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STREET SMARTS

Are You Listening to Me?

You can if you want to--but you have to make your own decisions. Some advice on how to give, get, and take advice.

Norm Brodsky is a veteran entrepreneur.

A lot of people come to me for business advice, and I'm always happy to talk with them. At some point in the conversation, however, I try to make it clear that what I'm offering are thoughts and observations, not advice--at least not advice in the sense of telling someone what to do. I never tell people what to do. On the contrary, I tell them they have to decide for themselves what's best based on their own gut feelings, their knowledge of the situation, and their reading of the various individuals they're dealing with.

I tell them that because I want them to take responsibility for their actions. When you have a business, the time and money you put at risk are yours. You're the one who will suffer the greatest losses if you fail and enjoy the greatest rewards if you succeed. What's more, you know the circumstances and the players better than any adviser you might go to. You're concentrating on the business full time, after all, while an adviser has lots of other concerns and distractions. It's impossible for him, or her, to understand all the different factors as well as you do. So you're in a better position to make the right decision.

What advisers can do is point out options or complications you may not have considered. As uninvolved observers, they may see things you miss because you're too close to the action. They may also have experience or specialized knowledge that you lack. Their job is simply to provide you with information and ideas. You then have to put that together with your gut feelings and your knowledge of the players and reach your own decision about what to do.

That's my rule, at any rate. But, as with any rule, there are exceptions. Occasionally, someone who comes to me has been given really bad advice. In those situations, I will tell people what they should do: Ignore it.

I recently had such an experience with a person I know who has been trying to open a retail establishment for the past couple of years. Let's call her Polly. She figured that she needed to raise about $1.5 million and had lined up a couple of investors who had verbally committed themselves to providing the bulk of the capital, but they hadn't even begun discussing an investment agreement yet, and no money had changed hands. Meanwhile, Polly had found a location she considered ideal. When she told the investors about it, they indicated that they wanted a voice in negotiating the terms of the lease. Polly decided to bring one of them to her next meeting with the landlord.

This turned out to be a bad idea. The investor wanted to go over every detail. Among other things, he noted that the place needed extensive renovation. He estimated that it would cost $100,000 to bring the building up to code, and he insisted that the rent be adjusted accordingly. The landlord bristled and said he would do the work himself for $25,000. The rest of the meeting was equally testy. Afterward, the landlord told Polly, "Next time you come alone. You're the decision maker, right? I don't need to talk to anyone else."

So Polly had a problem. She'd hoped that, by bringing the investor to the meeting, she could reach an understanding on the lease and the investment agreement more or less simultaneously, but that obviously wasn't going to happen. She was now confronting a chicken-and-egg situation. The investors wouldn't give her the money without a signed lease, but the landlord would never sign a lease unless he was confident that she'd be able to live up to her end of it, and she couldn't give him that assurance without the money. She decided to ask her lawyer for advice. Which situation should she resolve first?

Polly had a problem. She'd hoped to reach an agreement on the lease and the investment simultaneously. That wasn't going to happen.

Regular readers of this column know that I think you should never, ever ask a lawyer for business advice. (See "Presumed Guilty," October 2004.) But Polly did need to talk with her lawyer, if only because he would be involved in writing and reviewing any contract she might sign--whether a lease with the landlord or an agreement with the investors. She explained her dilemma. The lawyer said she should take care of the lease first. "You've got limited funds," he said. "There's no point in paying me to work on an investment document before you're sure about getting the lease. If the lease falls through, you will have wasted a lot of money you can't afford to lose." That made sense to Polly, and she was planning to start negotiations on the lease when she came to see me. She wanted to know how I thought she should handle the conflict between the landlord who wanted to get the deal done quickly and the investors who insisted on scrutinizing every sentence in the lease.

I listened to her story and said, "I usually don't give advice, but I'm going to make an exception in this case. Lawyers are not businesspeople. The advice your lawyer gave you is the worst I've ever heard. You absolutely should not do the lease first. You should do the investment document first. If you don't, I can guarantee you that this deal will never happen."

I listened to her story and said, "The advice your lawyer gave you is the worst I've ever heard."

Polly was taken aback. "Listen," I said. "You're telling me that your biggest potential investor is a guy who negotiates to the nth degree." She nodded. "You also tell me the landlord is a guy who likes to make things simple and get things done." She agreed. I said, "Well, look at this from a businessperson's perspective. You're going to negotiate the lease and get ready to sign it. Then what are you going to do?"

"I'm going to work on the investment agreement and take it to the guys to sign and give me the money," she said.

"You're going to take it to someone who negotiates to the nth degree and expect him to give you the money right away?" I asked.

"No, that will never happen," she said.

"Right, never happen," I said. "He'll want to make changes. I know that I would if I were the main investor. So is your landlord willing to wait 30, 60, 90 days while you get the money?"

"Never," she said.

"Right," I said. "He'll say, 'Come back when you have the money.' Even if you get it pretty quickly, you've planted a seed of doubt in his mind. You said you had it, and then you didn't have it. He has to wonder about whether he can trust you to keep paying him for the next 10 years. You've lost credibility. Do you get the picture?"

"I'm beginning to."

"Your attorney shouldn't be giving you business advice," I said. "It's nice that he doesn't want to waste your money, but he's going to kill the deal in the process because he's not looking at the whole picture and he's not taking into account the character of the people involved. If it were my business, I'd have already done the investment agreement and told the investors, 'Let's sign this, and I'll put the money in escrow pending your approval of the lease. It will be there accruing interest for you in case things don't work out.' Then you could tell the landlord, 'By the way, I have a million dollars in the bank, subject to the lease being approved. You don't have to worry about getting paid.' A big difference, right?"

"Yes," she said. "I hadn't thought of that."

"What are the investors going to get for their investment anyway?" I asked.

"We haven't discussed it yet," she said.

Then I really knew she'd gotten bad advice. If you've ever tried to raise money, you know there's a huge difference between a verbal and a written commitment to invest. There's an even bigger difference between a written commitment and the actual transfer of funds. At the last minute, people come up with all kinds of excuses as to why they can't come through with the money they've promised. "I didn't know you wanted it so soon." "I just had a big margin call." "My wife won't let me do it." Getting the capital was the biggest hurdle Polly faced. It was pointless to spend time working on a lease until the investors demonstrated their commitment by putting money in an escrow account. Once they did, moreover, Polly would have other options even if she wound up being unable to get acceptable terms on the space she liked. She could always come back to the investors and say, "This deal fell through, but I have another possibility if you're still interested--subject to your approval, naturally."

Lawyers don't think that way. They're trained to focus on protecting their clients. Businesspeople focus on achieving their goals. Lawyers think their primary duty is to make sure clients aren't exposed to potential liabilities. Businesspeople know that you sometimes have to be exposed to potential liabilities or you won't get anywhere. Yes, you want to minimize the risks, but you can't eliminate them altogether. You need to train yourself to weigh them carefully against the anticipated rewards and learn how to think several steps ahead, knowing that you won't always be right.

That said, I can't lay all the blame on Polly's lawyer. Part of the fault was hers. She'd gone to him asking for advice when she should have been asking for information. She should have inquired about the potential consequences of following this or that course of action, with the understanding that she would then make up her own mind about what to do. Like many first-time entrepreneurs, she wasn't yet ready to take responsibility for her decisions. Once you really, truly understand and accept that responsibility, you become very selective about whom you go to for advice--and you don't go to people whose main concern is to keep you from taking risks.

Norm Brodsky (brodsky13@aol.com) is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.

I listened to her story and said, "I usually don't give advice, but I'm going to make an exception in this case. Lawyers are not businesspeople. The advice your lawyer gave you is the worst I've ever heard. You absolutely should not do the lease first. You should do the investment document first. If you don't, I can guarantee you that this deal will never happen."

I listened to her story and said, "The advice your lawyer gave you is the worst I've ever heard."

Polly was taken aback. "Listen," I said. "You're telling me that your biggest potential investor is a guy who negotiates to the nth degree." She nodded. "You also tell me the landlord is a guy who likes to make things simple and get things done." She agreed. I said, "Well, look at this from a businessperson's perspective. You're going to negotiate the lease and get ready to sign it. Then what are you going to do?"

"I'm going to work on the investment agreement and take it to the guys to sign and give me the money," she said.

"You're going to take it to someone who negotiates to the nth degree and expect him to give you the money right away?" I asked.

"No, that will never happen," she said.

"Right, never happen," I said. "He'll want to make changes. I know that I would if I were the main investor. So is your landlord willing to wait 30, 60, 90 days while you get the money?"

"Never," she said.

"Right," I said. "He'll say, 'Come back when you have the money.' Even if you get it pretty quickly, you've planted a seed of doubt in his mind. You said you had it, and then you didn't have it. He has to wonder about whether he can trust you to keep paying him for the next 10 years. You've lost credibility. Do you get the picture?"

"I'm beginning to."

"Your attorney shouldn't be giving you business advice," I said. "It's nice that he doesn't want to waste your money, but he's going to kill the deal in the process because he's not looking at the whole picture and he's not taking into account the character of the people involved. If it were my business, I'd have already done the investment agreement and told the investors, 'Let's sign this, and I'll put the money in escrow pending your approval of the lease. It will be there accruing interest for you in case things don't work out.' Then you could tell the landlord, 'By the way, I have a million dollars in the bank, subject to the lease being approved. You don't have to worry about getting paid.' A big difference, right?"

"Yes," she said. "I hadn't thought of that."

"What are the investors going to get for their investment anyway?" I asked.

"We haven't discussed it yet," she said.

Then I really knew she'd gotten bad advice. If you've ever tried to raise money, you know there's a huge difference between a verbal and a written commitment to invest. There's an even bigger difference between a written commitment and the actual transfer of funds. At the last minute, people come up with all kinds of excuses as to why they can't come through with the money they've promised. "I didn't know you wanted it so soon." "I just had a big margin call." "My wife won't let me do it." Getting the capital was the biggest hurdle Polly faced. It was pointless to spend time working on a lease until the investors demonstrated their commitment by putting money in an escrow account. Once they did, moreover, Polly would have other options even if she wound up being unable to get acceptable terms on the space she liked. She could always come back to the investors and say, "This deal fell through, but I have another possibility if you're still interested--subject to your approval, naturally."

Lawyers don't think that way. They're trained to focus on protecting their clients. Businesspeople focus on achieving their goals. Lawyers think their primary duty is to make sure clients aren't exposed to potential liabilities. Businesspeople know that you sometimes have to be exposed to potential liabilities or you won't get anywhere. Yes, you want to minimize the risks, but you can't eliminate them altogether. You need to train yourself to weigh them carefully against the anticipated rewards and learn how to think several steps ahead, knowing that you won't always be right.

That said, I can't lay all the blame on Polly's lawyer. Part of the fault was hers. She'd gone to him asking for advice when she should have been asking for information. She should have inquired about the potential consequences of following this or that course of action, with the understanding that she would then make up her own mind about what to do. Like many first-time entrepreneurs, she wasn't yet ready to take responsibility for her decisions. Once you really, truly understand and accept that responsibility, you become very selective about whom you go to for advice--and you don't go to people whose main concern is to keep you from taking risks.

Norm Brodsky (brodsky13@aol.com) is a veteran entrepreneur whose six businesses include a three-time Inc. 500 company. His co-author is editor-at-large Bo Burlingham.

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Last updated: Oct 1, 2006

NORM BRODSKY | Columnist

Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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