But we want the third kind. You know, the ones that will pay top dollar plus much more.
Let’s Review the First Two Types of Buyers
Strategic buyers are always top of mind. When you and I start brainstorming with our clients who could buy their businesses, we always start with competitors or others who know the industry very well. It only makes sense, right?
The other type of buyer is probably not as prevalent in our client base–the financial buyer such as the PEG (private equity group). I’m also going to lump in the person with lots of cash on the sidelines looking for other small businesses to acquire to diversify their investments. We might even have some current clients that do this.
Don’t Forget the 3rd Type of Buyers–The Idiots
Several years ago, I was helping a small $3 million service business buy a competitor about 5 hours from their home office.
We made a great offer. We wanted to keep the seller involved too. He was happy, or so we thought.
But I got beat, and that rarely happens when I’m in buying mode for a client. Another competitor did not swoop in for the purchase. Neither did a traditional financial buyer. Instead, we were beaten by a person that I call The Idiot. You know the type:
- The person has stepped into some money unexpectedly
- The person buys more with the heart and emotions as opposed to logic and reason
- The person has no idea what the concept due diligence means
- The person thinks the seller’s first counteroffer was a bit too low
- The person is overly-confident that he/she will triple or quadruple sales in a year
- They believe every word the seller says about industry multiples
I can’t beat that person. Neither can you.
There’s only one strategy to deal with The Idoiot–wait them out. They will eventually crash and burn. Your client will be there to pluck off the customers that leave en masse.
If you are working with a seller, finding The Idiot is great. Good luck finding that person. And yes, it’s all about luck.
Some Final Thoughts and a Question
Just curious, have you encountered The Idiot in past deals? What did you and/or your client do?
Incidentally, I’m sticking with the term, The Idiot. Nincompoop just doesn’t resonate in this type of discussion.