EP 96: Five Stages of Grief in M&A with Ed Mysogland

Ed Mysogland  0:01  
Please welcome please welcome welcome. This is another episode of the defenders of business value podcast podcast where we talk about what makes a business valuable, they're into tips and tactics to increase your company's value that only veteran dealmakers know. And now here's your host it my soul clan. Welcome to another episode of the defenders of business value. I'm your host, and Micic Landa and I am excited to talk a little bit about about this episode, because this is a kind of a little bit of a departure from the analytical side of things that I normally talk about. I mean, we have our guests and, and, you know, certainly hear a lot of their insights. But seldom do we talk about this, and this is about grief, grief about selling your business. And I'm married to a therapist, and, and she probably gonna be upset that I even said that, but nevertheless, she is. So she's a therapist, and she's a grief. And one of our specialties is grief and loss. So when people have tragedies, they call her. And anyway, and I started thinking about, you know, the, the the loss of the identity of the business owner, as they sell their as they go through the sale sale process. They're experiencing the different levels of grief. And while my understanding of grief, these five stages of grief, it's linear. And I'm not I'm not a therapist, I have no idea. But what I do know is it's not according to to the expert, or the experts. There, it's not quite like that. What it is, is, you know, it's all cobbled it's all cobbled together, sometimes you have denial, sometimes you have anger, sometimes you have a little bit of each. And it just, it's not linear, like I'm going to describe. So let me begin by, I guess, talking a little bit about that. Most business owners regret selling, and the biggest reason is that they don't go to anything, they, you know, they're, they're, they're, they're put into a position, whether it's health or age, and they have to sell and, and they don't control their exit. And that's one of the things that we have. We've been preaching for years over this. And as an as it as it turns out, I think when you hear this, you're going to find that there really is a sixth you can see a pattern to business, seller grief. So there's five stages to grief. And the first one is denial, second, anger. Third is bargaining. Fourth, depression, and fifth acceptance. Now, I may or may not have told you I'm in I'm in the middle of writing a book, and this, this happens to be something that that's where this came from that I was, I was writing, and, you know, just just seeing business sellers, how they behave. And so I wanted to include it in the book. So I'm going to share a little bit about some of my findings. So the first one is denial, alright, denial is, is, you know, this is when a business owner may minimize the significance of selling the business. Like it's no big deal. They, and as we've seen, you know, I think it's like 70% plus, now, the exit plan is to out of Cleveland, they did a study on how many people you know, how many business sellers actually go through an exit process or prepared their business for sale? Only about 30% do it. So it's just, there's no preparation, it's just one day I'm selling my business. So, so they avoid they avoid it. And and rightfully so, I was talking to somebody just the other day about, you know, when you're when your paycheck depends on on something you really don't want to, to talk about it going away. So, so that's what we start with denial. One is timing. Many business owners, you know, deny how long it's going to take to sell the business. I can tell you it from our experience. It's anywhere from nine to 12 months, all right, and they don't understand that. Not only is there a preparation, okay, that you've got to do some preparation. Then you enter the market theater, and it's going to take between nine and 12 months and then you're Gonna have some sort of transition. So let's just say hypothetically, you're talking anywhere from a year to two years for this whole exit process to take place. And many business owners just don't, don't see it that way. But one day, somebody, you're just gonna give the keys and it's over. It's not like that. The next thing that denial is valuation, imagine that, that the business seller does not concur with value. And that's that, out of all the reasons for deals falling apart, value gap tends to be tends to be the one. And so many business owners overestimate the value of their business, and they fail to adjust the valuation to, to reflect what's really going on in the market. And or its performance, financial performance. You know, I can tell you, we see a lot of business owners that want to sell on, on the future, this is what this business can do. It's not like that, it does not work that way. The future is in the buyers hands, and the buyers risk, and the buyers reward, not the sellers. Financial issues, that's the next one. Many sellers, or many business owners, you know, because of how close they are the business, I don't see how I don't see just the challenges that are 10 tend to face the business. The next thing is they fail to understand due diligence. They don't see that a buyer and let's let's talk SBA financing right now. I mean, there's some deals that you can get financing up to 95%. If I'm that buyer, you can bet your life I'm going to be doing a ton of due diligence to make sure what it is that I'm buying is actually it is actually there and is actually it. And so they downplay the need for that level of scrutiny you have for due diligence. The next thing is competitive landscape. Business owners underestimate just where they sit from a competition standpoint, this and we see this sometimes with a lot of with with older business sellers, where they don't, they're not you know, they've been doing what they've been doing, they've been making their money, and they're not paying a whole lot of attention to what's going on in the market. And as far as competition goes. And so then when someone scrutinizes their scrutinizes the business itself and its competitive landscape, all of a sudden, the business owner is absolute take taken aback that that's even an issue. The next thing is employee and customer loyalty. When we look at when we look at that, were we we see that business owners tend to overestimate somebody's loyalty. And I, I think you I think, especially in 2023 the way it is today, I don't think that I think it's really hard to have the level of sticky customers that you used to have, like when, you know, 1020 years ago, the next thing on denial is emotional attachment. You know, so many business owners have, you know, it's unfortunate that so many business owners have is what I should say, you know, there's a lot of sacrifice, being an entrepreneur, there's absolutely, whether it's marriages, whether it's time, whether it's health, all those things, and all those things contribute. And when you start when you

Ed Mysogland  8:59  
the emotional attachment, you know, the emotional attachment tends to cloud judgment, that's another component of the of denial is because how attached they are, they cannot see what a prospective buyer is looking at. And then lastly, transition owners tend to deny what it's going to take to transition their business. Everybody seems to the a lot of the sellers seem to believe that, you know, this is this is really easy. Of course, I'm gonna hand you the keys everybody everybody's gonna believe in you, your leadership, all the employees or all the customers are gonna love you. It's just that simple. It's not that simple. It is a it is a an absolute art to transition a business. And again, it's back to, to business hours tend to under estimate the time and effort it's going to take for that handover. Okay, now let's move into anger. This is, you know, when the reality of the sale sets in, you see anger, and where, where do you think we often see it, since we get that first letter of intent, now all of a sudden, things are starting to get real. The first is, here's some examples of of the anger versus loss of control. I've said this repeatedly, that as you, when you first put your business on the market, you have all of the leverage, you have a ton of leverage over everybody that's looking at the business, as you move to, to, to selling the business, you have virtually little little to no leverage, unless you want the business back, and you want to put back on the market or go back and running it, that those are those that that part's true, but generally speaking, the anger sets in when the loss occurs when when control goes out the window. Anger also shows up when there's a unwanted sale, where health especially forces the sale, or, you know, a divorce, I was just in doing some expert witness work last week, and, you know, they don't want to sell the business, they're getting divorced, and they, it's going to be bad. And, and anytime, again, you're you're in a position where you're being forced to sell for whatever external reason, it creates anger. The next is financial anger. So, when you when we when we find business owners that their business is not, it's not performing or producing the way it either has, or just never has. It's a reflection on them. And, and they are they're upset by it. And, you know, we tend to when when offers show up, that's a that is a tangible means for the business seller to see their market value, how a buyer sees. Anger also shows up with changes from the new owner. You know, so many business owners come in. And think that, you know, this isn't, you know, this is how we've done it, and especially when there's younger owners, so the retiring owners now sell to 3540 year old, and things are entirely different. And so there's some resentment to what they're going to do to that business. The next the anger is, like, denial. It's the emotional attachment. It's it's there is there is anger associated with with this loss that's getting ready to happen. And then lastly, the regret, there's anger over regretting, regretting the sale, that. And again, I told you this on exit pine Institute, I mean, 75% of business owners regret selling their business. And this is the reason why I mean, it's failed to prepare. So when we look at, when we look at regret, we tend to see that the business owner regrets, just the wholesale, just how this whole thing is, is is, is shaking out that whether it's the buyer, whether it's the price, whether it's the transition, whatever the scrutiny of the business, there's anger associated with just that whole process. So now let's move to bargaining. So it's really interesting non bargaining, because bargaining we see, a lot of sellers decide they want to retrain, alright, they get they get a deal, and they start to reach it rethink, somebody's whispered in their ear or something has transpired where, hey, I'm not getting enough money. Let's go back to the drawing table and see if we can squeeze some more money out. That's the that's the first thing on bargaining. So they want to they want to negotiate and find ways that they can mitigate the emotional impact of the business or impact the emotional impact of the sale rather than I said the business. And so again, we see retraining, exploring alternative scenarios, like meaning that meaning there's two two potential scenarios. The first is when the owner doesn't agree to to noncompetes and I'm gonna go back and get into the business. The second is that the The deal is more deal damaging, and that's, you know, they are I'm sorry, is less deal damaging where they want to remain with the business for a period of time. And, you know, retain, avoid the detachment of the business. The next thing is seeking reassurance and bargaining. You'll see, you'll see business owners now, especially as you start moving toward closing, you will see that business owners start talking about whether or not you know, is this really what I should be doing? I can't tell you how many times we have had, you know, sellers start to rethink selling, and again, totally their prerogative. But a lot of it's unfounded. So when, when a seller is rethinking, rethinking this whole deal, what they're really doing is seeking, you know, they want they want reassurance of, hey, I'm getting, I'm getting a fair value, I'm not getting screwed over by the business, the business buyer, and things are going to be okay for me afterwards. And then, lastly, on bargaining, if only and we see we see this a lot, especially I know, some of my friends in in, in tech, you know, where, where startups tend not to, perhaps not have blossomed as quickly as they they had hoped. There's a what if, what if I would have kept it? What if I would have done X, Y, and Z? Those are all that's a, that is a constant in bargaining? What would have happened had I x fill in the blank. So now let's move on to depression. So when we say depression, I can tell you that we see a lot of business sellers, you know, turn melancholy, because now, I don't know if depression is necessarily the right word. But at some point there becomes a there. And again, this is not universal, this is for a lot of stuff, but not all of them. But for those that are experiencing depression, where they where they can feel the loss, especially those business owners that have owned, whether it's generation one, or generation two did not want it. So they're going third party. Yeah, there's, it's been a family business, this has been a fixture to get to the kitchen table for a long time. And so there's a, there's a sense of loss, and so that can that can can do a number on the business owners. mental state. The next thing under depression is financial insecurity. There's a lot of times where the business sale is not going to, to provide the windfall that the business owner originally thought, and so now becomes a situation of, I'm not going to have enough money to fill in the blank, to retire to you know, the average, the average term of retirement is about 18 years, is it going to be enough? And a lot of times, it's not once you enter the deal theater, and you get real buyers, and you get real offers an entirely different animal. Okay, and so financial insecurity is a real thing. The next thing is the depression. And again, this is probably post sale.

Ed Mysogland  18:47  
But being disconnected, I mean, you're, especially for those that have spent most of their career building their business. Now they're disconnected to the only thing that they always were connected to, and that's building that business. So that's, that's a different animal right there. Where, where, and again, it's just something you have to go through. But being disconnected in from the business is, is natural. And, you know, there's different ways to pass to pass the time or to get involved back in business and share share with perhaps next generation or other people that are going through through the same thing. So being disconnected. Again, yeah, it it's supposed to happen. And then lastly, lack of purpose and that that goes along with the disconnected. The lack of purpose is same thing. You've done, you've you've worked in the business for so long, and now you're not and so now what do you do? There's only so much golf, there's only so much pickleball there's only so much Dennis, what do you do now? And so that's why when we consult with our business sellers, we spend a lot of time talking about what are you doing next, don't come in, do not come into the deal theater, if you don't know what you're going to do next. Because when we start get when we start taking offers, we have to make a decision. And, you know, you don't want to be making a decision with little time, you want to be able to take as much time as you need in order to figure out what what does your life look like, without this business? Alright, so then the last one is acceptance. Acceptance is, you know, here's the new reality, this is I'm not with my business, my identity is that was part of my part of my life, but not my entire life. You you certainly will experience you know, the the the business are will have some emotional healing. You know, there may be regret, there may be sadness, but it like any loss, it will lessen over time. And then we've they've been the business owner finds closure, the business owner, now, yeah. Transitions over, I'm doing what I want to do, I've I have, I've determined, you know, what my next steps are, what, what am I going to do with my time has been put into place, and I'm starting to get used to the new normal. And by doing so, you then begin to start your new identity, your identity of, you know, you were a former business owner, maybe there'll be another business owner, I don't know. But you start, again, rebuilding a new life, what regardless of whether or not that that has a business attached to it, you start building your your new life without the business. And then lastly, the acceptance is that you have an appreciation for the achievements that you have, you have had, and I don't think entrepreneurs get sufficient credit on, you know, how many families they touch, and how many people they employ, and how many, how many things as a result of their business, are they able to contribute to their community, to their employees, have to, you know, to charitable purposes, all those things. That's what being an entrepreneur is. And so, when you finally exit your business, to me, that's, that's a huge win, that, that you can look back and look at the achievements a you you sold your business, that's, that's a huge win far more than you, then you realize, number two, the achievement is that you can look back and say, I did this, or your you and your team did this, however you choose to see it. You were able to sell, you build something, you grew it, that's a that's a heck of an achievement in and of itself. And so I don't think a business owner should minimize that, that at all. So I hope that if you're one of those business owners that have sold your business, I hope you get the chance to reflect on on the on your achievements and what you did for for people, whether it's mentorship, or just economic impact. Those are all big things. So anyway, back to back to our, our five levels of grief, five stages. So we'll we'll tie this back up. So we got denial, anger, bargaining, depression, and acceptance. And I think if you've ever bought a business, you can see you can see business sellers in those in those different levels, or those stages. So as we you know, as I wind this up, you know, grief, it's healthy to grieve. So I'm told, all right, it's healthy to grieve, let's just agreed to it. You know, perhaps you didn't know that there was a sequence to how the sale how a sale will go. But to me, I think you should anticipate that there will be these stages you will whether it's whether that's totally obvious, or you can just get a sense of that we're passing through different stages in order to sell and, and the takeaway is that it's Totally normal. So I hope Yeah, I know this is kind of a divergence from what I normally talk about. But I hope if you're considering selling, or you're considering buying, I hope that it it. If you're on the buy side, I hope it helps you connect more with your seller beast, be less quick to scuttle the deal because of his or her anger. And if you're on the sell side, I hope you this this episode can help you see that what you're going through is totally normal and natural. And and hang in there. And as always, if there's anything on my end that that I can do to help you get past whatever it is you're you're experiencing. Happy to do it. Our doors always been open and and will continue to be open. So I hope you enjoyed this episode because it was a it was a doozy for me too. And we'll see you next week. This was another episode of the defenders of business value podcast for more episodes packed with strategies to increase the value of your business. Visit defenders of business value.com For shownotes transcripts in free tools to start you on your journey. Subscribe now so you don't miss any future episodes.

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