get Someone to Emotionally Prepare For A Transition
6:03 – The Neurological Aspect of Transition
9:28 – How To Offset or Accept or Counter Offers
13:24 – Tips to Make Emotionally Charged Assets Liquid
18:55 – B.R.A.V.E (Belief. Ritual. Attribute. Value. Emotionally meaningful experiences)
21:46 – The Growth Mindset
24:01 – Making The Decision To Sell Or Buy Is Not The Finish Line
28:13 – Emotional Habits That Can Increase Business Value
31:00 – How Culture Translates to Valuation
31:28 – How To Work With Wendy
37:15 – Connect With Wendy
39:50 – Piece of Advice That Has The Most Business Impact

Learn More From This Podcast

Who is Wendy Dickinson 

Wendy Dickinson is the founder of Ascend To Sell, a coaching firm specializing and working with business owners and executives on the psychological and neurological aspects of transition.

Raised with small business in her blood, Wendy hails from a family of entrepreneurs. She is passionate about seeing business owners, who have spent their lives building a business, reap the rewards of their efforts. She coaches clients in using a growth mindset and self-awareness to position them for a successful transition, from beginning to end.

Wendy and her husband, together with another couple, started a business with the intention of creating an asset. They prepared and created every system in process with the idea of what their ideal acquirer would like. It was magical. There was no back and forth about who is right or wrong, there was no ego. It was all about what decision brought them closer to their goal and maintaining their friendship. By using the goal and their values as people as a guard rail, not only they were able to sell to their ideal acquirer but they also maintained their friendship. Wendy feels that it is how it can be but it’s just not like that often enough.

How To Get Someone to Emotionally Prepare For A Transition

40% of the deals that fail to consummate is something other than financial. There’s that emotional challenge that the seller or business owner has to overcome. So often we fail to appreciate how much of our identity we built around our businesses. The owner suffers from GIVE which stands for the Grandest Inflated Valuation Expectations. It is a serious issue because it affects the purchase price, it affects how well the business center was able to lead their team throughout the transaction, and it affects how well that owner works with their external advisor to cross the finish line. And oftentimes ignored is how important those emotional and neurological aspects.

The Neurological Aspect of Transition

We are beginning to learn so many things about our brains. We now know that, for example, we have fact A and fact C, our brains are going to fill in something that will connect A and C and allow us to store those two pieces of information in a way that makes sense. If it’s an accurate filler then that’s great. But then again our brain doesn’t care about that part. Sometimes owners present as exaggerating, sometimes key members overstating something or, at times, just plain making something up. Now we know that the person is unintentionally lying or exaggerating or trying to put a spin on something, but the person’s brain is trying to present the sequence of events in an orderly fashion and the only way that person’s brain has been able to do that is by creating this blank that unfortunately isn’t true. And so that’s one factor that can influence the ability of the external advisor to really do their job and create a strong, trusting, and lasting relationship.

The other thing is that many advisors tell their clients, with the very best of intentions, to take the emotions out of decisions. The scary thing is that to make really good decisions, we need those emotions. Let’s separate emotion from extreme emotion. There are clients that are so wrapped up in what’s going on, so wrapped up in the business, so wrapped up in the valuation that is going to the business, so wrapped up on who’s going to buy and for how much and what will happen to their employees, that sometimes extreme emotion comes out. If we tell our clients that they need to take the emotion out of it, we’ve actually gone too far in the other direction. What we know now again, for Neuroscience, is that people who have sustained great injuries where they can no longer access their emotions are not able to make even the most basic decision.

There was one subject of a study, and his name is Elliot. He has sustained a head injury and so Elliot was tested in several different ways. One of the results was that Elliot, in front of two identical pieces of paper with nothing written on them, was not able to choose between the two.

How To Offset or Accept or Counter Offers

When offers start coming through and people start assigning something to an asset that has emotional value, how do you either offset it or accept it or counter it? What Wendy tries to do when she has the opportunity to work with someone in advance at the beginning of the transaction is to talk about contingency plans. Wendy encourages people to think of the best-case scenario but also think of the worst possible scenario. Take a look at how you feel. How do you feel about imagining the worst outcome? What are the salvageable items here? What does it look like when if we have been in a transaction for 12 months or 6 months or whatever seems like the worst-case scenario to them and someone has come back and said, “They only wanted the assets” or said, “we only won’t give you a fraction of what you wanted but we want you to stay for five years.” It dives in to explore the various manifestations to that. That equips that person also to go to his financial planner for advice.

Tips to Make Emotionally Charged Assets Liquid

75% of businesses that go up for sale never crossed the finish line of the transaction. Of the 25% that do cross, 75%-90% do not transition successfully and so the merger or acquisition is considered a failure. So what to do? How to keep this from happening to you? Here are Wendy’s tips:

  1. Take a look at yourself. You as an owner have the opportunity to really spend some time before you even begin to embark on a path of selling your business to take a look who are you. Do you have a grit mindset? Or do you have a fixed mindset? This also translates to: How do you deal with failure? How do you deal with disruptions or innovations within your industry? How do you deal with cross-generational communication?
  2. Take a look at what are your blind spot. What are your values? How do your values as a person shows up as a value of the business? This does not refer to the monetary valuation. This refers to values like honesty, personal freedom, autonomy, a sense of community, etc. Those values connected are guardrails for the owner.

Let’s just say the owner values the sense of family, personal freedom, and community (let’s say he/she is really concerned about his/her employees). The ideal offer for him/her is going to be one in which the multiple is good, the purchase price is set multiple, the buyer is willing to keep the employee and perhaps also continue to do the things in the community that the owner has traditionally done, and the owner to be able to act as a consultant for six months or so but isn’t married to the job for five years.

So what’s the worst-case scenario with that?

Any offer that banks up against these three top values, you as an adviser will know that it’s going to be tough for the owner. How can that owner recognize that those are his/her values and that those values are not honored in the offer? The owner must look at prioritizing these values and prioritizing the offers that are based on these values.

Another thing that people undervalue is identity. It’s not only the identity of the company (value, vision, purpose, the ecosystem within the company) but also does every person in the company subscribe to the sense of being a cohort (Will they stay on? Are they invested in the company? Are they engaged in the work? Has the new owner value vision and purpose and communicate it well to the company?)

The other identity is the identity of the owner. That is the key to not only the owner managing in a healthy way separate from the company and allow that company to go on for the next owner, but it allows the owner to really take a look at, “In my worst-case scenario, who am I and what does it mean for my life going forward?”. For a person that’s ill, that is a really meaningful question. And it’s not something they can answer by a 5-minute phone call. It’s something they really have to talk to and discuss with their trusted advisors, mentors, and also family members.

B.R.A.V.E (Belief. Ritual. Attribute. Value. Emotionally meaningful experiences)

The owner can then look up to the acronym B.R.A.V.E. (Belief. Ritual. Attribute. Value. Emotionally meaningful experiences). Why was the company started? What is the mission? What are the rituals (e.g if the company deals with cancer and sponsors the Walk for Life) that make that company unique? Emotionally meaningful experiences mean ideally a group of people, the holders of the institution, the curators of wisdom, are they still there? Are they celebrated? That is the kind of thing that can be passed on. That is that company’s identity. The owner can then take his belief, ritual, attribute, value, and emotionally meaningful experiences, while they acknowledge and affirm that the role of the company has played on that, and go on to create an identity that is richer and more valuable for their experiences but continues outside of the company.

The Growth Mindset

A parent would tell a child, “You are so smart!” or “You are so athletic!”. That implies that the person is born with that attribute and there is nothing they can do to develop that. Whereas, somebody with a growth mindset, when their child brings home with an A, that person might say, “You worked so hard. You deserve that A. Well done! I’m looking forward to where you will take this next.”. In other words, you are born who you are but you have every means at your disposal to develop through your work ethic, through your habits of study, through your own sense of discipline.

As a business owner, if you want to sell your business one day or maybe you want to pursue a growth strategy by buying a new business, having a growth mindset is going to allow you to see an event that happened not like something on your last nerve or you just can’t take anymore (because it implies you have a fixed amount of energy, patience, and tolerance) but you will look at it like “What are my options?”, “What can I learn from this?”, “How can I move forward in a way that is aligned with my ultimate goal?”.

Making The Decision To Sell Or Buy Is Not The Finish Line

So many business owners think that getting to the finish line means making the decision to sell or making the decision to transition to the next generation. It is not. There is typically at least a year to sell a company. With the growth mindset, the owner will be met with disappointment with the numbers. But with the same growth mindset, the owner can then take a breath, acknowledge his disappointment, begin to work with the members of the team to address questions like: “What is salvageable here?”, “Where do we have room to negotiate?”, “What has contributed to our going to this point where the number is disappointing”, “Is there anything we can do about that?”, “Should we take the deal off the table?” Sometimes, it helps to say “Hmm. If this is the best I can do right now, is it worth it for me to work a couple of years to build value in another way?”

Making the decision to sell or buy is not the finish line. That is the beginning of the very demanding chapter of that company’s life. If the owner and the management team have worked together to take a look in the months before the transaction to take a look at what responsibilities can be and needs to be shifted. If the owner can, in a considerable amount of time, doing everything from supplying data, answering questions, housing visitors, consulting with advisers, do the key people in the management team have time for that? If they don’t then what you’re actually asking is, to not only you as an owner but everybody in your management team and other key employees, to work two full-time jobs for up to a year to 18 months. Oftentimes during that period, people are not able to do and sustain it, and so the business gets neglected. And then when you don’t hit your numbers, that is an indication to renegotiate the purchase price.

Emotional Habits That Can Increase Business Value

If you are a business owner and you are 3-5 years out, here are the emotional habits Wendy recommends to increase business value:

  1. Take a look at your internal and external use of language around the company. For example; have you, as an owner, empowered your team? Have you, as an owner, created the company so that YOU are not the center of the company’s universe? If the system and process in the company rely on you as the owner then that’s a problem. That is a potential weakness, and that will take away the value of your company.
  2. Culture is the way to get creative. Do not ignore culture. Develop a culture where everyone in the company does not only live and work in their mission and values but can also tell the company’s story in a way that illustrated these values.

How Culture Translates to Valuation

To explain how culture translated to valuation, Wendy shared about how two of her clients created a culture that helped mitigate the labor issue.

We all know that we are facing a labor shortage across so many industries. But one of Wendy’s clients, a franchise owner, has almost no turnover. It was because he has created a family-friendly culture in his franchise. Her other client owns a family restaurant. The owner’s daughter who is in her early twenties and has worked with the business since she was a kid. She and her parents have created a means of not only rewarding teenage workers but also retaining them.

If you have a culture that is sustainable, that the next buyer is committed to maintaining and learning from, then those key people in your organization will stay in place. That is additional business value.

How To Work With Wendy

Wendy works with the following people/scenarios:

  • People who want to buy and sell at some point. 
  • People who are working hard to create assets but, maybe are in a partnership or have a family business where the relationship has really suffered, and they want an opportunity to release that. 
  • People who recognize that their company has gotten off track – business owner realizes that there are more and more things that need to be done on the culture, mission, purpose, those kinds of things.
  • People who are more than one company but they are trying to develop their team so that the team can take over one company and they can step fully into the other.

Those types of scenarios fit Wendy’s training quite well because Wendy is an experienced outpatient therapist as well as a business coach. What she will be able into the relationship is a process that will really take an assessing of who the person is and what his goals are. Taking a look at the person and the company’s identity, the desired culture and the desired outcome.

She also looks into creating values in ways that our opportunity that people do not recognize as an opportunity (e.g. relationship, culture, etc.)

Connect With Wendy

Visit Wendy’s website: https://www.ascendtosell.com/ to get to know more about how to connect with her. You are also free to download Your Guide to 11 End Game Tasks from her website.

Wendy also recommends a book called Your Brain At Work by David Rock. It can give you ideas about what factors drive behavior, how our brains function, where we get triggered, and similar topics.

Other social channels:

Facebook: https://web.facebook.com/ascendtosell/

LinkedIn: https://www.linkedin.com/in/wendyburnettedickinson/

Piece of Advice That Has The Most Business Impact

Wendy’s advice is to identify what your desired outcome is. Be very specific about it and reverse engineer it. You got time, you got the energy, you can do this. And then once you’ve taken it as far as you can, get your team involved.