best deal

Why the Best Deal Isn’t the Best Approach

by Feb 14, 2019Acquisitions

If there is money on the table, take it off.

We’ve all been trained for most of our lives to get the best deal we possibly can. And that makes sense most of the time, especially given all of the information that is now available to us. It’s easy to try and get the best deal on, say, a car or TV set because we can research every detail out there, and there is no great reason to pay more or get less.

But when it comes to other high-value kinds of transactions, like potentially buying or selling a business, where there will be a much more limited set of buyers and sellers, you might need to change your mindset. Sometimes you might want to strike a deal even if there’s a chance you could find a better one later on. Why? Because in cases like these, if there is money on the table, it makes sense to take it off.

Let me explain.

If you are considering something like selling your company, you need to embrace the idea that the future is uncertain. If someone is offering you 95 percent of what you were looking for, you might want to pull the trigger on the deal rather than pushing for that extra 5 percent. Because the hard reality is you don’t know when or if another buyer will come around, or if your business will face disruption that could negatively impact its value.

In terms of game theory, you might risk losing the deal and getting nothing for your business if you hold out for that extra 5 percent. Getting 95 percent instead of zero is a pretty good bet.

I have also seen the flip side of this dynamic, where a CEO can take advantage of taking money off the table multiple times. I worked with one such CEO, a guy named Wayne, who successfully recapitalized his business four times over a 20-year period. Each time, Wayne brought new money into his business, bought out the old money, and took some money off the table for himself–all while retaining an equity position. He was so good at this that we eventually referred to it as “Wayne’s Rule.” Funny enough, we have worked with another CEO named Dwayne that embraced the same approach with great success.

As a business owner, employing Wayne’s Rule is a smart form of financial management because it helps you create a more diverse portfolio rather than having all of your wealth tied up in the business. Wayne used recapitalization as a way to get all of his eggs out of a single basket. I’ve seen other CEOs get the same result by taking on debt and distributing cash or even by selling part of the business as a way to make money off the table and help protect a financial position from an uncertain future inside the business.

But there’s another powerful reason to take money off the table: you’ll play looser. Professional baseball players understand that the looser they hold their bat, the faster and harder they can swing. That’s why you occasionally see bats fly out into the crowd. These players also understand that if they clutch too hard, they get tight–and they don’t perform.

The same is true of running your business. If you’re too tight and nervous with your business because it represents all of your personal wealth, you’ll get fewer desirable outcomes. At the end of the day, entrepreneurs are risk-takers, but we rarely like to have all our chips on the table at one time. When you take money off the table, you’ll play looser because you have less risk riding on every decision and action you take. You’ll be a better leader as a result.

That’s why when you find yourself in situations where you can take money off the table, find ways to say yes rather than striving to make the best deal of all time. Your goal should be to get close enough. If you do that, you’ll come out much further ahead in the long run.