10 Mar How to Better Understand Buyers and the Learn-Teach-Lead Model
In our continuing webinar series “The 5 Hardest Things to Learn in Business Brokerage” with Glen Cooper, we continue to explore what business brokers need to do to find that 2% of buyers that will actually buy. Cooper is the Founder and Managing Partner of Colorado Business Brokers and the President of the Colorado Association of Business Intermediaries. Let’s turn our attention to some of the key points that Cooper feels that business brokers and M&A advisors need to address to find the right buyers for a business as efficiently as possible.
There are many reasons why only 2% of prospective buyers are “the real deal.” One huge factor is that most buyers either lack decisiveness or don’t really have the funds to complete a deal. Cooper notes that in “the real estate world, 49 out of 50 buyers actually buy. But in the business brokerage world, 1 in 50 buys and that is a big difference.”
He feels that there are several key pieces of information that you must get from a prospective buyer to determine how serious they are about buying. Topping the list, you must find out how much money a buyer can put towards buying a business.
As Cooper states, “How much money do they have and where is it? Is the money available now? Do they have to sell something to get the money?” Financial flexibility and the availability of funds should be the number one place where you begin when vetting a prospective buyer. After all, if the buyer lacks the funds, and has no way of getting them, then they are simply not a viable candidate.
Next, you need to determine whether or not a buyer has the necessary sales and management experience. Having the funds to buy a business, but lacking the expertise to do so, is not a good combination for the longevity of a business. Most sellers will not want to see their business turned over to someone who will likely destroy it.
Understanding the buyer’s life story and their expectations for the business are critically important. A buyer may have the funds and the expertise to buy a business but there may be other problematic factors, such as they have lost their confidence, or are undergoing a major change to their lives. Problems such as firing, divorces, bankruptcies and other issues could serve as potential red flags. It is your job to get to know prospective buyers and make sure that they are a good fit for the business. A failure to properly understand and/or vet a potential buyer can lead to a great deal of lost time. So don’t ignore red flags and ask the kind of questions that will help you discover potential problems.
There are other factors that should be considered when dealing with buyers. Both cultural and generational differences must be taken into account. Cooper’s view is that the way business is conducted does, in fact, vary from culture to culture and from one generation to the next. In general, communication must be handled in as clear of a fashion as possible to avoid misunderstandings. Additionally, he strongly believes that personality types matter as well.
He recommends a “listen, teach and lead model,” when trying to get down to the 2% that will actually buy a business. As he notes, “You listen first, then you ask questions and you teach by answering those questions. And then you lead your buyers or your sellers to make decisions when they are hesitant to do so. That’s what I call the listen-teaching-lead model.” Once again, effective communication and understanding buyer and seller psychology is at the core of Glen Cooper’s approach.
Human psychology and emotions are represented throughout the complex process of buying and selling businesses. In the end, the most successful business brokers and M&A advisors will be those who never lose sight of this pivotal fact.