Knowing a bit about how the man who is probably the most successful deal closer in modern history operates would be helpful whether you’re trying to buy a company, buy a car, or sell something. Fortunately Tom Searcy and Henry Devries have given us as close a view of how Mr. Buffett operates as we could ever hope for in their new book How to Close a Deal Like Warren Buffett: Lessons From The World’s Greatest Dealmaker (McGraw Hill: 2013).
First and foremost Buffett argues you have to know what you’re doing because risk arises from not knowing what you’re doing. That seems self-evident, but how often are deals attempted to be made where that simple rule hasn’t been followed? And how many of us sellers have been guilty?
So, when it comes to deal making how you can become one of those who knows what they’re doing? Searcy and Devries go into detail about the Buffett way of finding, analyzing, and closing deals. Chapter after chapter lays out in simple rule format with accompanying case study the process and the axioms that Buffett follows to mitigate risk and to come as close as possible to assuring success in the deals he makes.
Since we can’t go into great detail in a short, simple review, let me give the seven opening rules or guidelines the authors gleaned from their study of Buffett’s strategy:
- 1. Know the other guy’s money—knowing how the other person views money
- 2. Know the other guy’s wallet—look at the deal from the other guy’s point of view and what impact it will have on him
- 3. Start discussing the money early—gather the economics surrounding the deal
- 4. Use ranges to qualify and disqualify—find out early if you and the other person are even in the same ballpark, i.e., there’s reality in the discussion
- 5. Speak the language of investment and outcomes
- 6. Don’t discount early
- 7. Don’t negotiate until it’s time.
As the authors work through the various chapters and case studies the above rules come to life as you see them at work in Buffett’s deals—both those he consummated and those he walked away from.
A particularly useful and fascinating part of the book is Appendix A: 101 Warren Ways, a collection of 101 Buffett axioms. These range from the simplistic “Avoid risky deals,” to rules that counter the actions of many modern dealmakers such as “Don’t think computers can do your thinking for you.” And maybe the most important rule of all: “Don’t do deals just to do deals.”
Although written for those looking to make Buffett type of deals, How to Close a Deal Like Warren Buffett is equally valuable for the seller as sellers are working in the same often murky waters as those seeking to buy or sell companies.