Can You Want it Too Much?

Randy (not his real name) really?wants to buy a business. I think he wants it too much.

Randy called me on the recommendation of a mutual friend. The company Randy wants to buy is owned by a guy who is 72 and ready to retire. Let’s call the owner Michael.

Michael’s business distributes a product that Randy’s current employer manufactures.?Randy tells me he knows the market for this product and has many solid ideas for how to expand the market in ways Michael hasn’t tried. He described his objective, “I want to end my business career on a high note making money for myself, not somebody else, and I can do that by leveraging my decades of experience in this market.”

All the stars seem to line up for Randy. He has credible experience in the industry, and he and Michael have a strong rapport having collaborated for over ten years. In fact, Michael has been one of Randy’s best customers over the years. What could go wrong? Well, as it turns out, a lot could go wrong.?First, Michael has an unrealistic view of the business’s value. He told Randy he turned down a $25 million offer in 2015. Whether there was a real offer for $25 million is one thing, but the business is down 40% from where it was in 2015. After my cursory glance, I told Randy that Michael’s company would be valued in the range of $7 to 8 million.

I realized Randy might want the business too much when he replied, “If I offer him just $8 million, it might offend him, and I’ll never get to buy it.” I didn’t say it at the time, but I thought to myself, “It’s a dangerous sign if your valuation formula includes a fear factor.”

Making the career transition from corporate executive to entrepreneur is more difficult than most assume. I say this from personal experience. Corporate life doesn’t prepare you for business ownership, even when you think you know the industry you are buying into.?Said this way, knowledge as an employee selling a product to distributors may not translate to the responsibilities of ownership of that product.

Randy is overstating his preparedness by his willingness to pay more for the business than it can support. This can happen when your “want to” becomes your primary driver.