We'd like to thank Mark Daoust, owner of Quiet Light Brokerage, for giving us permission to reprint the blog post below. Mark is the go-to-guy for the purchase or sale of online eCommerce businesses and if you have an interest in that space, we encourage you to contact him at firstname.lastname@example.org.
Cheval Capital, Inc.
Disclaimer: This post is for general information purposes and is not meant to be taken as financial advice, a recommendation to buy or sell any stocks mentioned above, a comprehensive discussion of valuation or how to do the calculations discussed. Please be sure to consult your financial advisors when valuing your company, considering the sale of your business or making other financial decisions.
Better Deals Can Be Made With Kindness & Professionalism
In Hollywood movies, the big-shot businessman is always sitting in their high-rise office negotiating big-dollar deals and barking down the phone. It is easy to look at that and think this is the way it should be done in real life.
However, that is not reality. It was Rudyard Kipling in his famous poem that said you should “keep your head when all about you are losing theirs.” This is never more true than when it is about negotiating to buy a business, or if you are the one selling it.
Temperament, a sense of humor, and the ability to not take things personally are always three ways to nail any negotiation and secure better deals.
Remove The Emotion Equation To Get Better Deals
Experience has consistently shown us here at Quiet Light Brokerage that those who keep a level head during negotiations and those who position themselves as likable, honest, and sincere tend to get the better deals.
Emotions influence negotiations heavily. You can make the seller excited, happy and eager to work with you, or you can make them dread working with you.
Knowing this in advance gives you a very powerful advantage before you have even shaken hands and said hello for the first time.
Research Shows Just How Heavily Emotions Impact Negotiations
“The 2011 sale of a $3 million brownstone in New York’s Greenwich Village almost fell apart because of a dispute over an old washing machine that the sellers had removed from the premises two days before the closing. Stephen Raphael, the lawyer for the owners, told the New York Times that it really wasn’t worth fighting over, “but the buyers had already felt pressured to up their offer and to concede many things, and this was the last straw.”
At the closing the sellers still refused to replace the machine. One of the buyers ripped up a seven-figure cashier’s check for the balance due, put a match to the scraps, and stomped out of the room. The sellers finally relented and agreed to reduce the price by $300. The brokers found the angry buyer at a nearby bar, nursing a drink. They coaxed him back and the deal was done”.
Emotion can also make a negotiation explode if either side thinks they are not getting what they think they deserve, or if they feel they are being pushed too much into a deal they do not want. Why?
“First, they (emotion) destabilize the situation. You are much less sure of how the other person is going to react. The outcome is less predictable when the parties are emotional.
Emotion reduces people’s information-processing ability. That means they don’t take the time to explore creative options. They don’t look at all the facts and circumstances. They don’t look for ways to expand the pie. As a result, they don’t get more. In fact, emotional people, studies show, care less about getting a deal that meets their needs than about hurting the other party”.
It should be noted however that while emotion can kill a deal, it can equally help a deal close where it might otherwise fall apart. It all depends on the individual circumstances and each person’s ability to know how far to take it.
Being Likable Brings Benefits
We should always strive to be nice for the sake of being nice. Fortunately, being a friendly person during a negotiation comes with additional benefits (other than being an all-around good person).
- For Buyers
Sellers Would Be Willing To Consider Lower Offers
Identifying how much your opening offer should be is always nerve-wracking, and Mark has previously discussed this very topic. Understandably, it causes a lot of anxiety amongst buyers, especially if it is a business they want. What if the seller is insulted by an offer they consider to be a “low-ball” offer? A low offer may signal to the seller that the buyer is not serious, or is trying to exploit a situation by browbeating the seller down to a much lower price level.
If you have been unpleasant as a buyer and make a low offer, the seller could be offended. However, if you have come across as friendly and professional from day one, and complimented the seller, their company, and their product, then the seller may overlook the low offer. They would then counter with what will really work for them because they want to do business with you.
They may even go out of their way to figure out a unique sale method, one that they wouldn’t normally consider from anyone else, and show some extra flexibility on the price. I’ve seen it happen many times.
Brokers Always Remember Buyers Who Are Pleasant To Work With
Here’s something worth remembering. Not all business for sale are officially listed as such. Some are sold by the broker to clients who would be a perfect fit before ever being listed. Therefore it is a good idea for the buyer to make a great impression on the broker if they want to be remembered in a positive light and get that early notification about a new listing.
A Case Study
One case instantly springs to mind which illustrates this perfectly. We sold a business by a successful female entrepreneur who did a fantastic job with accounts, growth, and the business in general. When it came time to sell, she was not inclined to list the business publicly, so we thought of some possible candidates to approach who might be interested in buying.
The guy I immediately thought of had made a tremendous first impression on me before on another deal. This is why creating a good image always counts. He stood out from 5 or 6 other people, purely on the strength of his personality. He was someone I wanted to do business with.
When we got him on a conference call with the seller, he asked solid and professional questions, complimented her on how well she had built up the business, and expressed how impressed he was. The result was she felt great about the buyer and the call, and she wanted to do a deal with him.
Broker’s have a vested interest in pairing their clients with a buyer who will make a good offer and a fair deal. If a broker feels as if you are difficult to work with, why would he or she introduce you to their private listings?
- For Sellers
Negative Parts Of The Business Will Be Considered Less Serious & Risky
Not every business is perfect. On the surface, a business may be humming along nicely, but upon closer inspection and due diligence, problems may emerge which could endanger the deal.
Here’s an example. Buyers are naturally skeptical when they head into a potential transaction. During their evaluation process, they will look for elements that may indicate a potential problem.
For sellers who keep their accounting books in Excel, this is usually a warning sign for a skeptical buyer. Excel, for all of its strengths, is not accounting software. For many buyers, having your books kept entirely in Excel is an indication that the business lacks professionalism (rightly or wrongly).
However, if you come across as likable, organized, and (most importantly) honest, subtle warning signs like Excel-based financials may not factor as much in a buyer’s opinion.
Be likable and honest. Don’t hesitate to point out the negative aspects of the business and adopt a policy of total honesty at all times. Hide nothing. Not only will your buyer be appreciative of your explanations for anything negative in the business, but you will also become more believable when you explain the benefits your business potentially offers.
With a web-based business deal, where face to face meetings are rare, building trust is critical. If you are open and honest but made a mistake, the deal will still move ahead. If you are not trustworthy and unpleasant, the deal will go off the rails the first time the math doesn’t add up.
How To Be More Likable
Prospective buyers are always quick to say no to buying a website because they want to be extremely sure they are investing in the right business. However, as the following infographic shows, two of the reasons why a buyer can say no is because they either don’t like or don’t trust the seller (click on the infographic to see the full size).
So how can you make yourself more likable and therefore more trustworthy?
- For Buyers
Respect What the Seller Built
Here’s the thing about buying someone’s business: it’s their baby. They’ve started it from the ground up (or bought and grew it), given up evenings and weekends to get it going, and sweated blood to get to where they are today.
So any prospective buyer criticizing the business, and pointing out perceived shortfalls, is going to get very short shrift indeed. The seller has to know that if they sell the business to that buyer, that it will be in excellent hands, and will be loved by the new owner just as much as the seller loved it. Give the seller’s confidence in your ability to grow the business. Make them feel good about selling the business to you.
My Personal Experience
I can relate to this from personal experience. When I sold a business of mine in 2010, I had two possible buyers. One was rude and downright obnoxious, and obviously I took an immediate disliking to him. He spent quite some time telling me all the things that were wrong with my business. I found myself thinking, “then don’t buy it. Go away, leave me alone, I don’t want to talk with you anymore”.
He was tearing down something I had built and something I was very proud of. If he made me an offer, I would have likely rejected it outright, simply because I didn’t like him.
Contrast that to the other interested buyer who spent all of his time complimenting my hard work, and complementing the product line.
Guess who got to buy the business in the end? Here’s a clue – it wasn’t the rude one.
- For Sellers
Selling a business is a long and tedious process. It’s a fact that the buyer is going to have a multitude of questions for the seller. So the seller needs to patiently articulate their replies, giving as much time as the buyer needs. I always recommend to the seller that they take this part of the process very seriously.
As the seller, bear in mind that you have had many years to get to know your business intimately. So you know how everything works, who does what, and you know your books inside and out. But a buyer is only becoming introduced to your business, and they may have only had days or weeks to start looking at the business for sale. So the seller needs to understand this limitation and be patient with the buyer.
Don’t just dump information on a buyer, help them understand the information within the context of your business. This ties into the previous section of always being patient with the buyer when they are trying to understand how your business works. You could help them understand by writing an operating manual, or a series of screen recordings. Maybe offer to take some time to personally give some one-on-one personal training? Don’t assume they will work it out by themselves. Go out of your way to make sure they are comfortable.
Never underestimate the power of a compliment, especially when buying someone’s business. Having put their heart and soul into their creation, the owner will not appreciate anyone who argues why the business deserves a much lower value than what is being asked.
Being nice doesn’t make you a bad negotiator or businessman. On the contrary. Being nice reaps all the benefits. It can easily work for you too.
Source: Quiet Light Brokerage Blog