The Latest Installment

Maybe you’ve never applied the term "narcissist" to someone with whom you were trying to do a business transaction or trying to sustain a business relationship that was already in place. If so, maybe you’ve never tried to do business with someone who believed that his interests were the only ones that counted.

Well, I haven’t been so fortunate.

Consider an example: Let’s call him "Bill". Bill says that he thinks I’m wonderfully capable, and everything indicates that he is being truthful: that really does seem to be his opinion. In the beginning days of our business relationship, I can do no wrong; in his eyes, I’m perfect. During these early days, his compliments toward me, his encouraging words and his acts of generosity produce a strong sense of loyalty on my part, and anticipation that this business relationship will be enduring and wonderfully beneficial.

Then I begin to see some fragile points in the relationship. When the first area of disagreement arises and negotiation over it is required, I observe an emotional component that I hadn’t seen before. I begin to see that this isn’t just about business; it’s about Bill’s sense of self-importance, which my disagreement with him seems to him to call into question. He seems to think—and may even say—that the important thing is whether our deal makes him look good. Metaphorically, he’s always holding up a mirror to check.

Next I begin to see that this business relationship, as Bill sees it, is one in which I am required to be his ally, but he is not required to be mine. I am expected to defend him to others, but he won’t pay me the same compliment, because doing so would, in his eyes, cost him some of his pre-eminence. I am expected to carry the load for our business transaction or business relationship, and the sole measure of my success in doing so is on-going benefit to him.

Here’s my first take-away from this: If you are contemplating a business transaction or business relationship with someone who is unwilling to commit, right from the start, to the deal in concrete ways that require him or her to participate in the burden as well as the benefit, stop right there. There’s a big red flag waving, and the deal won’t end well.

Here’s my second take-away, from this and other experiences: It is at least as important to know when not to do a deal as it is to know when to do so. Never ignore the red flags. It’s better to miss a good opportunity that it is to take up a lousy one.

What’s your experience?—Stan Crow

About 20 years ago I proposed a financial venture—a new way for the company’s investments to produce a higher return—to one of the nation’s leading industrial firms. The company had no criticism of the proposal but told me that their culture was "never to be first to do anything". They preferred to follow, rather than to lead.

Today that company is a shadow of its former self. In everything it did, it did what others did, rather than innovate. Every division of the company has been sold save one, and the remaining one is a comparatively small service business. The company is no longer an industrial at all.

I believe that outcome is no accident, and that it is a direct result of the company’s decision not to innovate and not to lead.

One could cite many other examples, but that one is a personal one from my own experience.

How is it, then, that America’s financial press, our political leaders, and leaders of America’s biggest businesses regularly expound on what is said to be America’s innate propensity to innovate?

The experience of mine which I related above has been repeated over and over, countless times, as I’ve heard lenders, business owners, commercial-property developers, lawyers, accountants and various others express their unwillingness, or at least reluctance, to innovate or lead. It certainly causes me to question whether, in fact, Americans really do have an innate innovative streak, or at least one that is different from that of the people of any other nation.

Americans are great at imitating, though. I think of the 1031 tax-deferred-exchange business. One taxpayer did the innovation which led to the tax-deferred exchange, and then thousands upon thousands of businesses jumped on the bandwagon, as promoters of those exchanges.

Another recent event which causes me to wonder about at least the future of innovation in America is the passage of national healthcare legislation, much of the premise of which was that there has been too much innovation in health care. The idea is that innovation is costly, and cost-control is more important than is development of new treatments.

It concerns me, too, that innovation in financial instruments on Wall Street now has such a bad name (not entirely undeservedly).

Is America on its way to ceasing to be #1, because of loss of innovation? Or fear of innovation itself? Or fear of stifling regulation? Or lack of confidence that we know what we’re doing?

And about your business: Do you prefer to innovate, or to follow? If you prefer to follow, how do you reconcile that with a desire for America to be #1, the innovative leader in the world? Or do you want innovation, but only as long as someone else does it?—Stan Crow

"It’s not what you know," the well-known expression goes—Google produces about 1,150,000,000 results!—it’s who you know. (I wish that whoever popularized the expression had known at least to get it right, with "whom" you know.)

I understand the rationale of the expression, and it has its element of truth. I can tell you, though, that when someone tries to persuade me of a new business idea or business venture by placing more emphasis on who (he never says whom) he knows rather than what he will do, I figure there must be some weakness in the what. It’s a strong indicator, for me at least, that hearing about the proposal is not worth my time.

It may strike you differently, but emphasis upon one’s contacts when one is trying to sell an idea or venture comes across to me as bragging, or puffery. If I like the proposal and then ask for references, that’s the time to hear about contacts. Unless I’m already persuaded about the idea or venture, I don’t care to know that the promoter attended a White House dinner, for example, or is best friends with Warren Buffett.

If the merit of the proposal isn’t apparent, the promoter’s purported popularity or influence won’t make it any better.

Even with regard to what you know, please let the brilliance of the proposal speak for itself; don’t try to close the deal by telling me you are brilliant because you thought of it or put it together. Your being self-impressed won’t impress me—but it will cause me to think that what you are proposing is of questionable merit.

An exception when whom you know can be more important that what you know, is when what is at issue is an introduction to someone, and what is being sought is a contact of that person to make the introduction.

What about you? Does someone else’s bragging, or someone’s emphasis on the important people he knows, cause you to question the merit of the matter at hand?—Stan Crow

Being a lawyer in my other life, I think I know a loophole when I see one—and I don’t like them any better than other people do.

I don’t know what your definition of a loophole is, but mine is this: A loophole uses something about the words involved, to bring about a result which pretty clearly was not intended when the words were written. Do you remember, "It depends on what the meaning of ‘is’ is"?

If Congress has written a statute which was clearly intended to prohibit "x" but in one way of reading the words "x" can be said to be allowed, that’s a loophole. I wouldn’t want to build a business or investment strategy on a goof-up by Congress in the words it used.

So, when someone wants to talk with me about what is claimed to be a great business idea and I find that it’s based on trying to skirt the intent of the law, that’s the end of the matter as far as I’m concerned. I don’t believe in putting my time or money into something that’s too clever by half.

I want to hear the substance, and I want to know why the proposed transaction or business idea is in accord with the rules, not an end run around them. I don’t mind new applications of the rules, but I want those new applications to be a good fit with what the rules were meant to accomplish.

Do you agree?—Stan Crow

"It can’t miss."

"Nothing can go wrong."

"It always happens this way."

"On current trends . . . ."

As we try to weed out very quickly those investment and business recommendations which aren’t worth taking time to consider, one of my indicators is this: Does the proponent of the recommendation assume that current market conditions will continue unchanged, and base the recommendation on that assumption? Does the proponent assume that some current trend in the market will always be the trend in the market?

Any recommendation which is based on the assumption that the way things are today is the way they will be tomorrow does not take into account the natural variability of about everything in business—let alone what is called the "black swan" event: one which may be unlikely but which, if it occurs, will cause all projections to be wrong in a big way.

The recent financial crisis in this nation was at least in part a result of ignoring the black swan, because many experts concluded that certain risks were so unlikely to occur that they needn’t be taken into account. See "black swan theory", http://en.wikipedia.org/wiki/Black_swan_theory.

To some degree, simply to continue to function day after day, we have to proceed as though there will be no black swans in our path. When it comes to business or investment proposals, however, I like to see that the proponent’s analyses include at least some consideration of even very unlikely "what ifs"—because at least one of those unlikely what ifs (the black swans) may well occur. What are the back-ups? What are the safety mechanisms?

If the proponent is so convinced of his or her idea that he or she thinks there is no need to consider back-ups and safety mechanisms, that’s all I need to know, to turn my attention elsewhere.

Surprises happen. Good ideas and good thinking take that into account.

Have you experienced any black swans?—Stan Crow