The Ups & Downs Of Sealing The Deal

0:00If you are insulted by an offer, remember that all offers are precious. All offers are potential business for you to do. and then it's a conversation about the terms of the offer.

0:22How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who shared their biggest secrets on how they think and achieve success? Grab your seat at the table because this is Business Lunch with Roland Frazier and Ryan Dice.

0:40Welcome to another episode of Business Lunch. And today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com, www.businesslunchpodcast.com, and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

1:16Hey, everybody. Roland Frazier and Ryan Dice here with another episode of the Business Lunch Podcast. We are so excited to have you here today because we are going to talk about some stuff that doesn't always go the way that maybe you hoped it would when you're doing deals. So, Ryan, you want to open up for us and then we'll kind of dive in? Well, I guess I first wanted to see, you normally open up a show asking how I'm doing. I want to find out how you're doing because I know you had a business negotiation that didn't go like we would have hoped, like you would have hoped. And I understand that the person on the other side got a little cranky with you.

1:54Maybe some names were thrown around, slurs, if you will. And, yeah, I just want to make sure. Are you okay? That's my only question. I mean, you know. Are you okay? Once bitten, twice shy, I think is what they say. So, you know, now that I've been bitten this time, I'm going to definitely be no different at all. You're going to be shy not once but twice. No, not even once. Yeah. Bring it out. What happened? What happened? We had a negotiation for the potential acquisition of a company. It came in through a referral from someone that we had done a deal with who was very, very happy with the deal.

2:35And it was interesting because I haven't ever had something go so poorly and almost immediately in the conversation. And so I'll kind of break down the background for you guys, and then we'll talk about that. And then we'll talk about a deal that we received a similar kind of proposal on in terms of like we looked at it and we're like, yeah, no, that's not going to work. And how we how we dealt with it. And then you guys can see which which way you think might be the most helpful for you. So way one, we had an acquisition that we did of a business services company about, I want to say it was about eight months ago.

3:24And the company that acquired it, we had a negotiation about it. And originally, my business partner had agreed to pay him a couple million dollars for half of the company. My task when I was sent in was to renegotiate that to zero. Um, somehow I have no idea I was able to do that. So we went from having committed to do a deal at 2 million to doing a deal for zero to acquire half of this company. And, um, now it was a really good deal for the person that we were buying from because we were going to basically send them more business than they could ever possibly handle. And, um, and we had it because we already had more than we could deal with.

4:10And we're holding back the floodgates for additional business. So over that eight month period, we increased his business in sales by two and a half times and his profit by 5.3 times. So he's very, very happy with the deal. So you can imagine, and we did a baseline deal. So basically it was, hey, we don't want to take anything away from you that you've already got. So you continue to take out what you've got. We'll look at trailing 12 months. That's a baseline. So we're going to take half the equity with a deal that basically the first X dollars that you were getting paid before continue to go to you.

4:54So we participate effectively in the growth of the company. I know this isn't necessarily relevant to the story, but it's a good lesson on baseline deals. Do you have it at some point retro all the way back to where you get below the baseline? We do sometimes. Sometimes we do. I don't think in that one it is. I'm actually not sure whether we do that. So on that one, there's just a baseline that stays there. Everything over and above that is going to be split 50-50? Yeah. Yeah. And so I think it's important to point out with this particular deal, originally this person thought that they were going to get millions of dollars for half the business.

5:29Yeah. You came along and said, we're not going to give you millions of dollars for half the business. And I know that there are lots of good reasons why that didn't make sense for the other companies that aren't necessarily relevant here. That could be something that would be really disappointing for him and perhaps was at the time. Obviously, though, it worked out. And the deal that was ultimately structured was one that had no real downside to him. If the growth wasn't there, then you wouldn't get paid. The deal would get unwound. That's the nice thing about a baseline deal. But here it is eight months later, and it has been incredibly successful.

6:00Didn't get the millions of dollars for the buy-in, but continue to make what they were making and now have this phenomenal upside with great business partners that are continuing to grow. Right. Yeah. So so thinking about that, it's like like with the just the profit increase alone is pretty significant. But now being part of a company that will sell for seven times more than that company would have sold for because now he's part of a bigger group. it's it really is a giant benefit right so even if you you take half of that seven times away it's still three and a half times higher than before if you take half of the 5.3 times in profits away it's still 2.65 times higher like it's it's a big win all the way and he's got like a big smile on his face.

6:49So he goes out and, and, and he's a great partner. So he goes out and is talking to somebody else that has a business that's complimentary to his, that provides services that he does not want to provide and does not currently provide. And also that would be able to refer business to him, has a conversation with, with the person. And then another conversation with the person, and then has a call, like a Zoom call with me and my business partners. And so it's basically me, my business partner, the guy we did the first deal with, and a new guy who we're thinking maybe we'll do a similar thing with.

7:34So we talked to him. It turns out he's going to lose all of his leads because he's part of a group that is making a change that he doesn't want to be part of. And so he's going to basically lose all of his lead flow. He's doing about the same numbers as the accounting firm was doing when we first acquired part of that. And we have the conversation about, you know, maybe doing something and it's a good conversation. That's it. Just like, you know, we can work together. So then the gentleman that has the business that we acquired has another call with them and explains, means this is how I did my deal.

8:14It's great. I'm so super happy, et cetera. Um, would love to talk to you about doing that. The guy says, okay. And then he's, then a call gets set up. So we have our second zoom now to talk about what does it look like to do a deal like he had done. And, um, and they, as, as a lot of people do, they hand it over to me to kind of start the conversation. And I start and I say, you know, so no, you know, and normally by the way, I would not do a deal. I would not have that call with more than me and the other person on the line because it can, there can be ego issues and peacocking and puffing and, you know, ganging up and all kinds of other ganged up on like, is this?

8:51Yeah. Yeah. So, so I wouldn't normally do that, but I did hear because of two things. One is that we had already had conversations and, and the business partner of ours in particular, it already had conversations about it and laid out the deal points. And two, I had the business partner who did literally the exact same deal who is happy as can be. Right. So that to me is, you know, it's a pretty strong argument for for having that call. So we get on we get on the call. It gets handed over to me and I said, OK, so here's the deal. This is what we did. As you know, this is what we did with this firm.

9:29And we we have the ability to send you a ton of business. I understand you're going to lose your lead flow with the other source. You'll have more leads than you could ever deal with here. We have an overwhelming amount of people that could take advantage of what you do. And so basically, the deal like we did with the other gentleman is a baseline deal. We don't want to take anything away from you that you've already got. 50-50 ownership in the company going forward so that basically we get to participate in part of the upside that we're creating. And just right off the bat, instant demeanor change, you know, like a frowny, shocked, mad face.

10:13And then just went into an unrecoverable for him, I guess, reaction. So it was, well, I don't understand why I would do that. I mean, that'd be stupid for me. So you're asking, you want me to give me half of my business? I mean, why would I do that? Well, because if you look at the numbers, basically this person did it and is already way, way ahead. And we're only just scratching the surface. We're looking to grow that business. We would be looking to grow your business too. It would benefit from the feeds from both of these places plus the other companies. The valuation of this combined company is dramatically higher than the valuation of your business.

10:53And he just couldn't get past it and was, in my opinion, just kind of nasty about it. And, you know, it was like, you want me to be a subsidiary of a subsidiary and, you know, no one can do what I can do. And I'm like, you know, well, but I know that there's like 100 other people in the referral network you're in that do what you do. And what you do isn't like, even if it was rocket science, I could go and find rocket scientists. I literally find people to do anything. So, you know, and and before he had told me there was some off the shelf software that did the bulk of what he does anyway. And so I'm like, and there's this off the shelf stuff.

11:32Okay, cool. You know, but, but let's just say that there isn't anybody else that can do what you can do. Still, it makes sense because math, right? I mean, we, we bring all this in and I'll give it credit to, to both the other guys on the call. Cause to me, I immediately, like he just had such a nasty attitude that I, you know, I instantly was like, I just don't want to do business with a guy like this. This guy's gonna be trouble. This guy's going to sue you. you know, this is like, this is, if this is our day, our first date and we're having conversations and you're mad because we offered you the ability to grow your business, that seems weird to me.

12:14And, uh, and it means that, that you're not terribly logical and you can't control your emotions. And it's also kind of unprofessional. So, um, so anyway, he just went on and on and on. And, uh, the, my other two, uh, business partners took different tax friendly wise to have the conversation, but he just, you know, he was just like, you know, I'm, I'm growing and I'm going to be an eight figure business next year. And, uh, and why would I ever do that? You know? And I'm of course, you know, but you don't have any, like your leads are going to go away. And let's say that you were going to be, what if you could be, you know, an eight figure times three business, like, you know, like our buddy here.

12:49And what if you could be an eight figure five times profit business, like our buddy here, you know, it's, it seems like that could be good. You know, I'll pay you for leads. You want to send me leads. I'll pay you for leads, but I'm not giving you any of my business. I'm like, well, so if we were doing that, we would effectively be building your business. And that's the whole point is that it's a pretty significant. He just didn't have any value for what we brought, which is fine, except why be a jerk about it? Right? Yeah. And I think that is the lesson here. And it's a lesson that thankfully, I almost had to learn the hard way that you saved me from this.

13:25One of the earliest negotiations that we had when we were selling another company, I remember the initial offer that came across the board, I found insulting. and what I wanted to say was how dare you and I wanted to be indignant about it and I think that entrepreneurs who tend to be a little bit more emotional by nature who certainly tend to treat their business like their babies I think sometimes we forget that no it is in fact just a business and the person on the other side of the table if you're having a negotiation they're coming at it from their frame and they're going to try to get the best deal possible and if they make you an offer.

14:03In general, they didn't show up and take time out of their day merely to insult you. But I remember when that first offer came across and I'm like, blowing up. I mean, it wasn't Zoom, thank God, because they would have gotten that look from me. It was over the phone. It was the only thing that saved me. But I learned a valuable lesson because what I heard you say was very calmly and coolly go, okay, great. Thank you. Thank you for that. It's good to have a starting point you know i don't think that's going to work for us for the following reasons um you know would you consider and and it just was a con like what you simply did was continue the conversation right and what i wanted to do was blow it all up right then and there just to prove by god that they couldn't do this to me and thinking back on it one how incredibly arrogant two how incredibly stupid it.

14:58Because this guy could have just like, give him all of the given that he's right on every point that he makes, he will be an eight figure business, this deal is completely insulting. You know, I think it's important when you're going into these negotiations to always give the other party the benefit of the doubt that they're trying to make a deal that obviously is going to benefit them. You know, that that's fair. So are you. But they're also going off of information that they have, which maybe isn't everything. And if you approach it from that frame and start the conversation, it's amazing how often you can wind up with a good deal or you wind up with no deal, the same place before, but with a relationship still intact.

15:41I think it's safe to say you will never do business with this guy, right? Nor will the other couple of people. And if anybody ever comes and asks, it'll be like, I mean, we don't go out of our way to say bad things about people, but if somebody goes, you know, yeah, I think about doing this, I'll do a so-and-so I'd be like, okay, interesting. You know, if they then say, what do you think? I'd be like, I mean, only had one interaction and it, it wasn't great. It was, you know, kind of emotional and, uh, and angry and I didn't understand it. And I found, you know, it was a little insulting back, um, uh, which, which takes some thinking about whether I don't ever want to do business with that person if I were you, but you know, I know I won't.

16:19Um, and neither, neither will the, the other people that were on the call. And yes, as you said, it could have been straight referral relationship, you know, guys like to me, and I appreciate you sharing your response to that because I also have had that response, you know, before having many deals, but, but you know, that's, that's all, it's just such a, uh, like to, to, you could think that you could even come to me and go, those sons of guns, you know, I can't believe they offered that, but to go back at them angry and mad, I don't think you would have ever done. You might have had that reaction like, you know, this totally doesn't work for us guys.

16:56I could see you saying that, but that's about the extent of it, not, you know, just on and on and on. And the interesting thing to me is that it is a conversation and it is a starting point for the conversation. And that deal in particular, the business partner that brought him in, we would have, until we found somebody to acquire, we would have immediately started sending business that way. And presumably he would have sent business back, which he would get paid a referral fee for. So he had the ability to dip twice into two beneficial things by preserving the relationship, but chose the unconstrained ego, arrogant reaction over that.

17:45And that, that cost both of us. And, um, it's, it just never makes sense to do that. So, so that like, to me, the, the, like, if I'm looking for takeaways, if you are insulted by an offer, remember that all offers are precious. All offers are precious. All offers are potential business for you to do. And then it's a conversation about the terms of the offer. So we made an offer and instantly got out of hand, complete rejection and, and, you know, indignance and insulting behavior. Um, whereas it could have been a conversation, you know, and, and that's, I guess that's the big thing for me is my reaction and your reaction when we get those kinds of offers now is, um, gosh, I would love to figure something out.

18:36um i'm not sure that we can and we we had a conversation with some people yesterday about a similar kind of thing people that were looking for seven-figure investment in their business and we basically proposed no investment uh for equity or maybe some combination kind of thing and it was a discussion it wasn't they like like i didn't know how it was going to go by the way at first because you know the first thing that he said was so let me get this straight yeah it's like you want to do this and this and this instead of this and this and you want this company and my other company instead of you know this and this and and you know and i'm like yes are you gonna yell at me like the last guy did you know is this the new trend um and uh and he and i said i said I said, yes.

19:30And he was like, okay, yeah, we're open to talking about that. Right. It was beautiful. Even if he was insulted, even if he was like, I would never do like he got off the call and talk to his other partners that were on there and said, those guys are smoking crack. I would never do a deal like that. We're still talking. And there's a good chance, I think, that we'll do something in that, in that relationship. And even if not, we will absolutely have no ill feelings about it, right? And it won't close the door to a future possible deal. I think that's what people don't realize. I think human beings, and I think entrepreneurs in particular, anybody with any real sense of pride, we underestimate just how expensive it can be to be right.

20:15And if 20 plus years of marriage has taught me anything, it's that it's not always worth it to be quote unquote, right. And anytime you feel this, like this kind of welling up of self-righteousness, just know you're probably about to do something really expensive and really stupid. You're probably about to burn a bridge. And that's why I think if you could train yourself, because I was thinking, and you didn't say this, you were like, what I would probably say is, and you were like, you know, I don't know if we can do that. In reality, what I've heard you say 100 % of every time. The first words out of your mouth are, thank you.

20:50Those are always the first words that you say when somebody presents an offer. And I think it's because you appreciate, like you said, it's precious. And it's wonderful for somebody else to go first. They're taking a risk in doing that. And you should honor that by saying, thank you. Now, it's really hard to go from thank you to you son of a, I guess, thank you for proving that you're a worthless piece of crap. You said, you know, I guess you could, but it's, it's hard to give a sincere thank you to somebody and then go down this unhelpful path to self-righteousness and indignance. And so I think if you'll just, before you go into any negotiation, if the, if an offer is going to be presented, just decide ahead of time that the first words out of your mouth are going to be, thank you.

21:38Even if the next words are, thank you so much for presenting that. I don't know that's going to work for us for the following reasons i want to have a discussion about it really appreciate it i still want to work together yeah it's going to go fine so don't do this so i think that is a hundred percent so now let's talk about well what if the shoe's on the other foot what if we are having a conversation about a deal and a completely crazy i mean i i guess you could be insulted by it we're just beyond i think being insulted at this point unless you're unless you're calling us names but um it assumes an intent that i don't think other people have yeah sometimes they just get different information sometimes there's different levels of sophistication um yeah okay so uh so as recently as this past week we had that situation and i'll let you tell that story because i talked about the other one and then we can kind of talk about how we chose to approach it and move forward?

22:38Yeah, so I mean, a similar, very lucrative, what we all hope to be a long-term business relationship contract coming to an end, which is appropriate. It was kind of baked in and it's time to figure out what the next iteration of this deal is going to look like and what's the equity arrangement going to be. And kind of the first thing that was floated was, essentially, we would like for you to continue to do all the work, but own nothing. Uh-huh. Which I respect the starting point. And again, it's the kind of thing that we joke about. Like, you're really good about this. It's like, well, how do those deals normally work?

23:15It's like, well, normally we get 100 % and pay nothing for it. Ha ha. And it kind of breaks the ice and we go from there. What was presented to us was not too dissimilar from that. And it would be very easy for us to get indignant and self-righteous given all of the work that we put into this business, given the growth that we have personally driven to it, like the sacrifices that have been made, you know, and also kind of come in and saved it a couple of times from, you know, even after having that deal. Yeah, yeah, yeah, exactly. You know, just ripped it from the jaws of defeat. And so it would have been if anybody could have been self-righteous and indignant, I think we could have been in that, you know, in in that moment.

23:57But again, you know, what I heard you say was um and and i just now i just laugh um i just it's so much easier but don't but i don't want to laugh in a mocking way i laugh inside i just have a smile on my face and you go thank you yeah that you know great love i love this part of it um the small little sliver don't really like the rest of this but i think it was good because these both of these things happen in the same week yeah they happen in the same week where on on one hand somebody felt like they were presented with an offer that was insulting and they acted as such. And that deal is dead.

24:31We presented all three of these actually. That deal and the relationship, right? Yeah, the relationship is done. We presented a similar offer to somebody else. They responded completely differently. We'll see what happens with that deal. But I think there's a good shot at some deal getting done. And if it's not, the relationship is preserved. And then when it happened to us and the shoe was put on the other foot cliche that would be, you know, we got to respond in the way that we would wish that other other people would respond. And so I just think the lesson here is whatever side of the table that you are that you were on.

25:07Remember that these business to get negotiations, even if you're talking about your own company, you've got to remove the emotional side of it. And if you can't, you've got to get somebody on your deal team that can have those conversations. uh let's look at a little bit of a framework of of dealing with it based on kind of breaking down our response in having it presented to us so i think like the very first thing is thank you because every offer is precious and if you're proposing that we do something together that to me initially is something to be grateful for so uh so that's the very first thing then it's identify the parts of the deal that do work for you and repeat to the person who made the offer.

25:56Hey, what I like about this, I'd love to figure out a way to work together. Number one, end objective. And then number two, what I like about what you proposed is one, two, three things I like. Um, there are some things that I think create a challenge for us that, that we'd like to talk about, not rejecting those things, saying I'd like to talk about them. I think that's - They create a challenge for us. Yeah. What's so smart about that? Because again, it's cool that you're unpacking this in real time because I've heard you say that a number of times. And what's smart about that is you're not putting anything on what they said.

26:32This creates a challenge for us. That's not necessarily your problem. And we know you didn't mean to do it. You don't have all the data, you know, but here, here are some ways in which it, which is not objectively bad or flawed. It simply creates a challenge for us. Love it. Keep going. Yeah. And then the next thing is identify a common enemy. Now this is, uh, that's, that's, uh, taken from, is it Blair? What's his name? Blair Warren, Blair Warren's, um, one sentence persuasion thing. Uh, and so when I say identify an enemy, uh, I don't necessarily mean that they're an enemy, but like, if you can take the pressure off of having a conversation with somebody and saying like, Brian and I are negotiating.