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Tuesday
May072002

Three Ways to Value Partners

Unlikely-Bedfellow-Option3-Shaking-Hands-and-Bridge

While I've written about this before, some folks seem to have missed the point...

Hey, if you're having "partner troubles", then you should understand that I consider those experiences to be normal. In fact, consider it a right of passage.

Dealing with partners (in whatever form: spouses, relatives, investment partners, bankers, etc) is as much a part of your job as is selecting a suitable property or investment. Maybe even more so.

And as "newbies", most of the people you think of as prospective (suitable) investors /partners - aren't. They may think they are and they may even get you to think they are, but most of the time, they're just fooling themselves and us (if we begin to believe them).

I qualify investors/partners in three ways:

  • money, 
  • talent, and 
  • experience. 

And not in that order. Although there are many that would argue the point, I would much rather deal with another player than some "newbie" any day.

Why?

When selecting a doctor, I much prefer one who has personally experienced pain. Not someone who will smile and tell me "it's all in your head". When I fly, I like to see the captain has a little sprinkling of gray hair.

To be blunt, I want some evidence of experience. In other words, I want to see some lines in their faces and pain in their hearts.

What I want someone who has "lost" before and knows the difference between the words "investment" and "guarantee".

I want someone who is able to think for themselves and make decisions that they will stand by.

So experience is the first criteria. And the second?

Talent. Skill. Specialized expertise can often be the difference between success and failure. It can turn an average deal into a home run for all concerned. In short, expertise confers advantage.

Last, and certainly least is MONEY!

I don't mean a line of credit and I don't mean a high paying job or profession. I mean CASH. NOW. TODAY. I mean, write the check and I'll take it with me money. All others need not apply.

I will tell you that I have violated these selection principles on occasion (and sometimes I still do). But every time I do, I have to factor in extra problems.

New investors/partners need "face time" with you. They need to be reassured that "this is a good" investment. I have to spend my time (and my money) to educate them. If I am not willing to do that, then the deal will probably fold no matter how good the numbers are.

There are other points to selecting (and maintaining) a great investor base, but that's a subject far too deep to get into here. But we can certainly agree that it's a complicated subject that everyone should certainly spend some time on.

The two things that make me the most money in this field are psychology and math. I don't have to tell you the math is the easy part, do I?

You also need to know yourself and your limitations. You need to understand your objectives and realize their true costs (emotional, physical and financial). And you have to learn this business of deal making.

I'm sure you'll get lots of advice from friends and family, but remember everything has to come together. I don't care whether you use a partnership, LLC, or syndication agreement. And I don't care how carefully you draft your documents.

Putting the wrong (poorly chosen) people in the wrong deal will always cost you time, money, heartache and sleepless nights. And the least of your worries will be that they merely "want out".

Bad people and bad deals are trouble. Simple as that.

So, it all comes down to this: People, money, structure.

Most people are just not ready. And for the majority of simple deals, they don't need to be.

When the deals get large enough and you've developed a track record, then you can decide whether or not to include "partners".

Until that time, they'll just get in the way.

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