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New Jersey Nets new owner Mikhail Prokhorov, left, sits with his new head coach Avery Johnson during Game 5 of the 2010 NBA Finals basketball series in Boston. (MIKE SEGAR)
New Jersey Nets new owner Mikhail Prokhorov, left, sits with his new head coach Avery Johnson during Game 5 of the 2010 NBA Finals basketball series in Boston. (MIKE SEGAR)

Exit: John Warrillow

Buy business with emotion, justify with logic Add to ...

On May 11, 2010, the NBA approved Mikhail Prokhorov’s bid to buy the New Jersey Nets. Mr. Prokhorov made his money mining nickel and gold in the wild-wild east of mid-’90s Russia.

By all accounts, Mr. Prokhorov is a hardscrabble entrepreneur who made the bulk of his fortune in the frozen Siberian tundra. But he reportedly has a soft spot for basketball. At six-foot-six, he is a competitive player himself.

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So in many ways, it was understandable that Mr. Prokhorov would want to own a trophy company such as an NBA franchise.

The way he justified the purchase on his blog is interesting:

“For our Onexim group the realization of this very lucrative business project, whose participation was made possible by the world crisis (never in history have foreigners owned an NBA club), is another interesting sports development.”

Mr. Prokhorov’s reference to buying one of the worst NBA franchises as a “very lucrative business project” seems to me like an attempt at a logical justification for an emotional purchase. I’m sure that as a player and fan, he loves the idea of owning an NBA franchise, but the Nets are not exactly a crown jewel of the sports world akin to the Montreal Canadians, Boston Red Sox, Boston Celtics or Manchester United.

In fact, the Nets have one of the most dismal records in basketball history. As Mr. Prokhorov waited for NBA approval to buy the team, the Nets were busy racking up the worst record in NBA history — possibly in the history of any professional sports league — with 18 straight losses. By February, 2010, the Nets had won just four of their first 50 games of the year, a feat that tied them for the worst 50-game start in the history of all three major sports that play 50-plus games a year (NBA, MLB, NHL).

You’ve heard the expression that people “buy with emotion and justify with logic.” I have found that to be true in the buying and selling of businesses too.

I saw this phenomenon first-hand when I sold my research company. I invited a number of prospective acquirers to attend our annual conference in Las Vegas as my guest. Our event was a glamorous production with high-profile speakers such as Dan Nye, then CEO of LinkedIn, and we entertained with private dinners at the finest restaurants on the strip.

One potential acquirer sent the head of business development who, after the event, requested we do a management presentation for his boss, the CEO. He had known about our business for months and he had seen our books weeks earlier, but not until he was seduced by the event did he decide to engage his CEO in the possibility of buying our company.

I invited another strategic buyer to join an onstage panel. I had him attend a private dinner with our best clients, after which he had his executive vice-president in charge of corporate development call me to discuss “a possible marriage.”

After the event, these potential acquirers did their homework, they pored over our books and analyzed my business like the hard-nosed businesspeople they are. But I would never have brought them to the negotiating table in the first place if they had not been enticed on an emotional level.

Special to The Globe and Mail

John Warrillow is the author of Built To Sell: Turn Your Business Into One You Can Sell . Throughout his career as an entrepreneur, Mr. Warrillow has started and exited four companies. Most recently he transformed Warrillow & Co. from a boutique consultancy into a recurring revenue model subscription business, which he sold to The Corporate Executive Board in 2008. He is the author of Drilling for Gold and in 2008 was recognized by BtoB Magazine’s “Who’s Who” list as one of America’s most influential business-to-business marketers.

Follow on Twitter: @JohnWarrillow

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