Psychology of the Sale: Why Competition is Necessary in a Practice Sale16 Apr 2019 - Simon Palmer - Practice Sales
When you ask someone about the variables involved in establishing the value of a veterinary practice, they will usually list the quantity and quality of the equipment, the turnover, the profit, the location, the size of the patient base and the demand for practices in the area. All of these factors (and more) are, of course, huge indicators of the expected price.
What people often fail to take into account is that a practice doesn’t exist in a vacuum. The price and terms that are achievable in a veterinary practice sale are not purely a product of the practice’s assets and finances. They are also a product of the surrounding conditions that the practice is sold in.
Some of the conditions of a sale are external and outside of a seller’s control…like the state of the economy, interest rates or supply and demand for practices in the area at the time of sale. Other conditions of sale, a seller does have control over - like whether to sell to an individual they know, or allow for competitive bids…
Competition plays a very important psychological role in the sale of a vet practice, for several reasons:
1. If you don’t have FOMO in your sale, you don’t know what you’re missing out on.
FOMO is a common acronym that stands for “Fear of Missing Out”. It is a universal psychological phenomenon that occurs when someone perceives that there is a risk that they might not get something that they want, and is a huge influence on human behaviour. It is commonly used in business negotiations and marketing to consumers of just about everything.
You may have been influenced by FOMO If you’ve ever bought something in a “limited time offer” sale, or booked tickets early for a flight, concert or restaurant that you thought would sell out.
- Without FOMO, a buyer can stall if they feel the timing isn’t right for them. Irrelevant flaws in the item being sold are pointed out and exaggerated to drive down the price, with the buyer safe in the knowledge that you aren’t hearing otherwise from others.
- FOMO causes a buyer to put their best foot forward in a timely manner, in order to have a successful bid. It stops purchaser complacency and puts the focus where it should be… on doing whatever it takes to ensure that a vendor is happy to sell to them.
2. Social proof your sale.
If you were looking for a place to eat and stumbled across two seemingly identical restaurants next to each other, one of which was empty and the other was full, which would you assume had better food?
Social proof is another psychological phenomenon that is prevalent in all consumer behavior, and definitely in practice sales. Social proof occurs when people assume the actions of others reflect the correct behavior for a given situation. In other words, if everybody else likes something…maybe you should too.
In isolation, a prospective buyer can doubt their instincts when they like a practice, and wonder whether the practice is worth the money. When they know that other people are interested in it, they gain confidence in their bidding.
3. No one needs “Neediness”
The best result for a seller occurs when they can project an attitude of willingness, but not seem overly eager. Desperation turns people off fast. If you've ever cooled on a suitor or friend because of overt neediness and constant invitations to meet up, you'll know what I mean.
Most of us know not to cross the line between eagerness and desperation in social situations. What many vendors don’t realise is that they could be creating this dynamic with a potential buyer if they NEED that buyer for their exit plan, aren’t entertaining other offers, and don’t have a back-up plan.
All too often, vendors are keener to exit ownership than a purchaser is to enter. This is mainly because vendors of practices are usually older than buyers and, by the time they decide to sell, they often have one foot out the door.
Time is often on the purchaser’s side and, when it is, they know it…
In the absence of competition, neediness causes many vendors to end up with the results of a sale on the buyer’s terms and schedule, rather than their own.
The desire to sell your practice to someone who you know, who works for you, or who you’re already in discussion with, is understandable. There are many justifications:
- You could feel loyalty to that person, as they may have worked for you for some time, or may be a friend.
- You may be time-poor and not want to make the effort or commitment, or have the time, to talk to more than one person.
- They may be saying the right thing thus far, and you don’t want to “rock the boat”.
- You feel more secure that “a bird in the hand is worth two in the bush”.
However, a broker should be able to take the effort and time burden off a vendor and, if you feel some loyalty towards a buyer, you can always give them a “Right-of-Last-Refusal” on the sale (We recently wrote an article on this: https://practicesalesearch.com.au/vet/articles/the-internal-sale-the-right-of-first-and-last-refusal).
What a vendor should realise is that competition usually creates optimal conditions for getting them the best result. In isolation, a vendor needs to get the right result IN SPITE of the conditions.