Landing deals with the big logo companies
This is an excerpt from my upcoming book, "How to Close a Deal Like Warren Buffett - Lessons from the World's Greatest Dealmaker" written with Henry DeVries and published by McGraw-Hill, available now.
In 1962, Warren merged all his partnerships into one, then invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway, which would become his holding company. However, he regards the deal not as a great triumph but perhaps as his biggest deal-making blunder.
Buffett on Bargain Purchase Folly
"You might think this principle is obvious, but I had to learn it the hard way -- in fact, I had to learn it several times over," Buffett wrote in his 1989 letter. "Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras -- unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o--three years later I was lucky to sell the business for about what I had paid. After ending our corporate marriage to Hochschild Kohn, I had memories like those of the husband in the country song, 'My Wife Ran Away with My Best Friend and I Still Miss Him a Lot.' I could give you other personal examples of 'bargain-purchase' folly but I'm sure you get the picture: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie [Munger] understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements."
Hunting the Right Deals
Despite our dire warnings about logo-company deals in the previous lesson, we have to acknowledge that there can be some strategic value in doing business with a logo company. It does help other companies feel safer doing business with you when they see credible companies doing significant amounts of business with you. We've been involved in landing almost 200 of the Fortune 500 companies for seven-figure deals each over time, so we know that there is value in landing those names.
So let's talk about a strategy we've developed to provide you with the right balance of effort, result, and long-term leverage in your hunting efforts.
Let's assume that you are not selling to a logo company now, but you want to, or that you're selling to one and you want to move further up toward a bigger one. Then we suggest that you follow this logo deal strategy.
First, think of those companies that you would like to do business with. If you're in the manufactured food business or a grocery affiliated business, for example, that would be Walmart, Aldi, and Kroger.
Regardless of your business, there is a mega-Warren Buffett deal opportunity for you somewhere. That's the end you're shooting for. Pick your ultimate target. Make it a company that is big in size and big in name. There is nothing wrong with making it the richest family in town or one of the top 100 companies in the world. That target is yours to envision and name.
Second, you need to start with what your prospect needs. We'll use Walmart as an example (Tom recently made the trip to Bentonville, Arkansas, as part of a big hunt team). Walmart looks for the following in its vendors:
1. Proven ability to deal with sophisticated supply chain management systems that you don't control.
2. Proven ability to work on a national basis.
3. Proven ability to handle fluctuations in volume requirements by store, by city, and by region.
Other megastores may have different areas in which they want to see proven ability. But the point is that they all want to see it, and you'll have to provide it. Take each of these requirements and decide which of your current clients can provide the proof that Walmart is looking for. Make one list for systems, one for national footprint, one for volume fluctuations, and so on. By the time you are presenting to Walmart, you will have a clear 360-degree capacity to meet its requirements.
Third, figure out what areas you must demonstrate success with increasingly more credible and sizable companies in order to make logo companies feel safe in hiring you. What do they want to see from the work you have done with the companies that preceded them? Primarily, they want safety and credibility. For most businesses, these come in the following categories: Geography, scale, technology, certification of quality, and financial stability. Start building a demonstrable capacity and significance in each of these areas to support your claims and show your effectiveness to your largest opportunities.
Fourth, connect the dots. Take the three Walmart requirements of success with systems, nationwide work, and volume fluctuations. Connect these requirements to the specific category that addresses it. Then connect that category to your current clients that can provide proof of your abilities in these areas.
Fifth, start from where you are. This works like the domino effect. To get to the final domino in the string, you have to tip the first one. To do that, you have to start from where you are. What clients do you have currently, and what do you demonstrate in your work with them that can get you to your first domino in the string?
The logo deal strategy is one of the most intentional approaches to true business development that we know. It puts you in the driver's seat for reaching your ultimate goals. The alternative that we see too often is that you call on everyone and hope that the big one will come in. And that's not a strategy.
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