Will you be ready when the next big deal comes along? When it comes to negotiations, being prepared is far more valuable than having a big checkbook–just ask Warren Buffett.
This is an excerpt from Tom Searcy’s latest book, “How to Close a Deal Like Warren Buffett–Lessons from the World’s Greatest Dealmaker” written with Henry DeVries and published by McGraw-Hill, available now.
When Warren Buffett bought the then largest furniture store in North America, Nebraska Furniture Mart from its founder, Rose Blumkin, she told him, “Warren, you bought an oil well.” It has been, producing profits every year regardless of economic conditions, contributing to the growth in value of Berkshire Hathaway.
It would be natural to expect that Buffett, the second-richest man in the world, just made an offer that was too good to be true and won the auction as highest bidder. That’s not the Warren Way. Buffett wins his deals by selling them- using facts and focus, to beat higher-bidding competitors. In this example, Buffett won with a bid almost 40% lower than his competitor. How did he do it? He was ready when the opportunity presented itself.
- Research—Warren knew the business, the core value of the brand, the leaders he would keep in place to run the business after he bought it. This homework was done in advance of the offer conversation or even the expression of interest. Curiosity and personal observation of the business led Warren’s instincts to conclude that it was a business candidate for Berkshire Hathaway; the rest was hard-rock mining of information in the market.
- Motivation—He also knew that money was only one motivator. Legacy, operating integrity, simplicity and speed to close were also big motivators and he made certain his offer met all of them. Thinking about whom he was selling, Warren looked at all of the angles. I call it selling, because if it was buying only, then highest price would more than likely win. But if you can get that deep a discount, you are selling.
- No hesitation—When Mrs. B, as everyone called Rose Blumkin, said she was ready to sell and at what price, Warren ran back to the office on that Saturday, hand wrote out a check for the price, and brought it back to close the deal. He did not even ask to take inventory. He said, “Whatever you say you have, that’s good enough for me.” No fool, Buffett knew the quality of the person with whom he was doing business. The inventory was almost twice the value of his purchase price.
How do you put the lessons of the world’s greatest dealmaker to work for you?
- Do your homework—When Warren shows up to a transaction conversation with a target opportunity, he doesn’t ask about their industry, market, competitors or advantages. He already knows them. Asking about a prospect’s pain can often demonstrate a lack of preparation. Better to describe pains that you think they may be having because of issues in the market and allow them to refine those than show up not knowing.
- Profile Your Buyers—Irrational behaviors are often exhibited in a sales process because people are often irrational. It’s not enough to know the facts, have the best ROI or most effective solution. If you do not understand the individual motivators of all of the members of the buyer’s group, you are flying without the right instruments. Focus as much on the motivations as the logic of your offering.
- Know your limits—The worst way to negotiate is to decide your parameters in response to the other party’s offer and counteroffer. Knowing what you will and what you won’t do up front puts you in a position to come to quicker outcomes.
Warren Way #46—”You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of opportunities come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”
You may feel that as a business, you need to make a sale, do a deal, or take an action to keep up momentum and feel successful. However, Buffett’s answer would be being ready is different than forcing a deal.