Published on UT San Diego, September 11, 2012
A few weeks ago, I helped a friend refinance his underwater home mortgage. For a number of reasons, I was intimately involved (I needed to cosign), and as you can imagine, it was a miserable experience. Nothing new there.
It got me thinking about what it means “to close,” meaning to bring a deal to a successful conclusion. This skill is essential and critical to the entrepreneur, and most importantly, it can be learned.
Recently, I assisted in the sale of a business. It required obtaining 37 signatures from past employees and minor stockholders, most of whom had dispersed to the ends of the earth. The process took nine weeks, and the company founder literally flew to Boston to get the last two. Relentless pursuit won the day on that one.
Now, here is what happened with the home mortgage refinance fiasco. It required threatening, cajoling, begging, drawing a line in the sand, and finally making an adjustment at the last minute to get the deal done. One would like to believe that rational people would act in their own economic best self-interest. That is not necessarily the case.
The whole refinance game is insane. The only way you can get the bank to accommodate a reasoned request is to act badly — to stop paying the mortgage. If you are current and call up and say, “Let’s make a deal,” they say, “Why should we? You are still paying the mortgage.” Then you stop paying and 12 to 20 months later they say, “OK, let’s make a deal.” You achieve the desired result, but only by acting badly. This is crazy.
Let’s look at venture/angel financing. The investor is interested. He says send me more stuff, it seems like a good deal, but could we see some more information, and then we would like to discuss it with our partners, we will get back to you, until you say, “We are closing in nine days. Are you in or out?”
Note to entrepreneur: You need to learn to say that with a straight face, even though you do not have any money in the bank, and there is no one else who will fund you. Practice this in front of a mirror without laughing.
The goal is to create a sense of urgency and scarcity.
And then there are the lawyers. They can be friend or foe in getting a deal closed. Their job is to make sure there are no loose ends. And there are always loose ends. You need to manage their lawyers — not necessarily yours. Do not let them open new items at the final bell. Tell them, “We are closing in nine days or we are walking.”
Now I recognize this is easy to say and hard to do. This thing called “closing” is not technical, it does not lend itself to an algorithm, and it is not taught in any MBA classroom. There is no formula. Its components are different every time. It has elements of game theory, but when it is your deal (and your only deal), it is not theory.
Having said the above, I need to provide a bit of caution. It reminds me of those car commercials where some guy is driving 180 miles per hour on a rain-soaked street and then does a 360-degree turn and parallel parks in a space just big enough for a baby’s stroller. At the bottom of the screen, it says, “professional driver, do not try this at home.”
Learning how to close is a skill. It comes from experience — much like the professional driver who has learned to turn a car on a rain-soaked street.
Simply being at the table and telling the other guy “take it or leave it” without having done the prep work is a recipe for disaster.
Closing is the whole game. It is when the points are put on the board. It is all about relentless pursuit, and the awareness that the other side can only see its own cards.
Rule No. 128
No deal is perfect, but some deals are more perfect than others.