Are Handshake Deals Rock Solid?
By G’Sean Williams, CPSM
Like many signs of the time, a good handshake deal is a little rarer today than it used to be. As a grandson of a limited educated sharecropper, I can imagine he looked folks in the eye, shook their hand, and did what he said he was going to do. Now, the art of deal-making is so complicated it is almost impossible to even know what a good deal is half of the time.
Before I started studying Procurement & Supply Chain at Michigan State over 20 years ago, I had no idea of the complexities of deal-making and how detailed contract agreements could be. If you are a business leader, entrepreneur, finance professional, and/or an investor, you can attest to this first-hand. The more at stake, the more complicated the journey to a deal, right? Well, maybe!
I have had the privilege to represent clients in my career and help them formulate $1.5B worth of acquisitions. Along this journey, I realized the art of deal closure is somewhat the same whether working on behalf of a Fortune 500 firm with unlimited attorney resources or personally helping a buddy buy a new car with an aggressive salesman. It seems there is one common fear for most, whether a novice trying to get the best deal for the family or a corporate procurement professional with years of experience. This commonality is the ultimate fear that your deal would not be ROCK solid. Either way, most everyone who has ever struck a deal before in life can always remember the time you left money on the table. What about the time you didn’t plan how you were going to get furniture home before you closed the deal in the middle of the store? I recall buying my first motorcycle in college and not realizing I had never driven a motorcycle before. Maybe you took a job offer and realized your new boss was, to be polite, not that bright.
We have all been here and maybe could have leveraged the ROCK Model. Breaking down the ROCK Model, I knew that if I understood the RISK TOLERANCE, considered OPERATIONAL PROCESS, calculated the COMMERCIAL IMPACT, and accounted for KNOWLEDGE TRANSFER, I would have a much better chance of a solid deal. Maybe I could even get a handshake worthy deal! So, here are more details on the ROCK Model for deal-making:
1. Risk Tolerance
The first thing you want to consider in any deal is the RISK of doing or not doing business. Four immediate risk concepts you should consider are:
- risk of product failure
- risk of process failure
- risk of people failure
- risk of performance failure
Despite all the fancy vernacular attorneys have given us to forget the meanings of (i.e. indemnification, limits of liability, consequential damages, etc.), we can simplify it by remembering the Risk of the Ps (Product, Process, People, Performance).
2. Operational Process
We all know that famous line in movies when things take a turn, right? You know, for example, when the Analyst says to the Chief of Intelligence, “you are going to want to see this.” Just as your curiosity is piqued when you hear that line, so is the other side of the table when you give them intelligence of how something works or could work. Operational vision is PARAMOUNT! Always ensure you have a clear vision of how the next steps in the process shall look, how a person shall be trained or how a product shall be packaged and shipped. Process mapping the next steps is always a good check and balance to ensure your deal is foolproof.
3. Commercial Impact
Is it all about the Benjamins, baby?! It depends! The commercial impact of closing the deal relates to all the direct and indirect financial transactions. This includes and goes well beyond just purchase price or sales price. Savvy negotiators are always aware of the TOTAL impact of their decisions on their family’s bank account or their company’s income, balance sheet, and cash flow statements. In other words, ensure you can measure:
- the bottom-line profitability
- the value of the asset
- the impact on working capital
Make it a point to aim to learn just as much about the other side’s financials as you may know about your own. Personally, I have learned that Best Buy employees don’t get paid commission. However, with the right establishment of a personal connection, they don’t mind pointing you to the “open box” product that works just as well, or the upcoming sale that you will want to wait a couple of days for. Whenever I hear “G’Sean, you are going to want to see this” in a Best Buy store from the salesperson, I know I am on to something good.
4. Knowledge Transfer
Some years back, I was in Toronto and seemed to have the same interest in stores as one lovely couple pacing ahead of me. After the second store, I noticed the man was carrying a rather large purse from store to store. I realized that he figuratively and literally got stuck with her bag! In negotiations and deal closure, make sure you don’t get stuck with the bag. In other words, make sure you ask the right questions in advance to avoid misunderstanding. Read the warranties, read the reviews and don’t be afraid to ask direct questions that require the other party to provide operational know-how and process maps needed for you to be successful post-deal. For example:
- In what markets have you grown this product?
- Where do you see flaws in the process?
- How can people prevent human error?
- What do you recommend for peak performance?
For the lovely couple in Toronto, maybe the gentleman should have asked, “How is carrying a heavy purse around town after hours of shopping in those shoes going to work for you?” prior to leaving the house with his significant other. On second thought, that approach may have been worse than just getting stuck with the bag. He may have actually gotten hit with the bag.
Some things we may never have a resolution for. However, I hope these four areas of the Rock Model resolve your desire to make sure your deals going forward are ROCK solid, handshake or not!
If you have any comments about this article or would like to enhance negotiation skillsets for you or your team, please reach out to G’Sean Williams, CPSM at 704-503-9103 or gsean.williams@sms-advisors.com.