Updated: Jun 25
I did my first deal over twenty years ago, and I knew absolutely nothing about how to do it at that point. I had to feel my way around. Since then, I’ve done dozens of deals and advised on hundreds more, and I’m still learning. Despite all of my experience, I often say I understand 10% of my chosen field, but that’s 9% more than nearly everyone else.
Doing deals is a hugely complex area, and you won’t become an expert by taking one training course or reading one book. There just is no substitute for learning other than by doing, but you can arm yourself with the tools and tactics to avoid the common mistakes. There’s no need to bump your head on the same thing I did. You’ll find something new to bump your head on—and learn from it!
When I’m teaching at the Harbour Club, I always talk about the importance of breaking your deal virginity, getting that first deal done, and how valuable that experience is. It becomes a proof of concept for you, almost like a mental reset, and is a hugely powerful realization. It clears away doubt and gives you a confidence visible to the people you are working with.
Having no money was the best thing that could have happened to me at that time, because if I’d had the money, I would have paid the owner of the telecom company, and continued to live in the belief that you always have to pay some cash up front in every deal. This is a paradigm that many people are stuck in, including new Harbour Club attendees.
Sometimes, even after having taken the Harbour Club course, I catch members trying to pay money up front for a deal. It’s interesting how quickly we forget these lessons and default to conventional wisdom, despite the overwhelming evidence to the contrary. In fact, after doing my first few deals with no cash up front (and making some money doing them), I caught myself doing a few deals with a little bit of cash on the table, so it happens to the best of us.
I then decided to make this like a sport—a game where the object is not to spend a penny. I doubled my determination and decided to make sure that none of my deals would involve any cash up front. Ever! Even when confronted with the most obvious of no-brainer bargains (frequently with distressed businesses with motivated sellers), I would still stick to my no-cash guns.
The Hospital Pass
Most of the time, these distressed business owners were considering closing the doors and walking away. In these deals, they were giving me a “hospital pass.” This is a rugby expression whereby you’re only allowed to tackle somebody if they’re holding the ball, so if you’ve got some big guy running towards you, you pass the ball to someone else and they get clobbered (straight to the hospital).
Giving a hospital pass in business happens when people feel they have exhausted all avenues and now have to do what is undoubtedly the worst part of being an entrepreneur: failing to make payroll, laying everyone off, and basically locking the doors and walking away from years of their life’s work.
What I learned from running a horrendously undercapitalized telecom company was how to be incredibly efficient with cash, and how to manage a cash-based company on a shoestring budget. Often, when the owners thought they were completely bankrupt, these hospital-pass businesses were unaware of opportunities and things that they could do slightly differently to save their businesses. We could rescue them.
Because I didn’t have the money to start a telecom company, I learned how to run a lean ship. The fact that I didn’t have any money meant that I learned how to do deals without any money. You don’t become an expert by watching; you learn by doing.
So, what should you be doing?
Move Up the Entrepreneur’s Ladder
The first thing you need to do is to stop dealing with (really interfering with) staff and customers and start to focus on these strategic areas of the company:
Mergers: A merger is simply an acquisition using shares as the payment. It’s particularly helpful to create scale and solve succession planning (more on that in a later blog). In practical terms, you normally create a new holding company, and the shareholders in the two merging entities share in this new entity. Both companies remain intact but, instead of you owning one company 100%, you own a percentage of a holding company with two (or more) subsidiaries.
Acquisitions: This is the only way I know to double the size of your business tomorrow. Every business should have an acquisition strategy along with its organic growth strategy and should devote as much time and attention to it as well. These deals will create the big steps up in the business, the multi-year shortcuts, and opportunities for new products, markets, and fresh talent.
Joint Ventures: Partnerships can massively scale your business and play to your strengths while leveraging others’ strengths. They can also create credibility and brand extension.
Exit: When you are looking for capital events that will transform your wealth and your life, your best customer is the one who buys your business. We need to ditch the idea that your entire career culminates in one “end of life” deal. You should have regular capital events. You don’t make money running businesses—you make money when you sell. So, sell, often! This provides a much better lifestyle and more security, and financial security leads to making better decisions.
Ask yourself, what do you do everyday? If the answer is mergers, acquisitions, joint ventures, or exits, you’ve moved up the ladder. If you’re still interfering in the day-to-day business, you need to learn by doing deals. Get that first deal under your belt. Through the Harbour Club, we help you create partnerships and joint ventures with people who have gone through it before, so they can help you break your deal virginity.
While I can give you tools, tactics, and information, nothing is going to help like getting out there and getting the first deal under your belt. After all, you have to do the first deal before you can get the second one.
In my next blog, I’ll share the details of my second deal and the valuable lessons I learned from that. It was not at all what I expected.
In the meanwhile, if you’ve “bumped your head” as an entrepreneur, would you share that experience below, and help others learn from your mistake.