The Destructive Power of the Individual – Part 2

A previous posting looked at the issues that can arise when acquiring a company with a long-time owner/founder or (even worse) an owner given to self-love … what the shrinks call a “narcissist.”  Today is follow-up: some cautionary approaches to dealing with them because (ah, life) they are way too prevalent to ignore.

Long-time owners can bubble with positive pride about their companies but their management techniques can make it extremely hard to tweeze apart what they themselves have accomplished versus what the company has accomplished.  Particularly if the seller/owner is retiring to Madagascar, this lack of clarity can become a big issue.

And narcissists can be enormously charming individuals.  That can make spotting one aVenus at her Mirror (detail)

real challenge.  The Merger Verger is no shrink so I will turn you over to others smarting than me for more details on diagnosing or identifying them (see links below).

What I will do here is offer some suggestions and words of caution on dealing with them.

  1. When considering a target with a long-time owner/founder, be on the alert for owner self-love.  Is it all about him?  If he acknowledges the contributions of others, are the statements real or only a reflection of his good training or hiring acumen? Message: you are buying a company not the superhero who founded it.
  2. Concentrate management due diligence interviews at a level or two beneath the owner.  Frame questions in a way that explores processes and “war story” examples of those processes in action.  How does the place actually work?
  3. When talking to the owner, ignore their nouns; focus on their verbs. This will tell you how things get/got done and whether they do it or others do it.
  4. Similarly, remember that narcissists are incapable of self criticism.  When you ask about a past problem, you will Roy Lichtenstein - Girl in Mirror 1964get either pablum or bullshit in response.  Frame your questions as theoretical  “what if” enquiries. Or cast them in a way that says you understand it was an underling’s or a customer’s or the government’s (or the janitor’s) fault.  You will get a lot more useful data that way.
  5. Pay particular attention to the decision-making process within the organization. Have the owner’s direct reports been actively involved in analyzing and making decisions or do they just carry them out? Are they willing to speak their minds? Risk taking – once atrophied – is almost impossible to re-engender.
  6. Make certain you connect with key customers.  Do they have regular dealings with subordinates?  Do they place their trust in the company or in the owner/founder?  Then: find ways to triangulate on their comments; long-time and narcissistic owners can be very seductive and sometimes even the smartest customers buy in.
  7. When structuring the deal, consider an extended pay-out and/or extended consulting relationship.  Remember, you are buying a business where the owner is King, in his mind if not in fact.  Either way, this carries real operational risks that due diligence may not unearth fully.  These tools could mitigate that risk.
  8. Finally, consider break-up fees and other tools to prevent (or at least compensate for) the possibility that the owner will suddenly decide that he absolutely cannot part with his baby, leaving you nothing for your efforts. Believe me, the Merger Verger has been there.

Further Reading:

About the Art:

  • Venus at Her Mirror by Diego Velasquez, c. 1650, oil on canvas, 48″ x 70″ (courtesy of the National Gallery, London)
  • Girl in Mirror by Roy Lichtenstein, 1964, porcelain enamel on steel, 42″ x 42″ (edition of 8)

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