Owner experience, advisor observations, academic literature, and popular books agree—significant transitions (e.g., scale, sale, and succession) fail more often than they succeed in the middle market business environment. Economic realities of failed transitions are quantified in unrealized shareholder returns, unrecoverable financial costs, and wasted opportunity costs. But the profound human impact lies hidden below the surface in the mind of the owner-manager. When successful people run into a challenge they cannot conquer, such as scaling through a growth curve, exiting their business, or working for an acquirer, they pay an emotional premium that can be more costly than the financial losses.
Whether attempting to scale a business, engage in leadership succession, or sell a business, all three significant transitions require owners to make a psychological shift that enables them to succeed both during the transition and after its completion. With more than 28,000,000 businesses in the United States only about 17,000 ever exceed $50 million in annual revenue and 96 percent never exceed $1 million in annual revenue (U.S. Business Census, 2012). Clearly, scaling presents challenges, and while all transitions are difficult, the most challenging is the owner-manager exit (particularly for founders). According to experts in the merger and acquisition field, the vast majority of businesses fail to sell on their first attempt largely due to the owner’s psychology (Peters, 2012). What distinguishes owners who make the shift and scale through growth curves or exit from those who cannot?
Allie Taylor’s PhD dissertation study sought to understand the psychological dynamics that either impinge on or enhance an owner-manager’s transition efforts so that more owners achieve their goals and enjoy lives of satisfaction and significance. Building on more than 40 years of academic research in business and psychology, insights from experienced advisors, and the groundbreaking qualitative understanding of the owner’s experience provided by Bo Burlingham in “Finish Big: How great entrepreneurs exit their companies on top,” this study examined critical psychological dimensions in the context of a theoretical framework that can be translated to solve practical business needs.
This article describes academic understanding gained through the quantitative dissertation research of Dr. Allie Taylor about an owner’s psychological inclinations towards transition in a format that is impactful for owners and their advisors. The quantitative study involved insights from 133 owners actively responsible for management of the business (owner-manager; passive shareholders were excluded). Two measurable psychological variables (role-identity fusion and significance) were found to be critical indicators of an owner-manager’s inclination for transition success. This finding offers a powerful opportunity for owners and advisors to proactively measure the likelihood of a successful transition, and more importantly, how to best help an owner increase their likelihood of success.
Access Dr. Taylor’s full article HERE.