BUYER POWER PLAYS & PSYCH OPS
A power play is a maneuver in which an advantage is sought, and psychological operations (or warfare) are used to influence emotions, motives, objective reasoning, and ultimately behavior. It’s important to unmask these tactics when they are deployed. For a business owner ready to exit his or her business, after spending countless hours and personal capital (financial and emotional), can be taken off guard when working with potential buyers. Verne Harnish (aka, the “Growth Guy”), who I highlighted in my last blog, wrote an article about games buyers will play with sellers. Among the “dirty tricks” he highlighted, are the Power Play and Psychological Warfare.
Once the document [letter of intent, or “LOI”] is signed, buyers will drag out due diligence for months, while promising that everything should be wrapped up shortly. If I had a nickel for every time an entrepreneur heard “It’s just a couple weeks more” we could all retire.
And as due diligence gets dragged out, because the buyer tied the selling price to some multiple of EBIDTA, the CEO starts putting off key expenditures that she would otherwise make to keep the business humming along – a key hire or media purchase or training session.
To make matters worse, the buyer starts disrupting the entrepreneur’s rhythms and life through the infamous “emergency meeting.” The evening before an entrepreneur departs for a family vacation or major trade show, the M&A team will call to say that there’s been a problem with the deal and demand that he or she show up for a meeting the next day to straighten things out.
Afraid to derail the deal, the frazzled entrepreneur will cancel plans at the last minute. As a result, both the family and business team will start leaning on the owner to get the deal done. The pressure will continue to mount.
While such tactics are unethical, during the sell process each side will try to maximize or minimize the purchase price, and the seller, who I often work with, needs to be on guard. As I wrote last week, Harnish recommends that you have your CFO or another trusted advisor work as a go-between with the buyer.