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.

The four questions every entrepreneur should ask before embarking on a new joint venture

I love joint ventures. They are a great way to combine the strengths and resources of two or more entrepreneurs to create a business or project that is meaningful and profitable and satisfying.

(Want to read more about joint ventures? Check out what I look for in a joint venture and be sure to check out this guide to joint ventures for entrepreneurs)

I’ve been in some successful joint ventures and I’ve been in some unsuccessful ones. What was the difference between the two? There are several things that can make a difference but they can be boiled down to the answers to these 4 questions, and when I think back to many of the joint venture projects I’ve worked on that failed, the reason was related to one of these 4 issues.

1. What will it take for this project to become successful and does that effort fit in my current schedule?

It’s easy to look at a project before it gets started and to get starry-eyed about the opportunity… only to overlook the sheer volume of work required for the project to succeed. When you’re thinking about the anticipated effort, generously double what you expect to do on the project. It always takes long.

In JVs that I’ve worked on that have succeeded, they only succeeded because we worked through regardless of the effort. In the JVs that I’ve worked on that have failed, they failed because we didn’t accurately anticipate the workload ahead of time.

2. Are all parties likely going to deliver what they promised?

This is a big frustration in joint ventures. Make sure that all parties are going to deliver on what they promised. In many JVs I’ve participated it or observed, some of the parties are wholehearted while other parties are half-assed. Try to assess the likelihood that all parties will continue to participate once the going gets tough. In particular, consider whether the incentive or remuneration plan rewards people proportionally to their contribution or they will be quick to disappear. In one joint venture I did a ton of work in the beginning to write an ebook and then the person responsible for marketing just disappeared. Not cool.

And related to this concept: Figure out what happens if the joint venture fails. What do you end up with? Can you use it elsewhere?

3. Once successful, will my workload decrease while profits increase?

This is another huge one. I’ve been in a couple of failed joint ventures that only failed because my workload INCREASED (or at least stayed the same) after the project became successful. In other words, the deal should have been carefully structured to ensure that success rewarded us rather than punished us. I’m okay with putting in a bit more time at the beginning but I don’t want that excess effort to continue into infinity.

4. What’s missing and how critical is it?

Every joint venture is like a machine, and each person is responsible for some of the moving parts. But a machine won’t work the way it’s supposed to if parts are missing. As you think about your joint ventures, consider what parts are missing from the existing relationship… and how you’ll have to address those parts. For example, a joint venture might be made up of two people who are each making a key contribution but no one is marketing the project. Those things need to be addressed early on or else the project will stumble as each party realizes there is still more that needs to be done or invested in.

Joint ventures are fun and profitable. But not every JV is right to participate in. Use these four questions to help you evaluate joint ventures before you participate in them.

A guide to joint ventures for entrepreneurs

Joint ventures (JVs) are projects where two or more people/businesses collaborate to make them successful.

They can really be anything — from co-authoring an ebook or co-hosting a seminar to starting a new website or business to collaborating on the development of an idea into a product… the list is endless, and only limited by your creativity.

Joint ventures are a great way to build new businesses or extend current brands and an easy way to fill in gaps that might exist with one entrepreneur’s skillset.

SHOULD YOU DO A JOINT VENTURE?

There was a time when I resisted doing joint ventures. I like running my own business and being my own boss and all that. But when I got to a point in my business where I had achieved the things I wanted to achieve and I was looking for the next mountain to climb, I realized I couldn’t do it on my own. I needed to work with other people.

Although I still run my own business on my own, I like joint ventures for a few reasons:

  • I subscribe the theory that 1+1=3. Two (or more) people who collaborate on a vision can actually turn a good idea into an amazing deliverable.
  • Joint venture partners have skin in the game and therefore they are more motivated to succeed than if one entrepreneur hired employees to do the work.
  • Joint venture partners give each other a good perspective and great networking opportunities.
  • Joint ventures are good for primary businesses or supporting/complementary brands.
  • Joint ventures take less time to achieve success, helping you to get a business up-and-running-and-profitable sooner.

(I’m sure there are other reasons for liking joint ventures but these are the things that attract me to them).

Since joint ventures can be an added aspect of your existing business (such as co-authoring a book), you can build your existing business with a joint venture; but joint ventures can also be a new and complementary brand or business, so you can grow revenue from a “non-primary” business to supplement your income.

If you are thinking about growing your business or income, consider a joint venture as a way to do it. You don’t have to JV your entire existing business by partnering 50/50 with what you’ve already built. Start small and JV on just one part of your business.

WHAT YOU NEED BEFORE YOU START A JV

Before you approach someone about doing a joint venture, you need to decide a few things:

  • Think about what you want to do a joint venture in. (An existing business? A new business? A brand? Some other project?)
  • Decide what you want in a joint venture partner. Ideally, they share your vision and work ethic but provide a different skill-set that allows you to work together to complete the project.
  • Decide what you hope to get out of the joint venture. Money is often one of the bigger motivators but it’s not the only one. Maybe you want to extend your brand or get more people using your software or something. Knowing this up-front will help you figure out what to do and who to do it with.
  • Figure out how much time, money, and effort you are willing to invest in the joint venture. This is huge. I’ve seen a lot of joint ventures collapse because one or both parties miscalculated the commitment required.

FINDING A JV PARTNER

In my opinion, the best joint venture partnerships are based on a pre-existing relationship. I’ve done JVs with people I didn’t know well and they still worked out (for the most part) but the most enriching and successful JVs were the result of a pre-existing relationship. I don’t mean that they were necessarily friends; but we knew each other — we met in a forum or via social media or they were a client.

Social media is a great way to find a JV partner. Twitter, LinkedIn, and a couple of forums I participate in have been the best tools for partnership discovery. Pick a couple of them, participate, and make your purposes known to others.

When you find a potential JV partner, float the idea past them about doing a joint venture. It might go nowhere but the two of you might click and excited collaborate.

STARTING UP THE JOINT VENTURE

As you work with your joint venture partner on start up your JV, here is a list of tips that I’d advise all joint venture partners to remember:

  • Keep an open mind. This is a JOINT venture. You might have the initial idea but the other person can bring valuable changes to the idea before the project starts.
  • Get creative. A JV doesn’t have to be one business partnering 50% with another business. Find some idea that you both work together on. Start small. Do several smaller JVs first before you take on anything too major.
  • Clearly outline the investment of time, money, and effort that each partner is committing to. Remember that there are often up-front AND ongoing costs associated with a joint venture and you should have a plan in place over what these are and when they are.
  • Understand how this project fits into each person’s business. If the JV is 100% of one person’s business and 10% of the other person’s business, the second JV partner might SEEM less interested or invested than the first one. This needs to be communicated and resolved before the project starts.
  • Plans are huge. Have a plan. For example, create a business plan for your business joint venture, and a marketing plan for your website joint venture, and a publishing timeline for your book or ebook joint venture. Plan in great detail.
  • Identify exit strategies. This is huge. Define success and failure and come up with exit strategies for each. Who will own what if the partnership collapses? What happens if one person moves on to other things? How are the rewards shared and when are they shared? What happens if the project becomes super-successful and more people (i.e. employees) need to be added to the mix?
  • Legal contracts are valuable but I confess that not all of my joint ventures have legal contracts. The bigger and more complicated ones do. I think legal contracts are valuable but this is also balanced against the cost and risk of the project itself.
  • Set up milestone checkpoints for the joint venture partners to pause from the busyness and evaluate how things are going. If both JV partners run other businesses (in my experience, that is frequently the case) then these milestone checkpoints are a good way for everyone to assess the project and get back on the path.

Joint ventures are awesome. They can help you grow your business or provide new streams of income. And they make sense as the next step in a business, especially for small businesses that are not yet ready to hire staff. If you want to grow your business in new and exciting ways this year, start up a joint venture.

What I look for in a joint venture

I love joint ventures!

I’m contacted pretty regularly with joint venture opportunities. There have been some nice successes and there have been some stellar failures… but I love working with like-minded entrepreneurs who want to share in the struggles and triumphs of a JV and I always keep my ear to the ground for new opportunities.

So, I thought it might be helpful to make a list of the types of things I look for in a JV. I turn down more JV opportunities than I accept and there are many reasons why I accept or reject a JV idea. I’ve tried to capture it all here in one place for people who might want to present JVs to me:

WHAT I LOOK FOR IN A JOINT VENTURE

  • Is there a pressing need in the marketplace that can be filled? The JV idea doesn’t have to be fully formed before it is presented to me. A good idea (heck, even a half-baked one) is enough to get started. We can work together to figure it out further. (I like to think that’s one of the things I can bring to the table). I really like to see a need identified and a way to solve that need but if all you’ve identified is a pressing need and a vague notion of how to solve it, that’s cool too.
  • Is it a niche that I’m comfortable working in? I generally stick to topics that I know well — business (B2B, marketing, sales, strategy, copywriting), finance (investing, stock market, commodities, FOREX, accounting, business finance, financial management, cash flow), and real estate (especially related to real estate investing).
  • Can I add value with content (either to market/sell or as part of the deliverable)?
  • Has the JV partner done their homework? I want to see that you have done your homework and know why this is the best time for this opportunity and why you and I are the best people to pursue this opportunity.
  • Am I excited about this? That’s a huge one for me. I need to be excited about the project… it’s the only way I can sustain any effort on it.
  • What is the opportunity here? I get a lot of ebook joint venture ideas or ad-based-blog joint venture ideas. Those are fun but I’m open to creative arrangements. They don’t have to be an entirely new business. I’ve worked with existing brands on co-branded books, shared revenue for an ecourse, etc.
  • What is the sales funnel? How do we expect to get leads? How do we expect to turn those leads into prospects? How do we expect to turn those prospects into customers?
  • What is required of me? Is this an investment of money? Of effort? Of expertise? Or a combination of those things? What will I be bringing to the table? How often will I be contributing — once or ongoing?
  • What will the other party be bringing to the table? (Hint: I want to see that you are going to do something. I did one JV where there was no “J” at all… Learned my lesson).
  • Is there a fair division of labor that makes sense with the anticipated reward?
  • Is the relationship a good fit? Hey, not everyone gels with everyone else. That’s cool.
  • What is the time required? I’m specifically looking at (1) the time required to set-up the venture, (2) the time required to gain critical mass where we likely start marketing, (3) the time required to get to cash flow, and (4) the time required to get to breakeven.
  • What is the potential upside on this project? I want to know the optimistic upside and the realistic upside.
  • What are the risks? (That doesn’t make me a pessimist. It makes me a realist who wants to be prepared).
  • Who controls what? Each party in a JV has some control over something. Is it shared? How is it split? Who holds the keys to the business? Who has control over the money?
  • What happens in a worst-case scenario? If the relationship collapses or if the market dramatically shifts (both of those things have crashed JVs in the past), what will be left and who will walk away with what?
  • Where can this go? Is this a one-off project or are there future opportunities?

I’m always looking for new opportunities but I can’t participate in them all. These are the things I’m looking for when deciding whether or not to participate in a joint venture. If you bring a JV idea to me, I’d love to hear about it!