I will talk about this a lot…
The most important part of dealmaking is your mindset.
What’s the second? Here’s a clue… it starts with the letter R.
It’s your ability to build a relationship with the owner of the business you want to buy and get them to do three things:
Know you. Like you. And trust you.
So how do you do that? Here’s a chart…
The horizontal axis represents the strength of your relationship with the seller, including your ability to position yourself as the safe pair of hands as the new custodian of the business.
The vertical axis represents the difficulty of closing a deal via a leveraged buyout, or LBO.
You see, the deeper the relationship you build, the more trust and credibility you build along with it. This is very important… because the stronger these things are, the easier it becomes to close the deal.
If you speak to a seller for five minutes and then make a 100% seller-financed offer, will that fly? In most cases, no (unless you have a highly motivated, distressed seller who needs to exit quickly).
But when you invest time into the relationship and really understand what the seller’s motivation is… deals become much easier.
Simply asking the seller what he or she wants will give you such valuable information.
But the absolute key is building a strong relationship. In other words, become the seller’s buddy.
I’m constantly building rapport.
I acquired a business called Radio Express in 2018. I had spoken to the seller several times over the phone. She was fixed on a valuation and wanted most of it at closing.
Hard pass from me.
But it got me to thinking. All I needed was an hour in this lady’s company and I could build a relationship so strong I would thunder down the diagonal in the chart above and get the business effectively for ZERO money down.
So I went to LA and hired a car. The “normal” car my assistant had reserved for me was damaged the previous day. Darn it.
Instead, I was offered a bright-yellow convertible. A Corvette. Brand-new. Came from the VIP line of rental cars… and for the same price as the crappy car I was supposed to get.
I was torn.
As my goal was to both massively discount the deal and pay for it all with seller financing, was driving up in a $100,000 sports car really a good idea?
I just couldn’t help myself. Ego got the better of me. I convinced myself I could take the seller out for a spin and that would make it OK.
And it worked! This is me outside the seller’s house on Mulholland Drive in the Hollywood Hills.
What a sweet, sweet ride!
I was with her for two hours. She cooked me huevos rancheros for breakfast. (They were delicious.)
For the first hour and 45 minutes, we never once discussed the business or the deal. Instead, we talked about family, vacations, wine, food, charity… and a ton of other topics.
I could see it in her eyes. The rapport, relationship, trust and credibility were all there.
Then I looked into her eyes and said…
“You know, you should be proud of this business you and your late husband have created. I will be proud to own it. I will cherish it. I will continue your legacy and I want you to cheer me on from the sidelines.”
She said, “I will. My husband would have really liked you.”
Then I asked, “What do you really want out of this deal?”
She said, “I want my legal fees covered, enough money to go on a short vacation and some income for the next two years…
“And I would like to stay involved part time selling to the best customers.”
BOOM! And that was the deal.
The closing payment for the vacation came from the business’s bank account. The lawyer fees were paid over several months out of the business’s cash flow.
And we signed a two-year seller note and two-year consulting contract for the owner to stay involved. All to be paid from future cash flow.
Two hours of my time with her totally transformed the deal.
You need to invest your time building relationships. It’s everything when it comes to negotiation.
Next week I will share another story from one of my students who spent all day drinking beer with the seller to build his own relationship. That also turned into a 100% seller-financed deal (and is a much bigger business than Radio Express).
Until then, bye for now.
Founder/CEO, at Dealmaker Wealth Society
P.S. Reply to this email and share what tactics you use to build relationships. Do you try to find out a little bit about the person first? Ask a questions? Tell jokes? Buy gifts? Use flattery? Mirror behavior? There are lots of different ways we connect with people – give us your best moves!