How to Close a Deal Like Warren Buffett

Warren Buffett might be catching a lot of flack these days, but I think if you want to know about closing big deals, he's still the guy to watch. Why? The man knows how to talk about money when he's dealmaking.

Buffett is famous for doing ginormous deals with as little information as a few pages of business plans and the standard financials a company would submit to a bank to qualify for a loan. What he has when he goes into any conversation is an encyclopedic knowledge of how businesses work financially. He knows "their money," "their wallet," and how investments and outcomes should work. Follow his lead and you will close more business.

Here are seven things I've learned as I've watched Buffett from afar:

1. Know the other guy's money - How they make it, how they count it, how they spend it. This is obviously much easier to do for publicly traded companies. For privately held companies, the numbers are fairly easy to estimate, at least the cost of goods sold and probably the cost of sale. These numbers are critical to discussing the possibilities of working together. Too often the discussion stops at budget. When you don't know, ask. Not the trade secrets, but at least the industry averages. This provides a basic framework for the discussion.

2. Know the other guy's wallet - How does this sale impact any of these critical numbers? The terms of the deal should be looked at from their side of the table first, then yours.

3. Start discussing the money early - You know you are going to discuss the money later. Early in the conversation, you do not have enough information for precision. Instead, you have an understanding of the economics of the prospect's industry, so you have enough to determine if a deal makes any sense at all. Use that economic information and industry knowledge to frame a shared understanding of the reality of the money for this opportunity.

4. Use ranges to qualify and disqualify - Understand early (and throughout the discussion) whether you and your prospect are in the same arena. By using ranges of prices, cost structures, yields, and performance you can both be sure that you are dealing in a shared reality rather than getting to the end and finding yourselves so far apart that there is permanent damage done to the relationship.

5. Speak the language of investment and outcomes - Every large sale is an investment on both parts in an outcome. When you move the conversation from price to investment and cost to outcomes you are focusing on the business impact rather than budget impact. This is the language of large sales.

6. Don't discount early - I regularly hear fearful "deal makers" use language like, "Let's not let money get in the way of working together." There's a word for this that is not used in polite company. This is the language of discounting before the scope has been clearly defined. The sales person believes that he is being clever by taking money off the table. What he has really done is to take margin off the table, his and his company's margin. If qualifying investment and impact has been made up front, then this point does not need to be made again.

7. Don't negotiate until it's time - Work on the deal points one at a time. Work through the investment and outcome ideas clearly, then negotiate. True, all of these points require negotiation. However, too often the conversation turns to negotiations too early before real scope and deliverables have been defined. Which means that the whole is reduced to the little parts before the shared picture of the whole has been established.

Side Note: I watched a deal unravel recently because the players did not observe these guidelines. The sale involved the installation of a point-of-sale system into a retail chain. The details are complicated as many large deals are, but the numbers were simple:

If you calculated the investment necessary for the system, the transaction cost was going to be >5% of the transaction revenue value. That's more than the cost of the charge card processing fee! Never going to work regardless of the reporting bells and whistles, speed to data consolidation and so on.

This violates rules 1-5. The selling team did not understand the fundamental money issues of their prospect. They had not asked, done their research or even estimated. They were focused on the features of their system and what they had heard the IT people say would be the selection criteria without working through the money issues. That always leads to disaster.

as written by Tom Searchy @ http://www.cbsnews.com/8301-505183_162-46440283-10391735/how-to-close-a-deal-like-warren-buffett/?tag=bnetdomain

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How to Pitch a VC: 5 Tips from ‘Shark Tank’

By Steve Strauss | October 3, 2011

What does it take to not only get the attention of VCs, but actually get them to invest in your business? This, of course, is a question that vexes many an entrepreneur. Sure, you can read books and articles and watch videos, but let me suggest a different path:

Watch TV.

Specifically, turn on the show “Shark Tank” on Friday nights. If you have never seen it, here’s a quick recap: Entrepreneurs and inventors come before a panel of multi-millionaires and billionaires (like Mark Cuban and Barbara Corcoran) and pitch their businesses. If the sharks (the investors) like the idea and think it is a market-worthy product, they will offer the entrepreneur some or all of the money the person is seeking in exchange for an equity stake in the business. If they strike a deal, the shark and the entrepreneur are in business together.

It’s fascinating to watch, from both perspectives. Sometimes you see entrepreneurs go up there with a dynamite idea but no clue how to execute on it. Or they have no sales or no team. Sometimes the sharks battle each other for a piece of the pie when an idea seems too big to miss such as Toygaroo, a company that rents toys to parents of young kids for a monthly fee — sort of like Netflix for toys. Brilliant.

But for us entrepreneurs in the audience there are a lot of lessons on how, and how not, to approach and get money from a VC. Here are five:

1. Know your numbers cold and be able to back them up: How many times have I seen someone on the show come in and say they need, say, “$100,000 for a 10% stake in my company”? The sharks immediately note that that means the entrepreneur values the company at $1 million. They ask:

What sales do you have to back that up?

What assets do you have?

What is your profit margin?

If the entrepreneur has no proof that the business is really worth what he says it is, then it’s over. Know your numbers.

2. Have some sort of secret sauce: There is no shortage of great ideas out there. What distinguishes yours? Why should a VC invest in your idea over the hundreds of others he or she sees every year? You have to offer something different and special and unique.

As one of the sharks, billionaire Kevin Harrington says, “A good business idea is a product or service that solves a problem that is not already being solved in the marketplace. The product or service should be unique enough that it’s not something already readily available.”

3. Have a great team: VCs love to see that you have surrounded yourself with people who can execute on the plan, and who have experience and a can-do attitude. That said, Barbara Corcoran notes, “Always choose attitude over experience. When I hire people I make a habit of never looking at their resume because most people spend most of their life in the wrong job. I never hire complainers or excuse-makers because they’ll find a way within my company to do more of the same. People with a can-do attitude are a pleasure to work with.”

4. Put your best foot forward: Not a few times on the show have the sharks said that they are investing in the person more than the idea. You have to come to the meeting with the VC and be impressive — a leader, a visionary, articulate, confident, and bold, all rolled into one.

Again, Barbara Corcoran is instructive, “My most important criteria when making the decision to invest are: 1) Do I trust the individual? and 2) Do they have the fire in their belly to bring the business to the finish line?”

5. Show them the money. Investors invest to make a profit. Be able to prove that you will make them a big one.

In the end, whether you get the money or not, depends on all of these things. Harrington puts it this way: “Your presentation needs to convince potential investors and business partners that you know what you are doing, have a background in your business, and have put together a good team. It’s important that you show them as little risk as possible, and convince them that they will not only get their money back, but also a high return on investment.”

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Venture Capital – Knowing Your Funding Options

Entrepreneurs and business experts have defined venture capital as a financing style between a capitalist and entrepreneur with a common goal of a handsome return in a short period of time, maybe 3 to 5 years. But while there are several resources on the definition and characteristics of this topic, few have actually discussed the options that this kind of business set-up has.

Before taking the plunge, know what these options are and how they can be applied to your current business plan.

The funding option depends on the stage of the company's progress. Investment firms can invest from $50,000 up to $20 Million. If the company is still at its earliest stage, where a concept or invention is still to be developed or proved, the option is called seed financing. Here investment is spent on marketing and product development. Product ingenuity and market research are the areas being focused.

When the company has already developed its product and marketing strategy but needs money for the actual production and initial marketing, the funding option is called start-up financing. This is the common option for new entrepreneurs and inventors. Here funds are spent for the production and initial marketing. Amounts can range from $50,000 to $1 Million.

Sometimes a company already has its products and may have initially introduced them to the market, but receives little or no revenue at all. In this case, the entrepreneur may need financial assistance at this stage, called the first or early stage. The amount usually ranges from $500,000 up to $15 Million, depending on the extent of the changes that need to be made. It could be that the product needs to be revised or developed to make it more saleable, or it can be a mere repackaging or change in advertising strategy.

The next option is called the second or later stage. Here the company has its products and may have received revenues, and has the potential of making it big in the near future, but for some reason has no funds at hand. It could be that there are some loans that need to be paid, or other financial schemes that need to be complied with. That is why venture capital firms invest from $2-15 Million to help the company.

Some profitable companies want to expand, but does not want to put in more capital out of their own money. Their goal is not to keep the company for many years but for it to quickly grow in order to make an IPO within a few months, say 3-18 months. This option is called the third or mezzanine stage. Amounts range from $2 Million to $20 Million.

Similarly, this next option needs an investment before an IPO, but the time frame is within 3-12 months. This is called the bridge. Investment is also between $2 Million to $20 Million.

Remember that there is a specific option for each stage that your company has. The key is to know what options to use. Similarly, you must know where to find these venture capital firms. You must also develop a concise but comprehensive business proposal to present to them. Lastly, keep in mind that venture capital is not the end-all but just the beginning of more challenging things to come.

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How Playing Poker Teaches Business Skills

I have fun playing Texas Hold 'Em with friends. But did you know that playing the game or watching shows like World Tour Of Poker can help you succeed in business? I didn't realize that while I was learning to play, I was also gaining valuable business skills that have translated into money in my pocket.  No, not by gambling money away.  :)  Let me show you what I mean. I learned four things from playing poker.

First, I learned how to make the best of the cards I was dealt. I learned when to play a hand, when to take risks, and when to throw the cards away and wait to act with better ones. This kind of discernment helps a business owner make sound decisions about working with assets and when to cut a project loose if it's not producing good results. I found that when starting your own business, you will invest two assets—, your time and your money.  Depending on where you start, you'll use one of these assets more than the other.  A realistic understanding of which asset you're working from can help you make the most of what you've got.

The second lesson I learned from poker is that you've got to use a strategy to win. Good players spend years learning from each other and developing a strategy that's right for them. Their strategy is reliable and flexible enough to adapt to new situations. They learn something new from each game, and they actively look for the lessons when they lose a hand. They know how much they're willing to bet in an evening, and they aren't pushed off course by setbacks because their strategy takes the slow time into account. 

The third lesson I learned is that while I must understand the cards I've got, I must watch my competition and adjust what I'm doing accordingly. If I have a solid straight in my hand, I still need to watch my fellow players because one of them might have a straight flush. If you only focus on your hand, you may end up broke in no time flat.  Even if you've got an awesome product, don't fool yourself into thinking you've beaten your competition.  In business, there are always going to be people who want to move into your market.  People are actively creating new products and services, and yours could be left in the dust if you aren't paying attention.  The difference  here is that you may find that good strategies include partnering with your competitors and funding joint ventures. Unlike poker, you both can win.

The last and most important lesson I learned from playing poker is that risk isn't the four-letter word!  Risk is a good thing if you have studied your competition and know you have a good hand. The reality of business is that you will have to do some things you've never done before or that make you feel nervous. This is a good thing because you become a better person once you push through your fear of taking a risk.  I used to worry about what would happen if I lost a bet. I played to prevent losing instead of playing to win. There's a big difference between those things. Playing to win means putting yourself out there, letting people know you've got a good product or service. Playing so you won't lose usually results in you losing or barely breaking even because you can't do the very things that cause your business to sky rocket to the top.

In summary, I learned to use my assets well, implement a winning strategy, to respond to my competition, and to push past the fear of losing. 

Think about other activities you've done over the years.  What skills did you learn?  How can you use them to build your successful business?

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Are You a Schmoozer or a Closer?

To bring in big business, you need two distinct types of personalities. Part of the trick is figuring out which one you are.

I’m guessing you generate the lion’s share of the revenue for your company. But have you ever stopped to think about your selling style? I have found that company owners tend to be either schmoozers or closers. Being a good schmoozer can undermine your closing ability, so knowing which one you are can reveal who your next hire should be.

The schmoozer

A schmoozer is a front person for a company. Usually thought leaders, schmoozers are good at glad-handing customers, making people feel loved. They remember customers by name and ask them about their lives. They are both door openers and door warmers.

The closer

To be effective, a schmoozer needs to hand opportunities to a closer. The closer, understanding a customer’s needs in detail, exposes a problem—often to the point of discomfort for the prospect—and proposes a solution. Closers may be friendly but rarely become friends with customers, keeping their distance to retain their bargaining position in a negotiation.

A good schmoozer needs to remain everybody’s friend—keeping things light and informal, smoothing over the rough edges of a commercial relationship. A good closer, on the other hand, needs to know how to ratchet up the pressure in a negotiation, applying just the right amount of leverage to get a customer to decide without turning them off. If a schmoozer is the grease, the closer is the crowbar.

I don’t think a founder can be—or should be—both a schmoozer and a closer. You have to decide your role and hire for the other. For example, Don Tapscott, co-author of Paradigm Shift, Wikinomics and the 2010 bestseller, Macrowikinomics, built his former company, New Paradigm, with the help of Joan Bigham, his second-in-command, who is a pure salesperson.

“(A salesperson) is an amazing kind of person actually,” he says. “They view ‘no’ as information, and they never take it personally. Someone says, ‘I have no interest in what you’re doing,’ and she says, ‘Great—now we’re engaged in a conversation.’ Most people are not really salespeople. They take stuff too personally. (They think), ‘You don’t like me, you don’t like my company, I’m a failure.’ A consummate salesperson thinks very dispassionately and strategically about the selling process.”

Tapscott, the schmoozer, explains the interplay between his role and that of his closer: “I make rain at a very high level. I need someone to use that to help the garden grow – to plant the seeds, to nourish them and fertilize them and get real value. It’s one thing for someone to say, ‘Gee, what Tapscott does is really interesting, and I think it could be important to our company,’ and it’s another thing for them to sign on the line to spend a few hundred thousand dollars per year to get some good insights.”

Tapscott was able to sell New Paradigm three years ago in part because he had segregated the role of schmoozer and closer so well. He agreed to continue to be a rainmaker for New Paradigm, now called Moxie Insight, for five years. Today, Tapscott’s books and speeches continue to unearth leads, but he’s not closing; he’s schmoozing.

So are you the schmoozer or the closer?

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Master negotiator: Getting your sequencing right

This is how business is done!

Father: “I want you to marry a girl of my choice.”

Son: “I will choose my own bride!”

Father: “But the girl is Bill Gates’ daughter.”

Son: “Well in that case…ok”

Next — Father approaches Bill Gates

Father: “I have a husband for your daughter.”

Bill Gates: “But my daughter is too young to marry!”

Father: “But this young man is a vice-president of the World Bank.”

Bill Gates: “Ah, in that case…ok”

Finally Father goes to see the President of the World Bank.

Father: “I have a young man to be recommended as a vice-president.”

President: “But I already have more vice-presidents than I need!”

Father: “But this young man is Bill Gates’ son-in-law.”

President: “Ah, in that case…ok”

The father in this tale is clearly a seasoned deal-maker. He knows that sequencing agreements is a key factor in deal success. Sequencing involves lining up deals so that each agreement raises the odds of knocking over the next one.

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