I love when I see financial firms create valuable digital content. You can check out the DVS blog: Dealmaking Demystified for more M&A related information. Keep up the great works Ben and team. – Danielle
Now, to today’s Guest ROND Report, which should be the last before I’m back:
Topic of the Week: Does Perfect Exist?
Do you remember the first time you experienced your significant other – your sweet, thoughtful, loving darling – get frustrated with the waitress or relentlessly pick at a hangnail or drive way too fast or, even worse, drive way too slow?
It’s disappointing to learn that your “perfect” person isn’t actually perfect. When you see that person in the context of everyday life you begin to realize that maybe your ideal doesn’t exist.
That’s “idealize, then contextualize” in action. It’s an important mental model when you’re trying to find a spouse. It’s also an important mental model when making business decisions.
Idealizing starts with waving the magic wand and answering questions like these:
What lens am I using to think about this decision?*
How do I define success? What’s my ideal outcome?
What am I unwilling to tolerate?**
What is my long-term goal?
How much risk am I willing to take?
Don’t be shy. Go ahead and think about what a perfect scenario may look like. The stakes are high so be honest with yourself.
The idealizing stage is important because it gives you something to judge your options against. It provides a baseline to think about what compromises you’re willing to make. And, you will make compromises.
This mental model is helpful across all business decisions, whether making a key hire or taking on a big customer, but it’s particularly important for those of you looking to buy or sell a business.
Deals don’t exist in a vacuum. There is a context that surrounds deals. It’s like taking that perfect-on-paper person out to lunch with your friends and hearing their opinion. Take your “perfect” deal out to lunch and ask bankers, accountants, attorneys, or M&A advisors about its merit. You’ll begin to understand what’s attainable.
For example, some common deal idealizations I see that haven’t been contextualized well are:
- “I read about a business that sold for 12X EBITDA so my business will too.”
- “If I had better sales and marketing teams, my business would be doing better. The buyer should pay for that value.”
The more conversations you have, the more context you’ll have. You’ll be able to decide if that idealized outcome is actually going to be worth the pain to get there. It’s possible you’d love to be a fitness model but do you really want to work out that much? Probably not.
Just like there’s no perfect person, there’s no perfect opportunity or deal. “Idealize, then contextualize” is a handy mental model to remind yourself of that reality and then take steps toward what is truly attainable.
In what situations have you seen the “idealize, then contextualize” mental model work well?
*How do you think about how you think? You’re making impactful decisions – consider whether you have the perspective to do so.
**This is possibly the most important question to answer. You are what you tolerate.
Teaching is one of my favorite things to do. Thanks for giving me the opportunity to share an important insight I’ve learned with you. In my role at The DVS Group, I educate my clients through the dealmaking process and am continually showing them the context their ideal is in. It’s challenging but rewarding to see good deals come together. If you’d like to learn more about our dealmaking mental models or simply about who we are and what we do, you can reach us in any of the following ways:
www.thedvsgroup.com – 913-713-4156 – firstname.lastname@example.org