Why 90% of Acquisition Buyers Don’t Pull the Trigger

I help entrepreneurs buy and sell businesses.

As the creator of Six Months to CEO, and an advisor at Quiet Light Brokerage, it’s not only my job—it’s my passion. Every day, I work with acquisition entrepreneurs to decide which businesses are a good fit for their goals.

Not too long ago, I advised two potential buyers who were middle managers looking to buy a business together. I asked them only three questions:

1. Why do you want to be an entrepreneur?
2. What are your skills, abilities, and interests?
3. How do you picture your day-to-day life a business owner?

After we talked, they realized they had been standing in the perfect business for them just a couple months prior, but they didn’t buy it because they lacked the clarity they needed to move forward with confidence. Unfortunately, after we talked and they followed up with the seller, the business had already been sold to someone else.

Their story is not unique. Intermediaries report that 90% of acquisition entrepreneurs never pull the trigger and buy a business. Why does this happen?

In my experience, there are four obstacles that trip buyers up short of the finish line, many of which are illustrated in this story. Let’s look at each one in more detail.

1. Buyers work without urgency.

Many buyers treat business acquisition like an optional investment and bring a tire kicking approach to their search. Both buyers I met with had good-paying jobs. Buying a business together was a dream of theirs—but not one with a date attached to it.

When you have a fallback plan, urgency is hard to come by. What you need is a timeline to keep you moving forward and motivate you to pull the trigger when the right deal comes along. In order to achieve your dreams, it helps to give them a due date.

I’ve also seen buyers lack urgency because they’re confused by how this process works. Don’t make the mistake of expecting sellers to pitch you their business while you sit back waiting to give the thumbs up or thumbs down. That’s not how this works.

What’s actually happening is that you’re interviewing to be the CEO of this company. Sellers are looking for an entrepreneur who is passionate about taking their business (i.e. their baby) to the next level. You have to convince them you’re that person.

2. Buyers assume sellers are getting out for dishonest reasons.

Buyers tend to look at sellers with skepticism, viewing them like sailors jumping off a sinking ship. After all, if the business was doing well, why would they be selling?

The truth is they want to exit because that’s what entrepreneurs do. Buyers have a hard time understanding that and always assume the seller knows something they don’t.

Don’t assume that every business has major flaws driving the owner to cash out.

Buyers also tend to magnify the challenges associated with the business and downplay the opportunities. What I always tell my clients is: the seller had challenges, and if you buy this business, so will you. Every business has risks—you can’t mitigate them all.

3. Buyers don’t know what they’re looking for in the first place.

With the three questions we looked at earlier, it’s important to know there are no right or wrong answers. They’re meant to clarify the type of businesses you should consider. It’s like selecting the number of bedrooms or school district before you start house hunting.

It’s fine if you want a four-hour workweek, but you need to define that up front so you’re not looking to buy a business that would demand sixty hours from you each week.

That’s why I advise acquisition entrepreneurs to answer these questions before they look at the first business. It narrows their focus, saves everyone’s time, and decreases the chances they buy a business that doesn’t match their commitment level or skills.  

4. Buyers work without a process.

The first time I tried to buy a business, I failed for two reasons. First: the private capital market is opaque. With publicly traded companies, we have complete visibility on how much they’re worth. That’s not the case with private companies. You have no idea how much a company is worth and no frame of reference to judge a company’s price tag.

There’s also the issue of fragmentation. When you buy a business, you can work with a business broker, M&A advisor, investment banker, or intermediary. There are slight differences in titles but potentially vast differences in their experience level.

Some have owned or started companies, have finance degrees, or have worked on Wall Street. Others have no formal education or have never owned a company.

I bring this up to emphasize how important it is to work with a process. Part of that is picking the right type of advisor with the requisite experience, but the bigger part is knowing what you want. When you have clarity around that and put a timeline in place, you’ll be equipped to find a business that fits your version of entrepreneurship.

Get a Complete View of the Future

Here’s one of the most important truths of acquisition entrepreneurship:

When you’re looking at buying a business and envisioning its future, remember that it’s not just about the business. The future is about the business + you.

The potential buyers I advised who passed on the business didn’t see that the future was the business plus them. One was an international supply chain specialist while the other was an online marketer. The business was a wine shop.

What looked on the surface to be a local retail store actually held the best growth opportunity possible for their skillsets and interests. The shop had years of established cash flow, international supplier relationships, and existing customers. With the two of them at the helm, the business could’ve gone to the next level.

They passed on a “local retailer” but really missed a lifetime opportunity because they couldn’t yet see it. If you’re an acquisition entrepreneur looking to buy your first business, don’t forget to factor yourself into each evaluation. When you find a growth opportunity that seems like it was made for you, the sky really is the limit.

For more advice on acquisition entrepreneurship, check out Buy Then Build on Amazon.