Business Brilliant

by Lewis Schiff

  In a business deal, a bottom line of this kind should also involve putting limits on how much you put at risk. You want to shrink your downside risk wherever possible and walk away if it appears too high. Many business beginners make the fatal mistake of investing so much of their own capital in a business deal—maybe a franchise or an investment property—that if the deal fails they won’t ever have the resources to give themselves a second or third chance to succeed.

  THE TECHNIQUE: Take 20 minutes. Consider your short-term goals and how much money you need from this deal to contribute to those goals. Compromising your goals just to get a deal done is the fastest way out of Business Brilliance. Putting too much at stake in the deal can keep you outside of the line of money for years to come. Don’t ever take on so much risk that if a project fails, you will lack the resources to try again (Essential 15).

  ESSENTIAL 7: PRESS YOUR ADVANTAGE

  Once all your goals are clear, the basic negotiating formula for Business Brilliance is this: You bring people to the table according to their strengths. You negotiate with them according to their weaknesses.

  That may seem a little cold-blooded, but you have to accept that in almost all business transactions, you are being sized up in the exact same way. In chapter 3 we saw how just about every boss who’s ever hired you with a smile and a handshake was also eager to exploit your vulnerabilities by offering you the absolute minimum salary he or she could get away with.

  So if you want a negotiation to work for you and your goals, it’s not enough to go in knowing all about your own bottom line. You also need a strong sense of what the other side’s bottom line looks like, too. Before you sit down to make any agreement, you should know what motives, beyond money, might be driving the other side’s participation.

  Let’s say you have partners who lack expertise but have access to cash. You lack cash but have expertise. Your partners will want to bring you and your expertise into the deal for as little money as possible, in order to preserve their return on investment. They will squeeze you and try to give you as little as possible in terms of project pricing, percentage pricing, and equity.

  What ability do you have to squeeze them back? This is largely determined by what you know about them. How badly do they need you for this project? How easily could you be replaced? Are they in love with the project? That’s important because love can be blind. Even the most successful businesspeople give away concessions without thinking if they want a project to happen right away. The more you know about their vulnerabilities, the better able you are to press your advantage.

  Here’s a story that illustrates the point. Marlon Brando was shooting a movie in which he had a small equity stake, known as points. But he also had tax problems and owed the federal government $100,000. Brando’s manager called the movie producer and explained Brando’s problem. He asked for a cash advance during the shoot. The producer checked with the studio head, who was delighted. “Give it to him,” he said. “But get back his points.” So Brando agreed to give up his equity share in the movie for $100,000. The movie was The Godfather. Within a few years, that $100,000 check from Paramount had cost Brando about $11 million.

  The studio head hired Brando because of Brando’s strength as an actor. He negotiated with Brando, however, on the basis of Brando’s weakness as a tax debtor. That’s why Paramount fell into money on The Godfather and Brando did not.

  THE TECHNIQUE: Take 20 minutes. Before you negotiate on price or equity, redo the deal’s pro forma from your partner’s point of view. If you’re a landlord do it from the tenant’s point of view. When you’re done, circle all the areas where you have serious questions. What are the soft benefits for them? How have they limited their own downside risk? If you can’t get them to answer these questions in casual conversation, ask around. Every clue you have about their motivations will help you press your advantage.

  ESSENTIAL 8: PLAN THE DIVORCE IN ADVANCE

  Just like a prenuptial agreement between mature adults, every good partnership should have the divorce terms built in from the wedding day. A deal that goes bad can be like an anchor around your leg. You should always have a way to cut the cord.

  When you begin a new project, everyone is in love with each other, but then things change when the money starts to move. Expect the unexpected. Some partners suddenly realize they gave away too much in negotiations once the dollars aren’t flowing in their favor. They start whining and beg to renegotiate. If you don’t have divorce terms written out for all parties by mutual agreement, then there’s no way to respond.

  The divorce clause is the last line of defense for your bottom line. If a deal is souring in a way that obliges you to continue to fund and work it, even though you feel certain there is no prospect for success, you want a prior agreement to back you up so you can quit. You can’t lose sight of what’s called “opportunity costs.” Every day you toil at a losing deal is one more day you are not out looking for a winner. You are one day farther from reaching your goals.

  The most powerful thing about a divorce clause is that you don’t have to leave the project for it to be useful. It can just be a point of leverage in renegotiating terms that protect your bottom line. You can say, “I can’t afford to keep doing this unless I get more money.” Then it’s up to your partners to decide what your participation is worth to them. Either way, you’ve protected yourself, and your goals.

  THE TECHNIQUE: Before any negotiation, use your pro forma to anticipate what might go wrong, and under what conditions you will want the divorce clause to either let you out with a minimum of loss or give you leverage to negotiate for more money. If you want the divorce clause to work best for you, then it’s up to you to propose it and provide a draft of the terms.

  Assistance

  It doesn’t take money to make money, but it does take teamwork and support. You can’t do it all and you shouldn’t try, because then you’re not doing what you do best.

  ESSENTIAL 9: KEEP YOUR NETWORK SMALL AND FOCUSED

  If you want to become Business Brilliant, your network is your most valuable asset. Not even the skills and capabilities at your Center are as important as the network you rely on for new business opportunities. Without opportunities, your skills and capabilities will go to waste.

  On average, self-made millionaires tell us they maintain a circle of six people with whom they “closely network in order to source new business.” The middle-class survey respondents claim an average of nine people for the same purpose.

  Why would the millionaires have smaller networks? I suspect it’s because the millionaires are actively managing what Russ Prince calls Nodal Networks. They’re not randomly collecting business acquaintances. They’re maintaining a deliberately compact set of capable people, each one of whom serves as a strategic point of contact, or a “node,” for that business person’s channel of trade.

  Let’s say you’re running a bakery. Your Nodal Network should be made up of six people who are well positioned to send cake-buying business your way. It might include a wedding planner, a party planner, and four catering-hall managers. These are people who like your cakes, consider you reliable, and will gladly recommend you to their clients. You value these people and go out of your way to cultivate their friendship and stay in touch with them because your livelihood depends on them.

  But why stop at six? Wouldn’t it be better if the baker’s network had 10 or 20 caterers and party planners?

  The baker probably does know 10 or 20 other caterers and planners. But he relies on the six in his Nodal Network for perhaps 80 percent of his revenue. You can’t really rely on more than six people for the simple reason that paying proper attention to those six takes a lot of work. Maintaining a Nodal Network well and faithfully demands more effort than you could ever devote to 10 or 20 people. You can’t have 10 or 20 people in your Nodal Network any sooner than you can have 10 or 20 best friends. Someone who counts 10 or more people in his or her network probably has no useful networ
k at all. True Nodal Networks work only when they’re small and tight.

  THE TECHNIQUE: Take 10 minutes. Make a list of the top dozen people you would go to tomorrow for advice on finding a new project in the work you do best. Rank the top six you are closest to or who are best positioned to help you. That’s the beginning of your Nodal Network. If you work in a salaried job, make up similar lists of people you would go to regarding either a promotion or changing jobs. What could be more important?

  ESSENTIAL 10: MANAGE YOUR NETWORK UPWARD

  Nodal Networks are always in flux. People come and go, businesses change direction, your own priorities change.

  The best way to deal with change is to take change into your own hands. If you accept the premise that your Nodal Network is your most valuable asset, then it makes sense to manage it just as you would any asset portfolio. You want to be on the lookout for new promising network members while withdrawing your connections with underperformers.

  Let’s go back to the bakery shop with its Nodal Network of one wedding planner, one party planner, and four caterers. Maybe wedding cakes are the highest-margin product and you want to get more of that kind of business. And maybe one of your four caterers, with lower-margin cakes, has dropped off in referrals. So you consciously start trying to identify a second wedding planner to add to your Nodal Network.

  The act of networking has gotten a bad name. Its main pitfall is that it tends to be casual and random. Online “social networking” has made things worse. It’s hard to keep a network small and tight when you’ve got old college buddies and former workmates linking in unannounced and adding you to their own networks.

  If you’re in the serious business of Nodal Networking, you collect information about your prospective network members, look for mutual connections, and reach out to them. You’re not cold-calling, as a salesperson might. You’re marketing your services in the hope of finding a good alliance, some shared values about the business that makes it advantageous for you to be in each other’s networks.

  And if you ever show up at an industry networking event, go there with an agenda in mind. You’re going to meet three prospective members for your network and you’re going to ask their advice about a problem or an issue you’ve been facing. Few people enjoy sales pitches, but almost everyone enjoys dispensing advice. This way you have a direction for each conversation you have at the event. And you can excuse yourself from spending more than a minute or so with anyone who can’t help you. You just apologize politely and explain you’ve got to find someone who can help you. It’s a networking strategy Prince calls “NEXT”—Never Extend eXtra Time.

  THE TECHNIQUE: Put together seven file folders—paper folders or computer folders. Mark one folder with the name of each of the top six people you came up with in Essential 9. This is the Nodal Network your livelihood depends upon. Is there anything you shouldn’t know about these six people? Fill each folder with items from their company websites, facts about the companies, their corporate board memberships, charity involvements, and the names of their spouses and names and ages of their children. Ultimately, you’ll want to know as much as you can about their business aspirations. How much money do they earn? How much do they want to earn? What’s their ultimate financial and professional goal? And so on. The seventh folder should be marked “Bench.” This is where you toss information about all your potential network members. Check it once a week to reevaluate the status of your network.

  ESSENTIAL 11: BUILD A TEAM

  This is the inevitable corollary to Essential 2—Commit to What You Do Best. Falling into money requires you to spend as much of your time and focus as possible on your exceptional skills and talents. For everything else, you need a team.

  Team building may be little more than taking a new, more direct business approach with people you already associate with. Once you’ve committed to what you do very well, you’ll see that people with complementary skills are all around you. The ones you don’t know are likely just one degree removed from you—through your Nodal Network.

  Let’s say you’re an architect. You’ve determined that your true strength is project management and not design. You want to use this strength to go into real estate development and get an equity stake in a property. There’s a lot you don’t know. But you probably already know many of the people who can help: realtors to identify building sites, bankers to set up construction financing, investors to provide capital, and contractors to build your development.

  Even the worst, most hermitlike architects know a few real estate brokers, contractors, and lawyers. They would make up your Nodal Network. They would be your first natural points of access to your other missing parts—investors and bankers. A Nodal Network by definition puts you just one degree of separation away from all the people in the respective networks of each of your network’s members. Follow through and you will have a prospective team for the project before you know it. Following through and making it happen involves most of the other Essentials. But even a rudimentary Nodal Network assures you that your project will not die from a lack of prospects.

  It’s easy to feel daunted by the idea that you need to manage a team of people. Think back to Essential 3, Follow the Money. You may love to cook, but the thought of running a restaurant makes you nauseous. You enjoy woodworking but can’t stand the real estate game. And while you have a knack for managing people, the corporate ladder is a tough climb and running your own business may feel completely beyond you. The thought of these added responsibilities might give you an ache in the pit of your stomach.

  Everyone who becomes Business Brilliant feels that same ache—of anxiety, of the unknown, of the suspicion that what you don’t know or can’t do yourself will sneak up and destroy you.

  The difference is how they interpret that ache. Self-made millionaires take it as a signal that they need to go find some partners to take on these other tasks. For them, the ache is a valuable source of information. It tells them that there’s something they don’t know how to do, that they’re not good at, that it’s time to draw on their Nodal Networks and go outside their Centers for help.

  Once again, your Nodal Network is your most valuable asset. Time and focus are your two most valuable resources. Business Brilliance requires you to rely on your most valuable asset to find help conserving your most valuable resources.

  THE TECHNIQUE: Take 30 minutes. Do a quick pro forma on the one time-consuming task you either don’t do well or know you shouldn’t be doing yourself. Use the pro forma to calculate the minimum value you could create if someone else were taking the time to do that task. That number is your budget. Go through your Nodal Network, call around, and find someone who can do the task for that much and not one penny more. Even if the number is very low, get creative. It works.

  ESSENTIAL 12: GET A COACH

  By now it should be obvious that it doesn’t take money to make money. It takes people. That should come as good news because accessing people is usually easier and more fun than accessing cold hard cash.

  Here’s the drawback: People are human. Your network members, your team members, your clients—each of them has a uniquely human set of wants, desires, quirks, and limitations that you need to understand and accommodate. These people hold the keys to your financial goals but, very naturally, they are committed to their own goals first. Every day you run the risk of neglecting your own purposes in the whirl of responding to other people’s requests and concerns.

  This is why you need a coach. You need someone who will keep you accountable to your own goals and avoid procrastinating on your projects. With the right kind of coach, you will have one person among all the people in your business life and your personal life who you can rely on to help you put your own objectives first. No matter how proficient and goal oriented you are, an effective coach can make you better.

  Types of coaching services vary widely, but our studies of coaches in the financial services sector showed that fairly moderate and inexpens
ive coaching—consisting of weekly phone consultations—can raise revenues for their clients by 25 percent or more. If you think of a coach as a “boss you can fire,” as someone you are accountable to but not working for, you can make sure there’s always someone ready to help you avoid getting diverted and distracted from your goals.

  THE TECHNIQUE: As with finding any personal-services professional, you should interview a few coaches before settling on one. If you’re using this book as your guide for developing your Business Brilliance, you want to identify a coach willing to work with you on the 17 Essentials. There are countless online resources for finding coaches, but you shouldn’t pass up this opportunity to source your Nodal Network for referrals first.

  Persistence

  How do self-made millionaires manage to succeed when, on average, they fail more often than everyone else? It’s simple. They fail more often because they try more often.

  ESSENTIAL 13: MAKE FRIENDS WITH FAILURE

  It’s never fun when a project falls short. The only thing worse than failing, though, is failing to learn from failing. To develop your Business Brilliance, you need to embrace the setbacks that come your way. You need to examine each one carefully and use that analysis to make adjustments in a second effort. Why? Because anything worth trying is worth trying again.

  It’s natural to want to give up and run away from the pain of disappointment. A failed attempt of any kind will give you plenty of evidence that the project was fundamentally unsound, or that you’re not cut out for it. That’s the trap that failure sets for us, a trap most of our middle-class survey respondents say they fall into. I’ve learned through two separate surveys that their most common response to failure is to give up and do something else.