The Awful Curse of Emotional Equity

Many founders don’t realize that they’re bound to their first startup by a curse.

What curse? Sounds pretty serious. It’s comparable to Aesop’s fable about the boy who couldn’t let go. The story goes that a boy reached inside a jar with nuts inside. He grabbed as many as his little fist could carry, but he couldn’t pull them out of the narrow jar opening, which was only slightly larger than his hand.

He burst into tears because he wanted everything in his hand.

Somebody passing by saw the situation and told the young boy that he could have some nuts, but he would need to let go of some so his hand could come out.

What a greedy boy, right? If he just let go, he’d have some nuts to enjoy.

What many entrepreneurs don’t realize is that they’re similar to the boy. The curse is the same fear of letting go of their company so they can move forward.

After all, they built their darling company from the ground up and spent countless hours filled with blood, sweat, and tears crafting it into the profitable asset that it is. Along the way, building the business unlocked a whole new lifestyle for them.

You probably know what I mean — the ability to work from anywhere at any time.

Yet when it comes to selling your business for a profitable exit, you might struggle because of emotional equity.

What Is Emotional Equity?

Emotional equity is basically a connection between someone and a brand built over a series of interactions. The reason that founders are often bound by emotional equity to their company is because of all the amazing life and career opportunities that their startup provided them.

Of course, startups require supernova levels of energy and commitment to become successful (or at least it feels that way). But the more the company grows, the more benefits it unlocks thanks to higher profit margins and ease of running.

From slaving away every waking hour to build the foundation to working less than five hours a week to maintain it, your business becomes self-sustaining in what feels like no time at all.

Naturally, most entrepreneurs invest emotional equity heavily in their companies. However, it also poses a barrier that’s often too high for entrepreneurs to overcome if they want to exit a business and move on to other opportunities.

The Issues of Emotional Equity

It doesn’t sound that sinister, but this emotional attachment can shackle you to your business longer than you want or need.

Let’s be clear here: emotional equity isn’t inherently a bad thing. It’s great for customers to have emotional equity in a brand. This indicates customer loyalty because they feel your brand does so much more than just provide a great product. They associate your company with positive experiences on several levels.

Whether it’s the customer service, the extra added value, or just how easy your product or service makes solving their problem, a customer with emotional equity is highly likely to become a brand advocate for your company for free.

However, having a similar attachment to the business isn’t helpful for the owner.

Emotional equity can often lead a founder to overinflate the brand’s value. If and when you decide to move on or someone gives you a lucrative offer, this skewed valuation could ultimately be the narrow jar opening that stops you from achieving a profitable exit.

Why Emotional Equity Kills Your Profitable Exit

The reason the boy couldn’t get his hand out of the jar was because he wanted to take as much as he could with him.

While the story highlights the issue of greed, what we can also learn from the boy is that he overvalued what he was holding on to. When it’s time to sell your business, emotional equity can cause you to have a tunnel-vision focus on your business’s potential rather than its current value.

It’s a common problem where an entrepreneur believes their business is the next unicorn — i.e., a billion-dollar idea. Pushing for a higher sales price can deter a lot of potential buyers. After doing their due diligence, some buyers will be willing to offer more than others. However, if you’re not willing to compromise in order to sell the business, you could end up with no deal at all.

Even if the right buyer comes and offers a decent price, standing firm and taking an all-or-nothing approach at an overvalued premium will take all your options off the table for a profitable exit.

Another takeaway from the story is that if the boy didn’t settle for half the nuts, he wouldn’t have anything to enjoy at all. If you’re not willing to let go of your emotional equity, you’ll also be left with no sale.

Instead of worrying about leaving money on the table because you settled for too little, you’ll be wondering what your next steps are since no one wanted to pay your listing price.

While we’ve explained the consequences of emotional equity, it’s not all doom and gloom, however.

Many successful entrepreneurs have managed to sell their business at a price they’re happy with. It starts with learning how to break away from emotional equity so that you can distance yourself from your digital asset.

How to Break Away from Emotional Equity

There are two routes you can take to make the process of letting go easier. You can either learn how to distance yourself from the business on your own or you can get a broker involved.

If you’re planning to go solo, the first thing to do is ask yourself, “would I buy this business?”

To start, sit down and list down the pros and cons of your business. Have a thorough look at the hard data like the finances, traffic, sales, and other important metrics. When you use data as the foundation for your opinion, it helps remove any positive bias you have towards your business.

For example, you can’t claim the business is really profitable if the P&L statement shows that there are more liabilities than assets.

It would also help massively to have a second pair of eyes to give you a more objective perspective. While it’s really useful to learn how to look outside the box on your own, it’s obviously difficult to do without being affected by any bias. That’s why using a reputable online business broker gives you a better perspective when reviewing your business.

A broker wants to help you sell your business while providing a fair valuation for buyers. A good broker will use the same set of data for finances and traffic while building their valuation. Not only do brokers help by providing an unbiased estimate of how much your digital asset is worth, but they also offer additional services to help deals go smoothly.

At Empire Flippers, we’ll help you connect with suitable buyers with serious buyer intent and assist in the migration of the business once you agree on a deal. And don’t worry about whether you can find interested buyers. Brokers typically have excellent deal flow, meaning that you’ll have buyers competing for your business.

However, not all brokers are made equal. Make sure you do your due diligence to find the right broker based on their experience and services.

Let Go to Move On

Letting go of emotional equity is difficult.

It’s definitely not easy, but learning how to distance yourself from your business means you unlock a huge sum of capital. Whether you buy a new house, invest in a new business, or start a journey flipping businesses for a profit, letting go of your attachment accelerates your ability to access all of these opportunities.

While you could try to distance yourself from your business on your own, a broker might be easier for you. They don’t see your business through the same lenses as you. A broker’s valuation is based on the current reality, not what it helped you achieve and what it could help you achieve in the future.

Listing with a broker can lead to a very quick sale, even within a month or two, for a six- or seven-figure sum. Start off by using our free valuation tool to see how much your business is worth.

Letting go could help you launch into a bright new future.