Selling your business, something that you likely have invested years, heart, and soul in building, can be an emotional experience. And one of those emotions that sellers sometimes experience during or after the sales process is remorse ‒ a feeling of doubt about the direction the deal is heading, or regret that the already-transacted deal was not optimal. This feeling of remorse can go on for years, points out Joel Espelien, Executive Vice President - Client Services at Corum. He says, "Sometimes sellers are still mad years later about what they consider was a bad deal. They never get over it."
Espelien notes that sellers can have remorse at various points during the sales process. Throughout negotiations with potential buyers, sellers may question whether they are making the right decisions. Even after a deal is signed, before or after the deal closes, sellers may second guess their choices. To put this in more context, Espelien cites a number of scenarios where seller remorse takes hold.
Scenario 1: Seller is unhappy with the buyer
It's sometimes the case that a seller realizes that the buyer they are dealing with is not satisfactory. Perhaps the seller learns about plans the buyer has for the company after the sale, something that the seller feels would be harmful to the company and its employees. Whatever is driving that feeling of misgiving, it can cause the seller to wonder, "Do I really want to do this? Could I do better with another buyer?" This feeling is particularly acute if the seller has only dealt with one buyer and really doesn’t know what other interest may be out there. Espelien's advice to sellers who find themselves in this situation is clear: "Trust your gut. If your gut is telling you this deal is a mistake, maybe a horrible mistake, then why are you doing it? You don't have to close just because you signed an LOI with the buyer. It’s OK to walk away and then run a full process to find a better alternative."
Unfortunately, not all sellers in this situation do walk away. Often sellers are so worried about what others think ‒ their Board, their significant other, the co-
founder of the company‒ that they're willing to do a deal they know is wrong. There is also the "bird-in-hand" psychology at work here. Sellers feel that since their goal is to sell, an offered deal, even if it's not a good one for the seller, meets that goal. So they feel the urge to accept a deal that is suboptimal. The important point says Espelien is, "Sometimes the best deal is no deal, and as a seller you should be willing to back away from a bad situation and re-evaluate your options in the market."
That point does not mean all sellers should second guess their decision to sell. Espelien’s experience with founders and entrepreneurs is that when they make the decision to sell their company, it's generally based on sound reasoning. He notes it's simply a matter of realizing that a particular deal with a particular buyer is a bad one, and so there's a need to work towards a better outcome. He advises sellers to try to run a wider process and really understand all their options, to really understand what is the best possible deal they can get so that they can sleep at night afterwards.
Scenario 2: Seller gets cold feet
Seller remorse doesn't necessarily take place only when deals are bad. Sellers can sometimes have feelings of regret even when a deal is a good one. For example, suppose the sales process has been run well and produced a number of good offers from vetted buyers. Even if the seller agrees to an offer that is an excellent one, it doesn't preclude the seller having doubts that they did the right thing. Espelien likens it to the anxiety or "cold feet" that a bride or groom has before their wedding. "Everybody gets nervous when they're about to sell their company,” says Espelien. “However, what they need to do is keep their eyes on the prize. If the process produces a solid offer, one that's fair economically and offers a good home for the business, the seller should probably do the deal. Sellers in these situations typically do get over those moments of nerves and go on to close the transaction and end up super happy with it."
Scenario 3: Seller gets greedy
Another situation where seller's remorse crops up even in response to a good offer is when the seller is simply greedy. Consider the following situation. The
seller is looking for an offer of $20 million for his company. However, the sales process produces a competitive bidding environment that results in an offer of $28 million. The seller now suddenly wants $30 million, thinking that since he got one higher offer someone will pay even more. One could say this is an example of the seller being remorseful because he originally only wanted $20 million. But in actuality it is driven purely by ego and greed. The new demand is not based on the reality of the situation ‒ the company should consider itself fortunate to receive what may be an above-market offer ‒ it's simply driven by runaway ego.
There is a danger here for sellers. Espelien has seen cases where greed got in the way of a seller accepting a great offer. Then the market turned on them. For instance, interest rates suddenly took off and the deal died. In these situations, Espelien counsels sellers to interrogate their emotions and recognize that what's going on is not remorse but simply greed and ego. He tells sellers, "You need to set aside the idea that you have to “win” the negotiation at any cost, otherwise you'll wind up without a deal, still stuck in your company that you could have sold."
Good versus bad seller remorse
The lesson in these scenarios is that there is good seller's remorse and bad seller's remorse. In Espelien's mind it's much like good cholesterol and bad cholesterol. Good seller's remorse is in response to a bad deal and may help you back out of it. Bad seller's remorse is in response to a good deal, and may kill it. In a bad seller's remorse situation, “You should be doing the deal,” advises Espelien, "but your fears or your greed are running away with themselves." He recommends that sellers ask themselves, "What are you going to regret more, having done the deal or having not done the deal? That's a good gauge because if you will feel more regret if you do the deal, you should not do it. You will then feel incredibly relieved. But if you're going to regret not having done the deal, knowing that you were this close to the brass ring and messed it up, you should do the deal. Otherwise, you're going to feel 10 times worse.”
Be accepting
Bound up with feelings of remorse in selling a company is a feeling among many entrepreneurs and founders that they could have done better in building their business. Perhaps they set out to create a billion dollar business and ended up with a 20 million dollar business, or develop an application that would be truly revolutionary and ended up with something very useful but less game changing. There is sometimes a feeling among sellers that they could have done more, they should have done more. While that feeling may lead to remorse, Espelien advises sellers to accept the fact that the outcome is really good. "You may not have built that billion dollar company," he says, “but 20 million dollars is still life-changing for you and your fellow stakeholders."
For many sellers, the sale of their company is the last highly important business transaction of their life. Espelien stresses, "If this is your last ride as a CEO, make it a good one. Make it something you can be proud of. Make it so you don't have regret or remorse. Make it the absolute best experience you can so that when it's over, it makes you feel good about the whole thing, about the five, ten, or twenty five years you spent building your company."