When “It’s Not That Bad” … makes it worse04 Sep 2023 - Simon Palmer - Practice Sales
All too often, veterinary practice owners only make the decision to put their practice for sale after several years of declining revenue and profit.
Why is it that so many vet practice owners wait so long?
They know that the declining revenue and profit will be depreciating their asset…
Why is it that when they see this happening…they wait?
It isn’t because they have a master plan to turn it around…
It isn’t because they see market forces turning in their favour…
It isn’t because they are blissfully happy in ownership…
It isn’t because they love the practice more than they love their financial wellbeing…
All too often it is because of a phenomenon known as the Region-Beta Paradox
The term Region-Beta Paradox was first illustrated by Daniel Gilbert, a Professor of Psychology at Harvard University, in a paper titled “The Peculiar Longevity of Things Not So Bad”. The Region-Beta Paradox is a cognitive bias that explains how:
- People will get stuck in a bad/declining set of circumstances because it isn’t deemed bad enough to do anything about.
- This often means that people will get better outcomes from a worse set of circumstances, simply because a worse set of circumstances will be acted upon faster.
Once you hear about this paradox, examples of it are everywhere:
- If you would see a doctor if your discomfort was greater than 5 out of 10, but would put up with the discomfort if it was 2 out of 10...you could be getting better faster from a 5/10 injury than a 2/10 injury.
- People working at jobs that are ok (but not good) are unlikely to quit to seek out better employment, but people with bad jobs are. Thus, people with bad jobs are much more likely to get to good jobs faster.
- People in ok but unfulfilling relationships are less likely to break up and seek better relationships than people with bad relationships.
…And…when a business owner holds on to a business that is in decline and not making them happy, they would often get a better result (financially and emotionally) the faster they act.
How can we overcome the Region-Beta Paradox in business ownership?
The first step is to recognise if you are in it
- We need to be honest with ourselves when the business is in decline and will be worth less in a few years. An easy indicator of this is when revenue is stable or declining over time. (If your revenue is stable over time when expenses are going up, this is an indicator of a business in decline).
- We need to be honest when we don’t have an effective strategy (or the energy) to do anything about it.
- We need to be honest about whether running the practice is making us happy, or if we are simply used to it and “comfortably numb”.
If, upon analysis, we discover that the business is in decline and owning it isn’t making us happy, but things haven’t gotten bad enough yet for us to do anything about it… then we are in the Region-Beta Paradox.
The next step is to question why we are stuck in this paradox
We need to ask ourselves: “Why, if I admit that things are currently not good…if I don’t think that things are getting better...do I wait for things to get worse before I take action?”.
Surely we should all be striving to get to good as fast as we can, rather than staying where we are mildly deteriorating and complacent.
The final step is to take action
This is not always easy.
It often involves stepping out of the ambivalent, mediocre but declining business condition that you are in, before it reaches the threshold of bad:
- Reinvesting time, effort and energy into your business to turn it around or
- Selling the business before it depreciates further, and reallocating your time:
- towards other more rewarding business interests
- towards interests that make you happier
- working as a veterinarian without being a business owner
- phasing into retirement
The lesson to learn from the Region-Beta Paradox is that the thing that is usually standing in the way of getting to “good”, in business and in life, isn’t “bad”.
We will usually spring into action and overcome “Bad”.
The thing standing in the way of getting to a good result is usually our amazing ability to put up with a deteriorating set of circumstances for far too long.