9 ways to avoid getting screwed in a business or real estate deal

I’ve had successful deals and not-so-successful ones. I’ve been screwed in deals: Non-payers, joint ventures who disappear, investments that don’t materialize. It’s insanely frustrating when it happens and every time it does happen, I get really angry — as much at myself for not seeing the warning signs as the person or company that screwed me over.

And yet, I do more deals because I know that the majority of deals turn out okay; that a few bad apples shouldn’t spoil the whole bunch; that, on balance and in the long-run, I’ll still be better for having done deals. I also view the bad deals as a type of education, which helps me find better deals in the future.

Note: I should note here that when I talk about getting screwed on a deal, it’s not always the case of a nefarious business partner who wants to win while you lose. Sometimes, and this has been the more frequent situation for me, you can get screwed on a deal when you work with one or more well-meaning business partners who innocently don’t value you or your time or efforts or skill as much as they should. There isn’t a dark purpose here; they just don’t realize what you bring to the table.

If you do deals, or want to do deals but are a little cautious rigtht now, here are a few tips that can help you avoid getting screwed in a deal:

1. DO YOUR DUE DILIGENCE

Don’t just jump blindly into a deal with someone who contacts you. Look into it first. Consider two things: The people involved in doing the deal, and, the upside (and downside) potential of the deal itself. This requires research — the one dreaded, arduous task that most people desperately want to avoid. Fortunately, I enjoy it and have found that a few minutes or hours of research and help to save or even make thousands of dollars. Research will help you understand who you are working with, and it can give you a dose of realism about the project’s potential. Due diligence won’t eliminate every instance of potential screwing but it will help you go into the deal with your eyes wide open to what the real potential is.

2. START SMALL

This is a tactic that I’ve adopted in the past few years: Don’t jump in with both feet, especially when working with someone you’ve never worked with before, or in an industry or business model you’re not familiar with. Rather than going all-in on a huge deal, start small. Work on a small aspect of the deal so that you can measure results and get into a rhythm with the person you are working with. Rather than co-authoring a book or building a massive business with someone, start on an ebook or blog just to test the waters.

3. GET IT IN WRITING

When you work with someone else, it helps to get the details in writing. Even if you forgo more formal, legal documents, it’s still helpful to know what each of your expectations are going in and what goals you have to work toward. On a couple of successful deals (but ones that had the potential to go south), we had information in writing that helped us to evaluate the progress of the deal as well as the expectations of each party and we relied on that to measure how we were doing and to hold each other accountable. When things started to go awry, we had a written document we could go back to and have a positive conversation about.

4. KEEP LINES OF COMMUNICATION OPEN

This one probably shouldn’t need to be said but it is a way to avoid getting screwed in a deal. There are actually two aspects to this: First, open communication between all parties helps to ensure that you are frequently and positively talking about the deal and nothing gets hidden away. Second, the act of communication, itself, is a way to keep a pulse on the deal. If communication suddenly dries up or becomes very one-sided or tense or accusatory, that’s a pretty significant warning sign.

Which leads me to the next point…

5. WATCH FOR WARNING SIGNS

When I look back at some of the earliest deals I’ve been screwed on, I laugh at myself for not seeing the warning signs earlier. There are all kinds of warning signs in a deal but often they are: Delays and rescheduling, actions without explanations, multiple excuses piled on top of each other, inaction, the conversation shifts to accusation, and blaming others. Sure, some of these might pop up once in a while on their own and you need to judge whether they are legitimate (i.e. there really was an unavoidable delay, perhaps because of a technological issue) or whether they are part of a larger problem. One or two of these things, once in a while, is usually okay. But the more these things happen and the more frequent they happen, the more likely you are about to get totally screwed in the deal. The trick is to see that tipping point as quickly as possible — to know when it’s no longer a one-time-problem but before it becomes a persistent problem for you.

6. BE INDISPENSABLE

Deals are done by people who want to succeed together. Implicit in that assertion is that each party believes the other person is a key part of the deal and has something to contribute. As long as you are indispensable to the deal, it’s not likely that you will be screwed. The moment you no longer contribute the value that the other person in the deal believes you offer, you risk becoming pushed out of the deal. In one deal, I bought a website. The person I bought it from was incredibly helpful and proactive… until I released the money from escrow. Once that was done, the project ground to a halt and although I now owned the website, the communication dried up. I still had the asset I purchased (which is why I used escrow) but I was left to do a lot more of the work afterward. That’s just one example using money to illustrate indispensability. You might be indispensable in other ways, such as in your network or the content you create or the way you can rehab a property. As long as the other person sees you as absolutely essential, you’ll probably not be screwed in the deal.

7. IT’S OKAY TO SAY NO TO CUT YOUR LOSSES

A few year ago, I put together a deal with someone in which I would do some consulting for him and his network. In a number of ways, the deal started to go south. I tried to end it once and was talked out of it. But I knew that I was about to get totally screwed on the deal so, even though I had invested some time into it already, I cut my losses and moved on. Saying no can (and should) happen before the deal even starts. But it’s hard to say no when someone is really selling us on a deal and waving promises of untold riches and fame in front of our faces, it can be hard to say no to a deal. And if you agree to a deal but later find out it’s going bad, don’t try to stick to it through to the end. Get out while you can. It will be painful but it’s better in the long-run.

8. TRUST YOUR INSTINCTS

Instinct is that mysterious voice in the back of your head that tells you that something is about to be wrong. I don’t understand why it’s there. I don’t understand how it knows. I don’t understand why it’s so often right. But it is there, it knows, and it’s often right. So if your instinct starts to tingle and nudge you away from the deal, listen to it. I have never ever ever ever regretted following my instincts. I have frequently regretted ignoring them.

9. BUILD CONTROL INTO THE DEAL

This is the one that has the best opportunity of eliminating the chances of you getting screwed in a deal. It’s also (in my opinion) the hardest to do. Not surprisingly, it’s the one I’m the worst at. When you control the deal, you ensure that even if you do get screwed, you come away with a benefit. In a real estate deal, perhaps it’s a contract on the property or ownership of the property itself. In a business deal, perhaps it’s the intellectual property or the patent or the website or the cash flow that you own.

I love doing deals. I love that rush of putting something together with someone else and watching it grow. But once in a while, a deal comes along that goes south. They happen. It’s the cost of putting yourself out there. But if you can implement some of these ideas when you’re first putting a deal together, you’ll be less likely to get screwed.

Price and service: The two worst things to compete on

As a seller of things, I’ve tried to compete on price or service in the past. (“We’ve got the lowest prices” or “We’ve got the best customer service”). As a buyer, I’ve had other companies try to sell me on price or service.

It doesn’t work.

STOP TRYING TO COMPETE ON PRICE AND SERVICE

Competing on price is a dangerous game because your margins are so low that you aren’t very profitable, you can’t invest in in marketing and growth, and you attract the least loyal customers who only care about price and will leave you in a heartbeat as soon as someone else offers a lower price.

Competing on service (I mean: customer care, not the services you might sell) is just as bad but for different reasons: It’s so easy to SAY that you offer better service than your competition. However, everyone is saying it so it lacks meaning, especially since most companies that claim to offer “better” service are actually offering the exact same quality of service that everyone else is offering (even if they think they’re offering something better). And to make matters worse, customer expect flawless service from all vendors all the time as the default requirement of doing business with them. You can say you offer better service but you only truly do when you have metrics that prove it and when you make your service so ridiculously awesome that people are left weeping at how wonderful you are.

In both cases, you might be able to compete on price and service for the short term but someone will come along and out-do you.

SO WHAT SHOULD YOU DO INSTEAD?

There needs to be something else. It needs to be a competitive factor that only you can do. It needs to have a moat around it.

I like the “cluster approach” to competing: That is where you compete on a cluster of things rather than on price and/or service. You should cluster some of the following things together:

  • A target market that is more narrowly defined than your competition. For example: If you can’t sell to all the business owners in your city, why not sell to those who have started a business 5 to 10 years ago, make $100K to $320K, and are looking to expand. See how that’s different? You’re narrowing the market and that allows you to compete on expertise. (Hey, if you want to read more about this, why not check out my blog post 55 questions to answer when defining your sales funnel’s target market).
  • A great offer. Yes, your competition will probably tell you that their offer is just as great. However, the value of your offer is far more measurable (and there are far greater opportunities to innovate) than when you try to compete on service. That measurability can give you an edge if, indeed, your product is better. And the more unique your offer seems, the better.
  • Compete on the relationship (but there’s a catch). This is probably the closest thing to customer service, although there is a difference in my mind. Customer service has more to do with how you handle a customer before, during, and after the sale. A relationship is far more intimate. Your customer truly feels that you have their best interests in mind and they’ll invite you to their kid’s baseball games. (For more about this, check out my blog post Customer service and customer relationships are similar but different. Customer relationships are better). Okay, I said there was a catch and this is it: You SHOULD NOT promote yourself as offering better customer service or customer relationships. This is one of those “show don’t tell” situations. Since every business SAYS they offer great service, you can compete and succeed by being the one company that truly connects in a meaningful way to your customers.
  • A shocking guarantee. Lots of companies offer guarantees. But most of them are lame. 100%, no questions asked. Whatever. Give your guarantee some teeth. Make it a no-brainer for someone to do business with you.
  • Measurable marketing. This one might surprise most readers because we tend to think of competitiveness as being a “customer facing” aspect to our business. But you can become far more competitive by turning on the metrics and making every marketing effort more effective. It feels arduous to do, and some marketing efforts aren’t as easily measured but there’s an added bonus: You’ll sell more and save money.

Are there other things you can compete on? Of course there are. I’m only getting warmed up here. But if you start with these five, you’ll see

Customer service and customer relationships are similar but different. Here’s why customer relationships are better…

A lot of my blog posts are just my thoughts about business; my reflections about what business could and should (and shouldn’t) be.

And lately I’ve been thinking about the difference between customer service and customer relationship.

I suspect that too many businesses think they are interchangeable. But I don’t think they are.

Customer service: I tend to think of customer service as how you handle the customer before, (but especially) during, and after the sale. In many ways, customer service is transactional; it’s built around the transaction of a purchase: A customer experiences your customer service when they interact with your business — when they try to buy something, when it gets delivered to them, when they have a problem. Let’s measure customer service this way: How easy is it for a customer to get their money back when they ask for a refund?

Customer relationship: I tend to think of customer relationship as a more interactive/intimate connectedness. It’s how much your customers think of you outside of the times when they need whatever you’re selling. Customer relationship is what you do all those other times when you’re not selling. Customer relationship is not transactional at all (although it can certainly lead to more transactions). Let’s measure customer relationship this way: When was the last time your customer invited you to a barbecue or their kid’s baseball game?

HERE’S HOW CUSTOMER SERVICE AND CUSTOMER RELATIONSHIP SHOULD PLAY OUT IN YOUR BUSINESS

You should have good customer service — of course. It should be easy and enjoyable for customers to transact with you. But too many companies brag about the quality of their customer service yet never really make it special. Worse still, they don’t realize that every other business out there is also bragging about customer service (and to a customer, it all kind of looks the same). And too many companies put too much of their focus on creating positive customer service experiences and they forget about the broader customer relationship experience.

Guess what: Your ability to deliver the product or service with a smile seems exactly the same as your competitor’s ability to deliver their product or service with a smile. Your toll-free troubleshooting line seems exactly the same as your competitors’ line. Your no-questions-asked 100% money back guarantee seems exactly the same as your competitors’ guarantee.

If you want to compete on customer service, you need to be absolutely amazing in a zany “I can’t believe they’re doing that” way. You need to give the CEO’s cell-phone that she or he answers 24 hours a day even on vacation. You need to give a 200% money back guarantee. You need to not only deliver the product with a smile, you have to also deliver another free product, set them both up, and then cook the family dinner. That is the kind of customer service that you need to offer if you are going to focus on customer service: Ridiculously crazy customer service.

But likely you won’t offer that (it’s expensive and few companies do). That’s okay because you should be doing something else instead: You should be…

BUILDING A CUSTOMER RELATIONSHIP

A customer relationship is how much your customer thinks of you when they are not buying from you. It’s how often they invite you to their spouse’s birthday party or kid’s ball game.

A customer relationship is intimate. Interactive. Mutually meaningful. Sacrificial. Generous. And it needs to expand beyond the narrow confines of the conversation about your product or service.

A customer relationship looks like this: You’re a real estate agent who sold a house to a client. You also show up to help them pack boxes and put them in the back of the truck, and you pick up the tab for pizza. You send them a newsletter every quarter that doesn’t talk very much about you and your accomplishments, or even spends a lot of time talking about new houses on the market, but rather talks about the kinds of challenges and opportunities they face in their lives — raising kids, getting promoted, saving for retirement, buying a car. You stop by their house on the anniversary of their purchase every year and give them flowers or a bottle of wine. You send them birthday cards. You pay attention to their lives and call them up when something good or something bad is going on. You share your own personal challenges and wins with them. You ask a lot of questions and you savor every answer. You ask about their kid’s baseball games and you show up and cheer.

THAT is a customer relationship.

It’s the kind of interaction businesses want (although they are too busy focusing on service to realize that they’re aiming for the wrong thing).

It’s also the long game with a higher up-front cost but a very significant long-term pay-off.

Confession time. As I write this, I think of my customers and my brands. Do I have this in any of my brands? Absolutely not. I know a few things about my customers — important hobbies or spouse’s name or the number of kids… maybe. But I don’t do anything to build the relationship. So don’t read this blog post as someone who has it all together and is now meting out wisdom from atop a mountain. I’m an amateur who is chewing through my own thoughts and sharing a major failing with you.

On that note, I think I’ll sit down right now and chart out some changes in my business. I hope you’ll do the same in yours.

Financial fiction review: ‘Cracks In The Ceiling’ by Dave Cornford

Love financial fiction? So do I. And I review them for you!

In this post I’m reviewing…

Cracks In The Ceiling by Dave Cornford

Short stories exploring the aftermath of the global financial meltdown.

REVIEW: When I read a novel, I want an engaging start, a tense middle, and a cathartic ending. But when I read short stories, my personal preference is for stories that are short, introspective, and even a little gloomy. And I’m totally fine if the stories don’t “end” (in the same cathartic way a novel should end). That is what Cornford delivers. His 11 stories are almost like slices of life, as if we are glimpsing the various lives of people impacted by the financial crisis in some way. What is interesting about Cornford’s writing is not necessarily his exploration of the financial part of financial fiction, but of the larger themes of life. Specifically, Cornford’s concept of “home” is explored in-depth in many (or most?) of his stories. Each story seems to be a glimpse into how one person (or family or group) handles the “new normal” of today’s financial turbulence. The stories don’t end in a neat and tidy bow… and sometimes they don’t end at all… which is just the way I like it. Here’s a sampling of a couple of his stories:

  • A Day at the Top: The thoughts and feelings of a CEO whose personal and professional life is starting to suffer from the crisis. This almost feels like a diary entry and I like that it puts a personal (and even occasionally sympathetic) face to the oft-vilified CEOs of The Great Recession.
  • Threadbare: The story of someone who was impacted not necessarily by the loss of money as he was impacted by the loss of his family and close friend.
  • Lost: This is the story of a commuter who loses his iPod… but occasionally hears the music when his Bluetooth headphones pair with the stolen iPod. ‘Lost’ was my favorite story of the collection and the ending is absolutely brilliant.

FINANCIAL FICTION QUOTIENT: When I first read Cornford’s book, I was initially puzzled by what I felt to be a lack of financial fiction… in the strictest sense of the definition. You won’t find stories about high-powered brokers moving millions of dollars around the world (which is what I like about financial fiction). But as I continued reading story after story, the larger themes became evident: These WERE financial fiction stories… but they were financial fiction stories on the “opposite side” of the news. They are the stories that remain untold when the headlines scream “bank closes” or “large corporation lays off employees”. The two stories that, in my opinion, had the largest quotient of financial fiction were…

  • The Tipping Competition: This story explored the struggles that employees face when they learn about the changes that will take place at work.
  • The Project: This story nicely captures a kind financial act (albeit a dangerous one!) that one employee does for a struggling coworker. This was my second-favorite story of the bunch.

SUMMARY: At first, the stories in Cornford’s Cracks In the Ceiling don’t seem to be about financial fiction. Until it hits you that these stories are indeed financial fiction… from a real life perspective. Cracks In the Ceiling gives readers a glimpse into the struggles of the ‘everyman’ and ‘everywoman’ whose lives have been impacted in some way by the financial crisis.

DISCLOSURE: Dave Cornford provided me with a free copy of his book for review purposes.

Find more financial fiction reviews here.

The Sales Funnel Bible: Coming soon

After a few years of testing, note-taking, concept-refining, and even a couple of false starts, on March 1st 2013, I started writing my Sales Funnel Bible book chapter by chapter and publishing it on my blog.

At over 40 chapters, written daily, it took me through to (about) the middle of April to complete. Writing it was the easy part. Editing is much, much harder.

I rearranged chapters, was pushed to further refine the ideas, and then edited the heck out of it. A few times.

The result? On March 8th 2014, I submitted the book to CreateSpace.com and had a proof copy sent to me to review.

It arrived (on March 13th, a day earlier than expected — nice work, CreateSpace!).

Here it is in all its glory…

Sales-Funnel-Bible-proof-copy

So what’s next?

I need to review this hard copy of the book to make sure it looks the way I want. (I’m basically reviewing for formatting and appearance since I’m happy with the content). Assuming it looks the way I want, I pull the trigger and publish it. If it doesn’t look the way I want, I make changes and (maybe) send myself another review copy. Regardless, the publication is VERY close. I’m excited.

Stay tuned.