The Role of the Psychological Consultant in Business Brokerage

By

Richard L. Wolfe, Ph.D.

For the past six years I have served as a consulting psychologist to Robbinex, Inc. This Hamilton-based business brokerage firm specializes in helping owners of mid-size businesses valuate, market, and prepare their businesses for sale or transfer. My primary role is to work with business owners and their families, especially when transfer of the business to family members is being considered. Specifically, I assess members of the family who are or who might become involved in the ownership and/or management of the business. The purpose of this article is to describe my role as a psychological consultant to these families and to Robbinex.

Rationale

Selling a business is normally a complex endeavor. Doug Robbins estimates that a business broker spends approximately 700 hours of his/her time performing the 200 job functions that needs to be done in order to successfully value, market, and negotiate the sale a business. With this level of time investment, transactions that don’t close are extremely costly and disappointing. The sale of a family business, especially when there are two or more family members working in the business, can be a particularly complex affair. After observing numerous instances in which family members’ expectations, relationships, and motivations played a significant role in the process of selling family businesses, Doug concluded that developing a better understanding of both individual and family dynamics was important to evaluate when working with family-owned businesses.

Role and Responsibilities

My primary role is to serve as a consultant to both the business broker and the business owner and his/her family. My main responsibility is to provide all parties with information and recommendations that facilitate the sale or transfer of the business and the successful adaptation of family members to new roles, relationships, and life styles.

More specifically, I meet individually with family members, including spouses, who are going to be most affected by the sale or transfer of the business. The objective is to obtain a clear understanding of each person’s expectations, wishes, motivations, reservations, and plans associated with the sale/transfer of the business. Responses from the different family members vary widely and provide indications of potential conflicts that can pose significant barriers to the sale process. My role is to identify potential conflicts, make recommendations regarding how to prevent or resolve them, and, at times, intervene personally to facilitate family members’ productive involvement in the sale/transfer process and the after-sale adjustment.

In addition, I conduct a formal vocational/psychological assessment with family members who are being considered for management and/or ownership roles. A one hour interview with each person explores his/her knowledge of the business, familiarity with company finances, work experience, skill sets, managerial abilities, motivation, and vocational interests Each individual also completes The Attentional and Interpersonal Style (TAIS) Inventory, which measures concentration skills, decision making style, self-confidence, competitiveness and interpersonal skills. Each person receives a detailed report, which explains his or her TAIS findings. The results of the assessment are discussed during a “feedback” interview designed to assess the accuracy of the results and their implications relative to the individual’s suitability for business management and ownership. Once the results have been discussed, an Executive Summary, focusing on the key findings of the evaluation, is provided to the individual family member, the business owner, and the business broker.

Finally, I provide feedback and coaching designed to enhance the effectiveness of the brokerage professional. It’s extremely rare that any professional is equally good at performing all of the job functions required of a business broker. My role is to identify each individual’s relative strengths and weaknesses, make recommendations that will enable the professional to maximize the utilization of his/her skills, and teach techniques that will further enhance performance.

Case Studies:

The Prodigal Son:

After recovering from a mild stroke, a successful business owner contacted Robbinex about transferring ownership and management of his company to his two sons. The elder son had worked conscientiously in the business for years, had “come up through the ranks”, and had functioned as the Sales Manager for several years. During his interview, he demonstrated a detailed knowledge of the business, including business finances, a passion for owning and running the company, and a vision for its future growth.

The younger son had been a very successful elite level athlete, was socially skilled, and had many influential friends. He had worked sporadically in the business as a salesman, but was resented by several of the other salesmen because of his perceived “lack of commitment”. Now that the business was going to be transferred, the younger son expressed the opinion that he and his brother should be partners. He believed that he could utilize his social contacts to generate a lot of business for the company. In fact, over the years, many of his sales had been to personal friends and acquaintances. During his interview he displayed little knowledge of business finances or operations.

TAIS results for the two men were consistent with impressions formed during my interviews with them. The older brother’s profile suggested that he had excellent analytical skills, was comfortable and effective leading and managing others, and was more reflective than his brother when making decisions. The younger brother’s profile indicated that he was highly extroverted, very competitive, impulsive, and effective at “reading people”. When the results were shared with the men, they both stated that the findings provided an accurate picture of themselves and agreed that some of their differences (and similarities) would produce conflicts between them. However, the younger brother continued to insist that he and his brother should be partners. It seemed that he would persist in holding this opinion indefinitely.

However, after his feedback session, the younger son revealed that, secretly, he didn’t want all of the responsibility associated with owning and managing the family business. Instead, he stated that he would prefer owning a much smaller business that someone else could manage for him, and thereby provide him with the freedom to pursue his social and athletic interests. When a provision for purchasing such a business for the younger son was incorporated into the final transfer/sale agreement, he, his older brother, and their father were all pleased and the transfer was successfully completed.

It seems likely that the closing of this transaction would have been prolonged and may not have been successfully closed if the younger son’s underlying feelings and desires had not been uncovered and addressed.

A Question of Balance: 40 plus 40 doesn’t always equal 80:

A successful female entrepreneur wanted to retire in order to spend more time with her husband who had become ill. She considered transferring the business to her daughter, who worked in the business on a part-time basis, and son-in-law who worked as a salesman in an unrelated business. My interview with the entrepreneur revealed that she had succeeded in large measure because of her strategic planning abilities, creative thinking, and willingness to work long hours, (e.g., up to 80 hours a week) and make many other personal sacrifices that were often necessary to make her business grow and prosper. She also indicated that she had reservations about transferring the business, in part because she questioned how committed her daughter and son-in-law were to the business in light of their stated desire to maintain a “balance” between their work and family life.

During her interview, the entrepreneur’s daughter impressed me as being intelligent, creative, and fairly knowledgeable about the business. She expressed a strong interest in owning and managing the business but emphasized that she did not want to work the same number of hours that her mother worked. Instead, she and her husband planned to “work smarter” and divide up the responsibilities. In doing so, they believed that they could each work 40 hours a week. They would then have sufficient time to spend with their two young children. She was confident that such a plan could be developed and implemented successfully. However, she acknowledged that some responsibilities, such as attending trade shows and calling on certain customers, would require working on weekends and after normal business hours. There would also be times when she and her husband would both need to be working at the same time.

The entrepreneur’s son-in-law was outgoing and friendly during my interview with him. He also seemed highly self-confident, almost cocky. He reiterated the plan for balancing work and family life espoused by his wife. His primary role in the business would involve sales and customer relations. Even though he knew little about the business, its products, or its customers, he expressed confidence that he could apply his sales skills successfully in the new business.

TAIS results supported the impression that the entrepreneur’s extraordinary level of drive, determination, and willingness to make personal sacrifices, (e.g., working late, traveling, bringing work home) along with her planning, problem solving, and creative thinking were primary contributors to her success.

The daughter’s TAIS results indicated that she possessed many of the same analytical abilities and creativity displayed by her mother. In addition, the daughter was more outgoing and more comfortable working with other people. However, she did not demonstrate the same willingness as her mother to make the sacrifices that are often necessary for success.

The son-in-law’s TAIS results indicated that he possessed many of the characteristics of successful sales people. He was extroverted, friendly, talkative, and persuasive. However, several of his scores suggested that he, too, did not have the same drive and willingness to sacrifice as his mother-in –law.

Results of the assessments were discussed with all three people. Despite reservations regarding the daughter and son-in-law’s suitability for management/ownership, a transfer agreement was negotiated. A four-year follow up revealed that the daughter and son-in-law were managing the business profitably, but reported that they were both working more than 50 hours a week.

The Scientist:

The president/owner of a successful business whose unique products were sold around the world contacted Robbinex. He stated that he was unhappy working in his business and was considering selling. His interests were in research and development. In fact, he had performed the scientific research that had led to the development of the company’s most profitable products. Over time, he had left his scientific endeavors and become increasingly involved in managing the company. Performing many of the management responsibilities left him unsatisfied and stressed.

During his interview, he revealed that he had been strongly motivated by personal achievement since childhood. Throughout his life, tackling intellectual and physical challenges and successfully conquering them excited and energized him and provided him with a great deal of personal satisfaction. Creating new, unique products that were successful in the market place had met his need for achievement. However, the responsibilities associated with managing and owning the business rarely were satisfying or motivating. Attending to administrative functions and daily operations was frustrating and boring. As the interview progressed, he became aware of how much he longed to return to research and development work.

TAIS results indicated that not only was he highly analytical, his analyses were methodical, logical, and precise. He was very well suited for scientific work. He also displayed interpersonal characteristics that are often associated with successful scientists. For example, he was more introverted than extroverted and genuinely enjoyed spending long periods of time working alone. He was not adept at “reading” people or responding to others in a spontaneous, relaxed manner, especially in large, unstructured social situations, (e.g., meetings, receptions).

One implication of the interview and TAIS results was that he did not have to sell his business in order to experience more enjoyment and gratification. Finding a competent senior manager who would take responsibility for running the business would allow him to return to more fulfilling work in research and development. Robbinex assessed several current employees and some outside candidates and helped the owner select and train his replacement. He retained ownership and returned to working in research and development.

You Can’t Tell a (Comic) Book by It’s Cover:

A very successful entrepreneur had some compelling reasons for retiring and selling his business. However, he was reluctant to transfer ownership and management of his business to his two sons because he believed that neither one was competent to run the company. Although both sons were in their thirties and had worked in the business for several years, their father persisted in viewing them as uncommitted, irresponsible adolescents. In fact, both sons had been rebellious during their teens and early twenties. At the time of my assessment however, both sons had been married for several years. Their wives and their mother all worked in the business, too.

The elder son arrived at his interview wearing jeans and a tee shirt with a colorful picture of a cartoon character on the front. Otherwise he looked quite conventional with short hair and a neatly trimmed beard. He stated that he was a musician and had played in rock bands since adolescence. Once, he and his band had even gone on tour, something he and father had argued about. However, for some years he had only played in a local band on weekends.

During his interview, the older son demonstrated a sound understanding of the business and considerable knowledge of technology. He had successfully applied his knowledge of recent technology to improve some of the company’s primary operations. In addition, he had taken additional courses and workshops and described some of his ideas for expanding and streamlining the business. It seemed clear that he was motivated to stay in the business and work to make it grow.

The younger son was also casually dressed at the time of his interview. He wore jeans and a tee shirt with a logo of a famous rock band printed on the front. It was clear early in the interview that the majority of his knowledge of the business centered on the operation and maintenance of several key pieces of equipment. His knowledge of business finances, technology, and management were limited.

TAIS results revealed that the older son was a highly analytical individual who was also capable of sustained, focused concentration and creative thinking. He was self-confident, comfortable functioning as a leader, and willing to make personal sacrifices in order to become successful. An example of the latter characteristic occurred late one afternoon when a problem developed with a piece of equipment. The older son stayed at work for several hours until old parts had been replaced and the equipment was operating again. Unfortunately, his father had left work before the problem had been identified and wasn’t told that his son had stayed until it had been rectified.

TAIS results for the younger brother revealed that he did not possess analytical skills like his brother and confirmed that he was probably best suited for operating and maintaining the company’s equipment. Interestingly, his wife’s TAIS profile suggested that she had potential for managing some aspects of the business, such as human resources, safety, and employee benefits, a role she had already begun to fill.

When a summary of the assessment results was presented to the family, there was general agreement among family members that the results were accurate. However, business owner was still reluctant to transfer the company outright to his two sons. His wife was not ready to retire and, in fact, there was no one to whom she could delegate her duties as bookkeeper/accountant. A plan was formulated that 1) placed the company in a trust, 2) created a Board of Advisors to oversee and evaluate the operations and profitability of the company, and 3) gradually transferred management of the business to the older son. The younger son retained his position and salary and gradually both sons would share assume ownership of the company. A plan for delegating the responsibilities of entrepreneur’s wife to another employee was also developed. It’s unclear how long the entrepreneur might have continued to misperceive his sons and what he might have decided to do with his business if the assessments had not been conducted and the results presented in a convincing manner.

Driven by Distractions: A Robbinex staff member reported that he frequently found himself feeling overloaded by work and unable to attend to everything he needed to get done. His TAIS results indicated that he was frequently distracted by people and events in his surroundings. Observations confirmed this finding. His office was centrally located near several other staff members’ offices. He was easily accessible, frequently interrupted, and often became involved in other’s conversations and activities. As a consequence, he was less focused and effective at completing many of his own tasks and responsibilities. By moving to a different office, located in a more remote part of the building, he found that there were fewer distractions and interruptions. His ability to concentrate and his effectiveness increased.

Conclusions

The examples above illustrate some of the ways the consulting psychologist can assist the business brokerage professional in assessing individual characteristics and family dynamics that often exert an important influence over the sale/transfer process. At present, the primary goals at Robbinex are to:

• Continue to expand their understanding of these factors as they influence the life altering decisions that clients have to make
• Enhance their ability to efficiently and accurately assess them.
• Provide the tools that broker can use to make more effective use of his/her time

Richard L. Wolfe, Ph.D.

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