Business owners considering the sale of their business often become enthralled by a myth surrounding a captivating creature known as the Useful Idiot. This mystical being supposedly possesses the power to fulfill every vendor’s dreams by paying a premium price, even for businesses experiencing losses. Instead of improving their business before selling (through an Exit Plan), they convince themselves that someone out there will fall in love with their business and pay a fortune for it.
Occasionally, buyers do have unique insights or market knowledge that enables them to see value beyond others’ perception. They may identify untapped potential or synergies that can revive the business. In such cases, their willingness to pay a higher price stems from a genuine belief in the future profitability of the business. Arguably, these buyers are not useful idiots; they are strategic buyers. However, typically, such buyers are well-informed about the real value of your business. Without a competitive bidding process, they will not start with an exorbitant price.
Rarely, a buyer may come along who genuinely falls in love with your business, naively overvalues it without seeking adequate advice, and has the financial resources to buy it outright and quickly. This is the real useful idiot. However, relying on finding such a unicorn buyer to exit your business is an imprudent strategic move.
However, the moment a business owner hears that it can happen, they latch onto the possibility. They increasingly believe it is probable, even inevitable. They succumb to the Ugly Baby bias—the belief that their business is beautiful and attractive to everyone—and convince themselves that numerous unicorns are waiting for them to list their business.
In reality, such scenarios rarely materialize. After all, unicorns are mythical creatures.
In fact, I advise my clients to be cautious about such offers. Is the buyer a strategic buyer who can see something we can’t and may therefore be willing to pay even more? Proceed with care and question their motives. Remember the saying: if something is too good to be true, it probably is. Seek input from your advisors and avoid rushing into accepting the offer.
The stereotypical useful idiot is actually a transient being. They may get genuinely excited about your business, lacking a clear understanding of its real value. However, at some point, they will consult someone outside their bubble who will burst their naive enthusiasm. This person will provide a reality check, causing the buyer to seek professional advice. Their naivety bubble will burst, and they may either feel frustrated that you took advantage of them (losing them as a potential buyer), or they will return with a significantly lower and more realistic offer. This process consumes your time and energy with little payoff and can take an emotional toll.
As appealing as the idea of a Useful Idiot buyer might be, don’t get sucked in. You don’t want to find yourself in a situation where you rely on a buyer overpaying for your business to make your exit worthwhile. Get the right advice along the way.
It’s worth noting that the term “Useful Idiot” also has a political meaning, referring to a naive or easily manipulated person who unwittingly advances a cause or political agenda.