A couple of years ago, I tried to buy a literary estate. Actually, I tried to buy a few of them.
I started with one of my favorite authors. He was an eccentric fantasy author whose books sold few copies during his lifetime and have been out of print for thirty years since.
The author’s estate made no money, but I wanted to own it so I could restore his name to the public consciousness. Through ebook adaptations, podcast interviews, and print-on-demand reissues, I thought I could do it.
For several months, I spoke every day to the author’s stepson, who was the executor of his estate. We reached an agreement on terms. We worked together on a strategy to promote the books. We drafted the agreements to finalize the investment.
But at the last minute, the author’s stepson decided not to sell. He pulled the deal.
I was disappointed, but I knew my offer was fair to the owner of an estate that doesn’t generate any income. I thought that even if this deal didn’t work out, others would.
I took our term sheet and spoke to the children of several other deceased authors I admired. Not one of them would even entertain an offer. Nobody wanted to sell a literary estate to me.
I learned something from this.
The beneficiaries of forgotten literary estates don’t hold onto them because they’re terrific cash generators. They’re not. Nor because they’re crossing their fingers hoping for a Netflix deal. If it were likely, they would know about it.
Instead, the owners of literary estates hold onto them because they feel like family heirlooms. To sell them would be sacrilege.
Many small business owners feel the same way.
Most people, but particularly small business owners, are defined by their work.
When you ask someone, “What do you do?” you don’t expect the answer to be, “I play tennis.” The question “What do you do?” is shorthand for: “What do you do for work?” Work defines people.
When a business owner weighs whether or not to sell, they aren’t only making a financial decision. They’re making an identity decision. They’re evaluating their willingness to transition from one identity to another. The day after a transaction, one pillar of identity shifts from present tense to past.
Business owners who are considering selling construct a scale in their minds. One side contains the benefits of holding. The other side contains the benefits of selling. The scale needs to tip in favor of selling for a transaction to occur.
Most sellers wouldn’t label it this way, but the scale in their minds doesn’t measure net worth. It measures self-worth.
Selling a business, or converting equity into cash, can increase self-worth. It transfers responsibility, provides freedom, and makes it seductively easy to quantify achievement.
For a sale to happen, the expected outcomes of selling need to outweigh the expected outcomes of continuing to hold, which include pride of association, preservation of relationships, and the prospect of greater wealth creation in the future.
But even after an owner sums the pride they have in their company, the fulfillment they gain from their relationships, and their hope for greater total proceeds in the future, they still need to multiply all of those amounts by another factor to arrive at the true weight on the holding side of the scale. This is the cherishment factor.
The cherishment factor measures something simple: how much does an owner care?
Some businesses, like out-of-print literary estates, might not make any money for their owners. But if they’re a part of their identity, especially a part that is cherished by them, they could generate enough self-worth that no buyer should dare outweigh it.
There is an exception, and it’s counterintuitive.
Not all owners who cherish their businesses want them to perform well at all costs. Most of the time, owners want their businesses to perform as well as they can under their ownership. Even if a business could grow faster or provide more opportunities for the team under new ownership, many owners just don’t want to part with something they cherish. But some do, and they are worth finding. There’s no better seller than a benevolent one.
I learned a lesson trying to buy out-of-print literary estates. For someone to sell their business, they have to derive more self-worth from the next chapter of their life than the last one. It’s up to the buyer to help them write it.