The Oracle of Omaha said: After some other mistakes, I learned to go into business only with people whom I like, trust, and admire."
Why the focus on the people behind business relationships? According to Buffett, it's simple: "We've never succeeded in making a good deal with a bad person."
In a 1998 address to University of Florida MBA students, Buffett reiterated this golden principle, saying "I only work with people I like. If I could make $100 million with a guy who causes my stomach to churn, I would say no."
Of course, when your net worth isn't measured in billions (or millions, for that matter), it can be easier to fall into exciting opportunities with the wrong kinds of people. And unless your life resembles an HBO drama, by "wrong kinds of people," I don't mean gangsters, hitmen, or drug dealers. I simply mean folks who put less stock in values.
Maybe a potential business partner is willing to make false claims about a competitor's product, or your accountant wants to get creative with the numbers so you can avoid paying your fair share in taxes. There are always people looking to toe the moral line, whose behavior might not get them locked up, but is still unsavory, to say the least.
Buffett's personal rule in practice
Buffett's point is that associating with these types of people is risky, not necessarily because you'll end up in legal or financial trouble, but because over time you'll grow to be more like them. As he puts it, "You want to associate with people who are the kind of person you'd like to be. You'll move in that direction."
To make sure you're moving in the right direction, here are three things to consider as you put Buffett's personal rule into play.
1. Phase out undesirable relationships.
If you're serious about associating yourself with the right people, that will inevitably require disassociating yourself with the wrong types. Once you've decided to make this change, only you can determine the appropriate pace. If your manager is pushing you to upsell customers who don't need your product, you might want to keep a casual eye out for a new role. On the other hand, if the CEO's money-funneling son is your direct report, don't walk -- run toward the exit.
2. Vet your business partners thoroughly
Don't wait to do some digging until you've signed on the dotted line -- the best time to learn about business partners is before you go into business. Do your due diligence upfront, researching their past decisions and looking for trustworthy references. If you're having trouble finding any information, move on to step three.
3. Trust your gut.
You should give people a chance, but that doesn't mean ignoring your intuition. If you have a bad feeling about someone, whether they're a new employee, a potential board member, or a mutual acquaintance interested in investing, trust your gut. Meet them for dinner or coffee to get to know them a little better. If the feeling remains, nip any future association in the bud.
As Buffett acknowledges, you'll make mistakes along the way. Sometimes a golden opportunity will blind you to the people involved, or your intuition might fail to warn you about an individual's true character. All you can do is learn from these mistakes, adjust accordingly, and move on.