“I don’t understand… so how is that even a business?” he asked.
I was in Fort Collins, Colorado, standing in front of a whiteboard in a shared office-space, marker in hand.
Sitting in front of me was a friend of almost a decade, Jason. I had just mapped out my entire direct mail marketing plan.
“What do you mean?” I asked. “Wait. Just to clarify… these figures here are net profit.”
“Oh! Oh, okay, I gotcha,” he chuckled.
Heh. Sometimes you have to make extra-sure you’re on the same page. 🙂
That day, I had driven over an hour north to meet with Jason, to see if we were comfortable doing what has probably ripped apart more deep friendships than anything else:
Loaning money
… a land of drug-like high hopes… the banishment of rationality… vanishing savings… and awkward radio silence.
Where thousands and thousands of dollars can evaporate. Possibly followed by quietly imploding friendships… or not-so-quiet lawsuits… and maybe even a shattering marriage or two.
We both walked into his office aware of this, and knew we were going to handle our money in a way you never hear about in “you can attract millions!” seminars…
… with machine-like rationality.
But would it work?
For the first half of the day, I mapped out my business’s entire customer-acquisition strategy, and my strategy for making a net profit (two different things… they don’t teach that in “make money online” scam-fests either).
I showed the campaigns I had tested with my own money, and the results. I extrapolated those results to how I could scale up, and listed the potential pitfalls and rewards. I detailed both best and worst-case scenarios.
But the business is always just one part of the equation.
In this case, there was another massive risk
Me.
So I mapped out my own strengths and weaknesses, including my state and federal tax debt. For most lenders, this would be a deal-breaker. For my friend, it simply meant an adjustment in his ultimate profit as I paid back the loan (I’m sure there’s a fancy accounting term for that – he’d know it).
He asked his employee to get us some Chinese take-out for lunch. Then Jason and I enjoyed a walk around a park together.
In the second half of the day, we negotiated the possible investment.
Here, I was more a fish out of water.
But together, we crafted an elegant plan
Jason would provide me with a cash infusion large enough to get proof-of-concept that my business really could begin scaling up. If we both agreed it worked well enough, he’d loan me the remainder. Then I’d pay him back, plus a whole boatload more.
If the initial infusion did not work to our standards, I’d simply pay him back at the minimum interest rate of 1%. And part as friends… we hoped.
Then we discussed his upside if it worked out. I forget the details but it went something like…
“Three to four hundred percent… ” I offered.
“Okay so 400%,” he replied
My friend, far more experienced in negotiations than me, knew to latch onto the higher number I gave. If I wanted to go down, I’d have to back-pedal and possibly give something up. Whereas if I had started at 300%, he might have had to give something up for me to go higher.
Machine-like rationality, remember?
Lesson learned.
In a negotiation, never give a range.*
After we ironed out the details, I went to the bathroom and thought things over. Then I sauntered back in, tapped the piece of paper where we wrote everything down, and said, “I’m good with this.”
We shook hands and parted ways.
But it wasn’t over
In the coming days, we continued the ironing process with a written contract, which we edited a couple times. Then we both signed, and Jason mailed me a check for $3000.
Earlier, I wrote how this would lead to one of the proudest moments of my life. But it wasn’t the deal itself. Making a plan and signing on the dotted line is the easy part.
I’ll reveal the hard part… and how I handled it… soon.
But next, I’m going to write about how the company worked for, slowly crumbled. And how it became my job to sweep up the pieces.
*[12/10/16 Addendum: Actually, giving a range can be an excellent idea, especially when you’re delivering an extreme anchor. For instance, give out a salary range with numbers on the high end, if you’re applying for a job. For instance, $50,000 to $70,000 instead of offering a single number like $40,000. Your interviewer will adjust to that anchor. Just make sure you’re okay with the low end of your range. There are also ways to deliver the range and contexts to keep in mind. Way too much for a blog post. I got this from a book I’m reading right now called Never Split The Difference by Chris Voss. I highly recommend this book, especially to learn why it’s better to go for a “No” in a negotiation than “Yes” and the magic two-word phrase you want to hear from your adversary, which signals you’re about to get everything you want.]
