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We are not talking about romantic entanglements between individuals - we will not even pretend we know anything about that. We are referring to the phenomenon where business people fall head over heels in love with the idea of a particular business deal. It could be that dream franchise that you want to own, it could be that special company that you want to acquire or it could just be that special business deal that you cannot let go.
Business people are conditioned to look for opportunities. This is one of the fundamental attributes that contribute to their success. Naturally, many business people direct their focus on the positive potentials of opportunities that they see. They need to do this not only because they need to execute the steps to take advantage of the opportunities but, in many cases, they also need to champion the opportunities to get stakeholders’ buy-in and capital investments.
The danger is that sometimes, business people end up falling in love with the deal, and the objective of realizing the deal overshadows the merits of the deal. Little warning signs are summarily dismissed. Potential issues are seen as easy fixes or turn around opportunities. Despite having no history (or relatively limited history) of a relationship, the counterparty to the deal becomes the deal lover’s confidant and best friend. Before long, what once appeared to be a once in a lifetime opportunity quickly turns into a financially devastating pitfall.
If you think that this would never happen to you, think again. This has happened to savvy business owners of small companies to seasoned corporate executives of multimillion-dollar corporations alike.
So, how can business people avoid this phenomenon? Here are 3 tips.
First, ask questions. One of the most powerful tools that you have is the ability to ask questions. It should be of no surprise to anyone that generally people go into business for the primary purpose of profit. This is true whether the businesses we are talking about are the micro-businesses of sole proprietors or the global conglomerates of major corporations. As such, their business activities are designed, directly or indirectly, to achieve such benefits. Therefore, whenever you are presented with a business deal, you need to understand the economics of the deal for the parties with whom you are dealing. Ask questions such as: why is the deal being offered? What are the benefits to the other parties? How much is it going to cost you to execute your plan? How volatile is the market? What if the things that the other parties tell you are untrue or the promises given do not materialize? And so on. What you are looking for is logical, rational and objectively verifiable answers.
Second, beware of attempts by the other parties to shift your focus from the issues of concern. If the other parties are giving you answers that do not meet the aforementioned standard, then it is a sign that you need to dig deeper into the issues. Don’t trust anyone that asks you to trust them without any basis. Don’t worry if someone tells you that your actions depart from the norm. A common sales technique is to make you feel uncomfortable or abnormal if you do not capitulate to the salesperson’s demands. Be alert to any misdirection. Instead of providing you with an answer, a party may indirectly (or sometimes directly) question your character. For example, instead of providing you with the necessary information, a counter party might suggest that you are a “worry wart” or that you are not looking at the “big picture”. Remember “synergy” without an executable plan to achieve it, is merely a word that describes something that is not really there.
Finally, retain accounting, legal and other advisors who understand business transactions, and let them do their job. While you are not required to follow their advice, they will certainly shine an objective light on the transaction, and at the very least alert you to some of the potential issues that you may face. You should be aware that there are very few circumstances where any such advisors will tell you to (or even worse, insist that you) undertake any business transaction. The decision to proceed is ultimately your own. You are (or your business is) the business decision maker who will directly be subject to the consequences of your actions.
Yes, you have to have passion for your business. But business decisions (even if they are based on intuitions) should be accompanied by sound rational business fundamentals. Business transactions are seldom a zero sum scenario. By understanding the motivations and economics of the parties involved you will be better equipped to assess the viability of the deal.
As the saying goes, “if it’s sounds too good to be true, it probably is!” That is the sobering mental check that business people should always keep in mind when entering into any business transaction. To be clear, we are not so cynical as to suggest that all good deals are untrue. We are merely cautioning against being blinded by the illusion of a good deal.
© 2015 Business Lawgix, LLP
