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How to Close a Deal Like WARREN BUFFETT
Lessons from the World's Greatest Dealmaker
By TOM SEARCY, HENRY DEVRIES
The McGraw-Hill Companies, Inc.Copyright © 2013TMS Partners, Inc and Henry DeVries
All rights reserved.
The Quest to Make Deals Like Warren
On any given day in Omaha, Nebraska, in 1983, it would not have been unusual to see Rose Blumkin, the 89-year-old founder and owner of the largest single furniture store company in America, driving her scooter around her mini-empire, Nebraska Furniture Mart. However, one day that year, some customers saw something that was unusual: she was in the middle of an aisle, negotiating with future billionaire Warren Buffett over the sale of her company.
"Warren," she said, "I'm tired of fighting with my children over how to run this place, and I want to slow down."
"Rose, I've always told you that when you were ready to sell, I would buy. What's your price?" replied Warren.
They shook hands, and the deal was done. He gave her a handwritten check for $55 million, and the Blumkin clan went into partnership with his company, Berkshire Hathaway.
Does that sound impulsive? Not Warren. He followed several of his key principles in making this deal:
1. Know your numbers, their numbers, and all the numbers of the industry.
2. Make deals with the kind of people you would like to be in business with.
3. When it's time to make the deal, don't blink.
Back in 1983, the family that had created one of the iconic brands in the furniture industry made a deal to join forces with the future wealthiest man in the world. The deal was done in the course of an hour with a handwritten check and without a single lawyer present. That deal has stood to this day and has greatly benefited both parties.
The Way to Your Warren Buffett Deal
Do you remember the biggest deal you ever made?
Of course you do. Everyone has one, and everyone remembers it. How could you forget? Many times, you've gone back over that deal in your mind. You have probably replayed the deal, reviewing what led to its success. You examined the tactic you used that worked perfectly—even though you were pretty sure it wouldn't. You remembered any cringe-inducing moments and swore that you'd never go through anything like that again. You wondered what exactly happened that made this deal a winner. When did the tide turn in your favor, and why?
Of course, you've tried again and again to replicate that deal. But so far, it's been hit or miss—and you've never done anything quite as good as that deal. It was your biggest deal, and it might remain your biggest deal, unless you answer the call to make deals like Warren Buffett.
We certainly are not going to tell you how to replicate that deal. To us, replicate is just another way to say "stagnate." And in deal making, stagnation is the kiss of death. Besides, you can't replicate it. The circumstances of that deal were unique. No two deals are exactly alike, so replicating one isn't possible.
No, what we want you to do is something else entirely. We're going on a journey to let you be able to make deals like the greatest dealmaker of all time.
This quest is to land a deal that you can't even imagine yet—it's that big. It might be $10,000, $1 million, or $100 million. It might be with a private company, or it might be with one of the Generals (like General Electric, General Mills, or General Motors).
No matter what size company you have, you can land your Warren Buffett kind of deal. What we outline in this book will guide you through a successful quest. If you follow the lessons and apply them to your situation, your deal-making prowess is bound to improve along the way.
This book isn't about incremental and slow growth. It's about explosive, major growth through key account selling. Equally important, it's about explosive, major growth time and time again. Making a deal like Warren Buffett is not a one-trick pony. It's a mindset, a set of principles, and some very effective strategies that you can use again and again.
Please understand we are not saying that this is going to be easy. Something that's worth achieving seldom comes easily. We will outline for you the importance of the challenges you will face; give you some concrete, tactical ways to meet them; and tell you stories about Warren Buffett and other dealmakers who have been extremely successful in landing big deals that have transformed their companies, their careers, and their causes.
We are confident that anyone who meets—or surpasses—these challenges will land his own version of a Warren Buffett–style deal. The reason we are confident is that we've seen it work with unimaginable success time after time.
Over the years, we have been very fortunate to work with many marvelous clients who have graciously allowed us to tell you about their experiences. So you'll find client stories interspersed throughout the book. We use these stories as examples, of course, but also as a tribute to the dedication and hard work our clients have exhibited time and time again. They provide us with a large portion of our inspiration on a daily basis. And for that, we are truly grateful.
Warren Makes Deals Differently
If you want to know about making big deals, Warren is still the guy to watch. Why? The man knows how to talk about money when he's making deals.
Warren does deals differently from the average businessperson. For those who want a road map on how to make bigger and better deals, the lessons contained in the following chapters will show you the Warren way.
Warren is famous for doing enormous deals with as little information as a few pages of business plans and the standard financials that a company would submit to a bank in order to qualify for a loan. However, 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.
We are unabashed Warren watchers. We own stock in his company, read his chairman's letters in the Berkshire Hathaway annual reports, and devour news reports on the man. Our interest is not in studying his investment wisdom, but in decoding how the man makes a deal. Here are just seven deal-making traits to emulate that we have learned from watching Warren from afar:
1. Know the other guy's money. Warren always seems to know how the people he's dealing with make it, how they count it, and how they spend it. This is obviously much easier to do for publicly traded companies. For privately held companies, some of the numbers are fairly easy to estimate—at least the cost of goods sold and probably the cost of sales. These numbers are critical to discussing the possibilities of working together. Too often, the discussion stops at the budget. When you don't know, ask. Don't ask for trade secrets, but at least ask for the industry averages. This provides a basic framework for the discussion.
2. Know the other guy's wallet. How would this sale affect any of these critical numbers? The terms of the deal should be looked at from the other guy's side of the table first, then from yours.
3. Start discussing the money early. You know you are going to discuss the money in more detail later. Early in the conversation, you do not have enough information for precision. Instead, you need to have an understanding of the economics of the prospect's industry so that you have enough information 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.
Excerpted from How to Close a Deal Like WARREN BUFFETT by TOM SEARCY, HENRY DEVRIES. Copyright © 2013 by TMS Partners, Inc and Henry DeVries. Excerpted by permission of The McGraw-Hill Companies, Inc..
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