Mike Baicher came to see me recently. If his name rings a bell, it's because I've written about him several times. He first approached me more than 12 years ago, looking for advice about how to expand his family-owned trucking company. Since then, he's come back whenever he has a problem he needs help with. The problem he had this time was a pretty big one, and he was about to compound it by making a fundamental negotiating mistake -- a mistake that can prove especially costly in an economic environment like this one.
The problem grew out of a decision Mike made in August 2007 to buy a warehouse. Up until then, he'd been renting three warehouses, where he stored containers and did pick-and-pack for retailers importing goods from abroad. Figuring it was time to consolidate, he'd found a building, negotiated a price of $8.5 million, put down $600,000, and borrowed $7.9 million from a bank at 7.25 percent.
It seemed like a good idea at the time. Then the recession hit. As his sales dropped, he struggled to make his monthly payment of $56,000. By the time we sat down together, he was way behind, and he was scared. The bank was sending in a workout guy to assess the situation and decide what to do. Mike, like everyone else, had just been through a very rough four months, and his situation seemed unlikely to improve anytime soon. Worse, he had signed a personal guarantee on the loan and thought he might lose his house.
In his panicky state of mind, he'd come up with a plan. "I'm going to tell the bank I need eight months," he said. "It can take the money I'll owe for that time, plus what I owe now, and tack it onto the end of the mortgage. What do you think?"
"How do you know that's what the bank is looking for?" I asked.
"Well, obviously, they want the money I owe, but I can't pay them," Mike said. "I have to offer them something. My wife and I could lose everything!"
"You aren't going to lose everything," I said, "and you're making a mistake to assume you know what the bank wants. Let me tell you a story."
It was the early days of my delivery business. One of our accounts was a big law firm in downtown Manhattan. The guy who'd hired us, Ray Timmons, was as tough a customer as I've ever encountered. If a delivery was two minutes late, he'd call me up and chew me out. "What kind of a !*@%$# business are you running there? Don't you know what you're doing? I've never seen such a !*@%$#-up operation in my life." And on and on.
To his credit, Ray didn't scream at the drivers, the customer service people, or the dispatchers. He took his complaints straight to the top, and it had the desired effect. I walked on eggshells whenever I had to have any contact with him. It was a pretty big account, and we couldn't afford to lose it. So I wanted to make sure nothing went wrong on the morning when I was scheduled to pay him my regular annual visit. The afternoon before, I went to our head dispatcher and said, "Listen, John, no matter what you do, don't screw up any of Ray's deliveries tonight or tomorrow morning. I don't care if you have to put additional people on. You know how tough this guy is. I have a meeting with him tomorrow at 9:30. Do me a favor and be extra careful."
The next morning, I stopped by our office before heading downtown for the meeting. The weather was particularly nasty -- pouring rain, with wind gusts up to 50 or 60 miles per hour. John looked up at me as I walked in and said, "Your meeting with Ray? Don't go."
"What do you mean?" I said.
"Norman, I'm telling you -- don't go. You'll be sorry. Make some excuse."
"What are you talking about?" I said. "What happened?"
"You won't believe this," he said. "Ray had a delivery this morning -- three boxes of records to be picked up and delivered to an office on 57th Street."
"I told you -- "
"No, no, no," he said. "I had two guys on it. They had a handcart, and the boxes were covered with a tarp. One guy stayed in the truck. The other had the handcart. Just as he was stepping off the curb, a huge gust of wind came along. The handcart toppled over. Two of the boxes burst open. Then he got hit by another huge gust, which blew papers all over the place. The rain was washing them into the sewer. Our guy tried to pick them out, but they were a mess. And some of them were handwritten. The guy who was getting the delivery went crazy."
I looked at him, dumbstruck. "That is the worst story I ever heard," I said.
"Yeah, I know," John said. "I'm sorry, but there was nothing we could do."
My head was swimming. I didn't know what to do. If I canceled the meeting, Ray would just call me up and scream at me on the phone, and we'd probably lose the account. I figured I might as well face the music, but I was filled with dread. All the way downtown I thought about how I would respond to Ray's fury. My mind was still racing as I announced myself to the receptionist and sat down in the waiting room. I'm dead. I'm just dead, I thought. I might as well accept it. OK, we're going to lose the account, but this is torture. Maybe I should leave. No, I can't leave.
I was still there when Ray came in with a big smile on his face. "Hey, Norman," he said. "How are you? Nice of you to come down in this rotten weather. How's the family?"
"Fine, fine -- thanks for asking," I said as we walked back to his office, thinking, Oh, my God, he doesn't know. Now what do I do? Should I tell him?
We sat and talked for a while. "Your service has really gotten better," Ray said.
"I'm glad to hear you think so," I said. He thinks the service is better! Wait until he hears what happened this morning. I'm dead. Ray ran through some business issues. I listened and responded. He asked me if there was anything else I wanted to discuss. The moment had arrived. "Well, uh, I need to tell you about something that happened this morning. I guess you haven't heard."
He began to laugh. "You mean the thing on 57th Street?" he said. "The papers all over the street and in the gutter? Funniest story I ever heard."
Now I was thinking he'd lost his mind. "Yeah," I said. "I'm glad you're not upset."
"Upset? It was great! I hate that guy. He was an attorney here, and he got fired yesterday. Biggest jerk you ever met."
"Oh. OK," I said. I was stunned. We finished up, and I headed back to my office. As I thought about what had happened, it dawned on me that there was a lesson here: You simply can't know what is in someone else's mind. Ever.
That revelation turned into a key rule of negotiating for me: Never anticipate what the other side is thinking. Go into every negotiating situation with an open mind and listen to what the other party is saying. That's what I advised Mike Baicher to do. "You don't know the bank's position," I said. "Banks are in trouble. Maybe they have reasons not to foreclose. The important thing is for you to be completely truthful about your situation." That's another rule: When you're negotiating about money you owe, don't make up stories. Just tell the truth.
Mike still felt he had to offer his own plan. But that changed as soon as the workout guy walked in. "Well, it seems like you can't keep this building," he said. "What if, instead of foreclosing, we take the building and rent it back to you at a reasonable rent? Then, when your business recovers, we can talk about you buying it back. Do you think we can work something out along those lines?"
It was the perfect solution for Mike. My guess is that the bank didn't want to go through foreclosure proceedings and be forced to mark down the value of the asset. Of course, Mike's plan might have been even better for the bank -- but it would have been a lot worse for Mike.
Fortunately, he never got the chance to propose it.
Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, was published by Portfolio in October.