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Warren Buffett’s near mythical deal-making powers are based on simple strategies that any business can adopt, according to Tom Searcy, the co-author of the new book How to Close a Deal Like Warren Buffett.
Searcy decided to write the book after realising that while Buffett the amazing investor is a subject that has been covered many times before, Buffett the dealmaker has not.
Searcygrew up in Omaha, Nebraska – Warren Buffett’s home patch – and has applied Buffett’s principles to his own deal-making.
“My own background includes having run four very, very fast growth companies. I grew each to greater than $100 million in size and each did that in less than five years,” he says.
Here are the 10 principles Searcy has observed in Buffett’s deal-making which you can use in your own business:
1. Be selective
“The first key lesson is that you don’t have to sell everybody everything, all the time. What makes Buffett very successful is how selective he is about the kind of deals he does and who he works with,” says Searcy.
“You should be very, very choosy.”
In Buffett’s legendary annual letter to Berkshire Hathaway shareholders, he always includes a list of the characteristics of the kinds of deals he wants and what he is not interested in.
“A lot of SMEs try to pitch everybody everything,” Searcy says.
2. Offer something more than money
“The second thing is that with Buffett, you think, because he has the biggest cheque book that’s why he lands the biggest deal, but that is not true – it’s because he is the best salesman,” says Searcy.
“Most of the time the price he offers is dramatically less than what others offer. So what he is offering is something more than money.”
Searcy recommends not starting negotiations with price or money and instead start with other things so you can understand who you are selling to and what they want.
3. Do your homework
Buffett 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, Searcy says what Buffett has going in is an encyclopedic knowledge of how businesses work financially.
“If you are going to be effective selling to anybody anything, you have to understand their business, their market; you need to be more knowledgeable about who you are selling to than your own business,” he says.
“Buffett knows more about their business, more than they know than themselves.”
Searcy recommends looking at the numbers from a business owner’s perspective not just a business buyer’s perspective.
“You’ve got to have done the research and the homework. Most people don’t do the homework they need to be successful,” he says.
4. Look for the love
An investor or a trader usually buys something and hopes to flip it to someone else, but Buffett is famous for saying his favourite holding period is forever.
Searcy recommends thinking about every customer to whom you sell as if you were buying the company for the long term.
“Buffet works with people who love their business, love their customers and love their markets,” he says.
“If I am selling the company and they are a great company, I’m going to work harder for them than somebody who just looks at the dollars,” he says.
5. People are important
Buffett views the people in the deal as being as important as the financial metrics.
“Financial metrics reveal what has happened at a certain time but people are performers over time,” says Searcy.
“Buffett doesn’t do hostile takeovers, turnarounds or mergers. The money counts but the people count more.”
6. Talk money early
“You need to know the other guy’s money, know the other guy’s wallet, start discussing the money early and use ranges to qualify and disqualify,” says Searcy.
“Don’t discount early and don’t negotiate until it’s time.”
7. Use a schedule
Uncertainty can be a dangerous enemy in organisations when you are making big deals or sales, according to Searcy.
Your buyer and associated stakeholders must understand the schedule of events.
He says a schedule is not just a calendar, because a calendar only presents a sequence of actions.
The schedule, to be of persuasive value, also needs to include performance metrics so that all participants can assess progress by the quality of planned outcomes.
8. Build in off-ramps
What happens if things are not working? Buffett warns that the path to a big deal is seldom smooth.
“The roads of business are riddled with potholes; a plan that requires dodging them all is a plan for disaster.”
At the same time, Searcy warns you need to look at what happens if the milestones for performance set out in your deal process are not met.
Will there be a revision of the budget, staffing, the entire plan? Clarity in the off-ramps gives confidence to the cautious.
9. When it’s time to make the deal, don’t blink
Searcy begins his book recounting Buffett’s deal to buy Nebraska Furniture Mart – a deal sealed with a handshake in the middle of the store.
Buffett had done all his research, so when it came time to close a deal he could to it quickly.
He has a penchant for fast deals and tries not to delay, as delay can kill a deal.
“If you want to marry, don’t tarry,” Searcy advises.
10. Aim high
Searcy’s advice for SMEs is to go big like Buffett has.
“Shoot for the stars; look for the big opportunities that are out there. Lots of small businesses think, ‘I am tiny, I am small I can’t do that’,” he says.
Buffett is 82 now but Searcy says it is interesting to think what he was like when he was 22 or 32. He wasn’t a billionaire yet but was forever working to the next opportunity and setting his goals higher.
“That’s how he got to be the second richest man on the planet,” says Searcy.
“Warren Buffett is a one generation billionaire. He did not start out rich, he started out like you and me but he dreamt big.”
This article was first published on LeadingCompany's sister site, SmartCompany.