Emotion Key to Acquisitions of Small Businesses

The Wall Street Journal recently issued a special section on small business. An article by Li Yuan (requires subscription) caught my eye, on the critical difference between buying a small business and buying a larger business.

The article profiles Pete Pike, who started a nursery business in his 20’s and has worked at it for almost 50 years. The article points out that trust and personal chemistry play key roles in any sale or acquisition of a small business:

In some ways, the acquisition was like any company buying another. But when it comes to the purchase of a small business, the stuff that’s important is often on a whole different plane.

Roark, for its part, needed to know the Pikes’ business inside and out to be sure it had the brand reputation and customers to meet Roark’s goals for growth, as well as the leadership to get it there. The Pikes wanted to be sure that Roark shared their business philosophy, that its other investments were sound, and that the family would still run the business.

“When you think of businesses being bought and sold, you think of lawyers and investment bankers, the highest price wins, and it’s all very cold and canonical,” says Neal Aronson, founder and managing partner of Roark. “In small family companies, all those conventional approaches many times go out the window. It’s much more about really spending time, getting to know people, really building trust and rapport and a real relationship.”

I used to work in a large corporation seeking out businesses to acquire. Many of those businesses were entrepreneurial companies that had been started and nurtured by the business owner. A high percentage of deals we evaluated never went through.

Convincing an entrepreneur to sell his or her “baby” was a huge emotional hurdle. They had been sustained for so long by the drive of achieving their dream, that in order to convince them to sell you had to paint a picture for them of a new dream. And they had to be comfortable with that new dream. It’s not an easy thing for an entrepreneur who has devoted his every working hour to a business to up and turn around and walk away without looking back.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.