My Guide For Doing Business With Friends | Ep 772

0:00Welcome back to the game, where today I will be talking about doing deals and doing deals with friends and how to navigate that, whether that's partnerships, employees, customers, any kind of dealings that you have, what I've learned that will hopefully benefit you. So I was talking with a friend earlier today and he had made this kind of vouch for somebody that we knew and that I thought was a scumbag. He sent over this thing that indicated that I was indeed correct. He was a scumbag. and he said something back which I found really funny. He said normally I'm a very good judge of character. He said except for you know that one and I said well I too am correct except for the times that I am not correct.

0:43It then precipitated a much longer conversation that I thought I would share with you because I think it's relevant especially if you do business with vendors over an extended period of time or you're you know looking to interview you know for employees or roles within the business or you're looking to get into like a partnership longer term for business in general. So I'll share this little ism that I have, which is do deals with friends as though they're enemies so that they stay friends. It's a pithy statement, but there's a lot to unpack within it. And the first thing is, is that I have been screwed enough times that I assume that I know nothing.

1:16And that fundamentally, if you can be fooled, then it's not that you have skill, it's that you don't control the variables, which means that someone can still fool you in the future. And so the idea of like, well, I bat 80%, it's like, well, the 20 % can still destroy everything you gain from the 80. I operate from basically trust no one, but hear me out. This isn't some like dark, whatever video. That's not the point here. If you operate with friends as though they are enemies, as though they are strangers, then everything you have is upside. I think people are always surprised, you know, when they see someone's quote true colors, but what it really is is that you get to see someone's true values when there are stakes and so I've talked about this concept of character traits are not binary it's not like is he honest or is he not honest it's how honest is he is he honest to a hundred dollars and then after that he's a liar is he honest to a thousand dollars and then he's a liar is he honest to a million dollars and then he's a liar and where this gets interesting at least for me is when I was continuing to talk with my friend he said I can see how that works in business relationships but I don't think that would work in friendships.

2:24And I said, well, I see the world as 100 % transactional. I think a lot of people have a problem with that. And I don't think it's because they disagree if I unpack it. I think they are hurt by what that means about them. Fundamentally, people hear the word transactional and think that means short term, but that's just what somebody who's bad at transactional relationships does. But if you think about the benefit of having a long-term relationship, whether that's a marriage, a business partnership, an employee relationship. Fundamentally, if you have a long history of positive relationships or positive experiences with somebody, business partner, whatever, and then there's a period of time where it goes negative, you're more willing to extend out that period of negative because you expect a return to baseline.

3:09The idea that friendships are not transactional is ridiculous. It's just that you have to measure them over longer periods of time. Because if that relationship were to then go negative and then stay negative, what happens? You then are like, oh, we grew apart. You'd have your own friend language for basically, the juice wasn't worth the squeeze, the trade wasn't worth the benefit. We're willing to extend periods of times of grace to friends because we have a history of reinforcement. In theory, a stranger would not be willing to give us that grace period because they don't have a history of reinforcement.

3:41And so essentially what that means is we establish these positive relationships so that if there are periods of time where we are negative in an exchange, we can still recover from that and return back to baseline or ideally above baseline. But the idea that people do that because they are somehow selfless, I find ridiculous. It's because they are self-interested, just like you, just like me. They're just measuring over a longer period of time. And so the reason that business relationships for me have, I've developed many close friendships from business relationships, is because there's not really an opportunity for me to test the stake of someone's character outside of business to that degree.

4:19There's only so many stakes in a quote friendship that has no stakes besides just like we're friends, they gossip. Like that's very low stakes. My world is in social media where I have audiences of people who gossip and make content about me. That means nothing to me. It's like, okay, well, he's honest to$10 million on the line. He's honest when he could have fucked me but didn't. And so that means that this person or this relationship values our exchange, the exchange itself, more than the individual gain they could have gotten on this one deal. Said differently, they value doing deals with me more than they value the single amount they can gain on one deal.

4:57And I think that's what I try to establish with the business partners that I have. Now, leveled above that is the value of a reputation of doing business honestly overall. Because if you have that reputation, that reputation serves as a proxy for a history of positive experiences. And so that means that a stranger can come in. If you have a big reputation, like Warren Buffett, of doing honest business dealing. Now, he also has a reputation of being a shark, as a side note that a lot of people don't know about. He's good at managing his PR. But if you have a brand or reputation, then that kind of substitutes for what would have been the normal behavior of a friend before that, is that you were willing to give someone a little bit of grace if they have a reputation for doing lots of good business dealings because you expect the return to baseline and that baseline is the reputation that you heard about.

5:50Now, that's not going to weigh as strongly what other people say versus what you experience, but it may give you a little bit of grace overall. And so if you think about this in levels, it's like you have your one exchange on the deal and then you have the relationship of deal making. and then you have your reputation of deal-making in general with people. And so those are kind of the levels of leverage that exist within the concept of transactional relationships. And I believe that transactional relationships exist through all three of those levels. And so when I say that I am transactional, which I 100 % am transactional, I also think you're transactional.

6:25You just feel bad when you say it. It just means that you have to measure it across all three timelines. And if you're, in my opinion, a more advanced player, you realize that the ultimate position you want is the reputation of good business dealings or good dealings in general, because it allows you to approximate that with many, many different people so that you can have more trusted relationships. But when I do enter into a new engagement with somebody, a vendor, an employee, a potential business partner, I state that up front. I want this deal to make sense if you and I hated each other. Because the thing is, is that emotions go up and down throughout time, throughout a deal.

7:04There's good times, there's bad times, you get good news, there's bad news. And the thing is, is that deals are made for when the news is bad for it to still work. If news is always good, then you would never need to define the terms to begin with. And so it's about the downside. Deals are for the downside. This has been something that took me way too long to learn. And by the way, red flag, if someone says, I don't do contracts, that just means they're going to fuck you. If someone says, I don't do contracts, they then cite Warren Buffett and Charlie Munger being able to do the deals on a handshake.

7:36It's like, yeah, totally. Once we have 40 years of positive dealmaking, totally down for us just shaking hands. But the thing is, in my experience, I have maybe two friends that I could actually do a deal with a handshake. But the thing is, is this, you could shake hands and then say, cool, let's get to contracting because there's always details that have to be ironed out. Like there's no way fundamentally that you can imagine every possibility that could happen, especially negative ones when you're just having a conversation. It's like coats of paint. You need some time to think about, oh, if that happened, well, how do we deal with that?

8:11And so if you think through every one of those situations, oftentimes it's like you want a document to memorialize all of those things. Otherwise, it's like you had a lot of conversations, you had a lot of back and forth. Writing it down is just logical, especially if it's something that's got any kind of stakes related to it. If we have to write it down, I don't want to do the deal. It's like, just run the other way. Because it means that they don't want clear expectations. And believe me, just because it's written down doesn't mean that they can't screw you and that you can't screw them either.

8:32Like you can still do that. You can still be a terrible person. Like you can still make someone's life difficult. But fundamentally, I have, like I said, one or two relationships that I would do a quote deal on handshake, but it's more so let me explain what the handshake means in that instance. It means that we trust each other enough that we will always prioritize the relationship over the individual gain, meaning that in the instance something comes up in the future that we have not thought about we will be able to resolve it amicably because both of us are willing to give both are willing to give in order to keep the relationship which means if both parties are willing to give on it then it means that there will pretty much always be a deal to be made in the micro when a circumstance comes up for me rule number one is deal with friends as though they're enemies so that you can stay friends because I have made strangers into friends through many deals but I've also made friends into enemies through poor deals.

9:22And so when you treat friends like enemies in deals, you can maintain the friendship because everything was based on the expectations that you set. In the instance that you have a quote friendship that is so strong that it can be done on a handshake, you both know it. And so the idea that someone tells you that they only do deals on handshakes means that you guys don't even know each other close enough to think that that makes any sense whatsoever. The few people, one or two that I would do deals with like that, I've known for a decade. You know what I mean? And we've done many, many, many deals together.

9:55And in most of the dealings that I've had with those two individuals, we ended up doing our side of the deal before signing the contract. And then we still signed the paperwork. And that was almost the extension of trust. Like I will expose myself by doing the thing that is irreversible on my side to benefit you. And then we're like, yeah, we'll clean up with the paperwork. And then the paperwork was short because both of us were already exposed because we had both done our parts. And so then the documents then just memorialized it for legal tax, whatever, right? I share this because I think that this is one, a huge mistake that people who are beginners make, is that they hear these Warren Buffett stories and think, oh, we're friends, we shouldn't do a deal on a handshake.

10:36Terrible idea. It's usually because you're too afraid to confront hard decisions and you assume that a handshake saying, hey, let's be partners is going to work out and it won't. Because neither of you have any experience. You don't have a past history of experience and you probably also don't have experience doing this type of business very much. And so both of those are a recipe for disaster. Now also pair that with having zero written expectations. Like there's no way it's going to work out. Like the likelihood it works out is so low. It's not worth even considering. That was what was top of mind for me today.

11:01Treat friends like enemies so that you can stay friends. And if you're in the middle of looking at doing a deal or bringing on a vendor, bringing on a key employee that you negotiate, their contract stakes, whether they're friends or not. These are the types of things that we deal with every single day at acquisition.com. If you'd like our help, I'd encourage you to come out to one of our workshops. You can meet with our team. We can walk you through how we would think through the deal itself. It's two days. It's here in Vegas. I think last time I checked the average business in the room did three and a half million dollars a year.

11:28So it's real business owners. So if that's at all interesting, you can go to acquisition.com forward slash workshop. We'd love to have you out. And if you are afraid to have kind of like the hard conversations, by the way, welcome to business. And so I mean, I have a little ism, which is everything you want is on the other side of a few hard conversations. And so a lot of the growth that you want, a lot of the deals that you want, a lot of the employees that you want, all of those things tend to be on the other side of hard conversations that most people are willing to have. And it's because of fear of what I don't know, because of fear of someone lashing out someone yelling something stomping their feet.

12:02I recommend having someone do that in front of you actually role play someone freaking out and then you realize that you are still alive and you will still be Okay We actually used to do this way back in the day Some of our sales guys because they were so afraid to say price in person that we would purposely act like freaking out to have them realize that like Nothing's going to happen But a way to ask those harder questions is this is me just seeking to understand this is me just seeking to get clarity And whenever someone does say something back to me, I say awesome them, let me say it back to you to make sure that I get it, make sure I'm duplicating.

12:32And so then I describe it back to them to make sure that we're on the same page, singing from the same hymn book, if you will. And so that's been super helpful for kind of diffusing what would be difficult situations. And I also speak really directly. If someone says, hey, under these circumstances, you would bear this cost, I'd be like, okay, so that means if we drop the ball, we eat the bag, we fuck up, we pay. Am I duplicating that right? And they're like, yeah. And I'm like, if you mess these things up, you're responsible and you foot the bill. And when you foot the bill, how does that actually happen?

13:03Is that you wiring me money? Is that us sending you invoices and then you paying those invoices? What kind of expectations do we have that you're going to pay those invoices on time so that we can continue without break of service? It's really just walking through that. And if you're talking about it in a matter of fact way, then usually you can diffuse a lot of the tension in those situations. And remember, if this is some friend you have, then you have to be able to say like and this is another frame i'll give you hey this is my let me go business hat rather than friend hat just so we can talk through this and i i literally removed my hat i put it on as like a kind of like a visual cue and if you don't have a hat you can just signal like the action of doing a hat i've seen this work in a lot of different guys that i know have done business and they say that like friend hat coach hat ceo hat marketer hat like and then it just kind of frames what you're about to say next and if you do have an alternative idea one way that i frame that is I say, hey, best bad idea.

13:55My team knows me for saying that kind of stuff because it's also saying like, I don't have an ego stake in this deal, in this idea that I have, but like beat it up for me. Like tell me why this is a terrible idea. And all of those are great ways to kind of like inch your way into kind of gray or contentious territory. But if you can't have these types of conversations with someone, then guess what? You're actually not friends because your friends only when it's convenient and you have these clear areas where like, oh, we don't talk about that. Oh, we don't talk about that. It's like, well, then if you can't talk about those things, then like, are you really friends or are you just chat buddies out of convenience?

14:31I want to double click on something I said earlier about the stakes and the kind of the continuum of traits, right? And so first off, traits are big words that are bundled terms that represent many smaller terms underneath it. So if I say, is he honest? Honest is just this thing, which means that there's probably like 30 behaviors underneath of that, that I deem as somebody who has this one term, he is honest. It means, okay, he tells the truth in this circumstance. He, he gives feedback in this way when he talks, he, you know, is probably honest with his spouse or wife and doesn't cheat. Like there's all of these things that bundle up into this one term.

15:02And so it's very tricky to say like, oh, this guy's honest. This guy isn't honest because it's such an amorphous term. And there's so many behaviors underneath of it that are required to level up to say, yes, this person is. And then once you have the series of behaviors, it's under what circumstances do those behaviors persist? And so again, to what degree do those behaviors exist in this person? Is this person honest with his wife as long as there's no hot girl in front of him? Does the hot girl just have to be in a different state? Does it have to be in a different state and there's no chance that his wife finds out?

15:33Like to what degree is he honest? That's kind of how I think through these values is under what conditions will this person's behavior persist the way it has historically. And so the only time that these values or these behaviors matter is when there are stakes. And so the idea that like, oh, I've seen Johnny be honest, it's like, what were the stakes? A lot of times people are honest, people are generous when there are other people around to watch. Because if you were able to watch, then it means that they got virtue signaling from them doing it in front of you. And if they took the time to tell you of when they were honest because you weren't there, again, did they want the kudos for being honest or did they want to be honest because of what it says about themselves?

16:17And so for me personally, I'd rather do deals with people who have an intrinsic code that they are honest because of what they believe it says about themselves, despite how difficult it may look and how much flack they may get publicly for not looking cool. Hey, if this podcast was valuable and maybe you are thinking about doing a business dealing or a vendor dealing or whatever it may be, maybe send this to that person or to the other person who's on your side of the table to hopefully break the ice of maybe some of the harder conversations you need to have in order to hopefully actually get a positive dealing out of it.