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Red Pill ExampleThe Golden Rule: How To Not Get Fucked In Business (self.TheRedPill)

submitted by Endorsed ContributorClint_Redwood

Summary

A short story over business to business relations. If you are an entrepreneur or working towards being self employed, you need to read this post.


Body

Let's say I had two friends, Tim and Kevin that both started separate businesses. Kevin goes and finds a single customer that will generate $1,000,000 in sales for the year. Tim goes out and find 20 customers, but each customer only generates about $50,000 dollars a year in sales.

Well let’s say I was Kevin's one customer.

I call Kevin up and say, ”Sup bro, I got an order for you, i’ll send in the Purchase order for $100,000.” Kevin’s ecstatic, holy shit he’s never seen so much money before in his life. He just started this business and is so excited that he landed such a lucrative contract. He spent the last 4 years going through college to get his business degree, he got married to a lovely girl, they had a kid so she decides to be a stay at home mom at least till he’s old enough for school. He’s been slaving away in corporate America for the past 8 years to pay for college and save up enough to finally start his own business. He’s got this shit on lock. He’s got the work ethic to make this deal happen and he’s going to crush it.

He takes out a mortgage on his home to front the startup loan from the bank. He heads out and buys all the materials needed to complete the job. It end up costing him $60,000 grand to complete the job, 40k isn’t a bad profile margin. From the moment he buys his material from his vendors, he has 30 days to pay them back. That’s the default pay period when business to business transaction happen, usually called Net 30.

Kevin thinks he might be able to get a bit more money out of the work though. He contacts me and tells me he underestimated the quote and it’s going to be an extra 30k to complete. Kevin assumes I’ll understand as this is his first time and I’ve been mentoring him through his whole upstart. I let him know that’s fine and we renew the purchase order for $130,000.

Now he’s going to make 70k profit! He doesn’t waste any time. From day 1 of him picking up materials he is off putting in the time, labor, sweat and tears to get this done. He’s going to make a killing.

Kevin and I meet at a trade show last year through mutual interest and I saw the passion in his eyes to get shit done. I knew he had the hustle, he just need a push in the right direction and some incentive to get started. In this case, $1 million in sales a year is what I offered him.

Let's talk about me a little. I’m in my 50’s, been the president of a division of a billion dollar a year corporation for about 10 years now. Our division alone put out $230 million a year in sales. Our parent company that owns us reaches 1.6 billion a year. Kevin’s 1 million dollar account doesn’t even merit a second glance in the accounting office.

Back to Kevin. He finishes up his work. Spent all his material and the job is done. At 25 days since his first material purchase, he still has just under a week to pay back his vendor at the Net 30. Not to worry, vendors know the game, sometimes it takes a bit to get the money before the last tier supplier get’s his check. He learned all this in business school.

He calls up the main office and gives my secratary the news. ”Great Mr Redwood is on vacation in the rockies for the week! When he gets back I’ll have him check out the work and you’ll be seeing the check in the mail within a few business days.” Kevin’s ecstatic, his first big deal. He’s about to bank 70k profit in a month.

Week goes by and nothing. He calls but doesn’t reach me. The secretary tells him that I’ll be back by tomorrow to inspect the work first hand. Great, he’s had to dig into his savings a bit to pacify the vendor till the check comes in. No worries though, Kevin and I became good friends during this last year and he still has money back in the bank.

Two weeks go by and nothing, He can’t reach me as i never gave him my private cell. He calls the main office, secretary tells him that I checked it out, work was awesome and the check is in the mail. Great, he had to spend some more savings on some emergency medical issue with his kid but now he’s about to bank 70k. He’s dreaming about what this job will be like at the end of the year. The vacation he’s going to be able to treat his family too. Hell, imagine what this will be like in 2 or 3 years. Kevin is literally on cloud 9. The past 8 years has brought him to this moment.

3 weeks, nothing. He’s starting to worry. He’s out almost 60 days and his vendor is starting to send notices. He calls but nothing.

4 weeks past Net 30. same run around.

5 weeks out. still no check.

6 weeks, same.

7 weeks, same.

8, same.

9 weeks. Kevin files for bankruptcy. His vendors take him to court for the money he owes. All his assets, house, everything, seized by the banks. His wife can’t stand him. How could she marry such a loser. How could this have happened? Hell, this is illegal right?

It is absolutely, one hundred percent, positively illegal to do what i just did to Kevin. But good luck trying to take my $230 million dollar a year company to court while you are in the middle of filing for bankruptcy and have no other income source, Kevin.


If you think this story is bullshit or this would never happen in modern day America, I can be assured that you’ve never ran a business longer than a few years. Or, you at least have the privilege of not working in my line of work. I’m 25, I’ve been doing what i do for 10 years, I’ve seen it happen twice. My father has seen it happen more time than he can count and so have many others that I have been mentored by.

My father sat me down one day after he got a call from a company and he said, "Clint, one day you are going to get a call from a customer or new company. They are going to offer you more money than you've ever seen before in your life. It will be like holding a winning lottery ticket in your hand. All the shit you can do with that amount of money will flash before you. It might be equal to or even dwarf our entire sales for the year. Everything in you will tell you to take that deal.

Don't ever take that deal."

A large corporation with tons of power goes out and finds some chump that’s eager and driven, they offer him a deal he can’t refuse, only to burn him, not pay, and there is shit he can do about it. They hold such an immense amount of power and influence over you that you can not possibly take them to court. They will drown you in legal bullshit and it will cost you more than you can imagine.

Now, that 100k, that’s nothing. That’s like a week of sales for most small business. As in 5-50 employee sized businesses. I use 100k because to most ordinary people, that’s a lot of money. Oh, and that extra 30k Kevin thought he was getting out of me. Ha, whatever Kevin wants to hear is what Kevin will hear. I’m Kevin’s #1 sycophant, I’m the ”Yes” man.

In business, the more charming and the more enthusiastic a person is, the more you should be skeptical of them. It’s sometimes hard to identify a con man vs just some guy that’s really passionate/charismatic, that takes time and experience. But a good businessman weighs his options and never makes split decisions. A con man will tell you everything you want to hear without a second thought. If you want to know if you are getting conned, present them a serious issue that needs to be discussed, in this case a 30k quoting mistake. if it’s answered in a minute or less, you’ve got problems.

Conmen talk from an emotionally drive narrative not logic. They will play off your vibes and how you react, not through logic or planned out thoughts. They will have a basic plan for the con, as in me offering a million for enticing Kevin. But their delivery is always rooted in emotional manipulation and getting you to shut down your logical thought process. If you feel emotion, happiness, sadness, anything when making a business deal. Stop, don't make a decision, calm yourself, leave if need be, hell take a week off if you have to. You must be grounded and level when you make giant decisions. Meditate if need be.

The company I saw get burned, they bought 1 million dollars in equipment and material to get a job from a very, VERY reputable corporation. You are probably imagining some slimball president of some shady corporation that could be morally and ethically relatable to Skynet if it was ran by Saul Goodman from Breaking Bad.

You’d be dead wrong.

This company that burnt them was a company every single one of you knows of. Hell, half of you probably own an appliance by them. I’ll just repeat that again though if it didn’t set in though. They spent $1,000,000 and didn’t get a dime, filed for bankruptcy a few months later. By a company that pretty much all of you know and trust to make good products.

Oh, and that company that got burnt for 1 million? Ya, that wasn’t some dude like Kevin. That was a company that was in business since the 80’s.

“So what went wrong? Fuck, this is hella illegal!” Doesn’t matter what is legal or illegal, it’s what you can get away with. You think laws stop people from doing things? Fuck no, we break laws all the time, the only thing that stops people fucking one another over is if they can get away with it or not.

Bullpill advice would be, take them to court, try to get your money out of them. It will be alright. We believe in you and we are here for you.(random people on the internet that he probably tried to consolidate with or advice some friend gave him).

I’ll tell you right now that advice is worth less than the air and calories it took to say it. here’s the redpill advice. Kevin, you fucked up. You let your emotions and the alluring of dollar signs sway your decision making skills. You saw $1,000,000 written out and said, ”Holy shit, One million dollars, sign me up.” You let emotion, lust and greed trump logic and planning. You saw a big shinny number, from a company you know and love, that everyone knows and loves, that’s been around forever and you took that as merit for them to be a trustworthy client. Instead of sitting down and looking ahead of what they could do to you if you accept their deal. You thought you were playing blackjack when they were playing chess. You made one move and thought you won the game and didn’t think anything past that. You broke the #1 golden rule of business.

Never have all your eggs in one basket

Let's take a look back at Tim. I bet you forgot about Tim. In the amount of time Kevin went from 25k in the bank and owning a home to being homeless, Tim cleared 5 orders of 20k each, cost him 15k in materials each, resulting in 25k profit and 100K sales for the month. Good job Tim.

Why? because none of Tim’s customers have power over him. If I tried to pull the shit that I pulled on Kevin, Tim can fall back onto his other accounts to support his business and life style, and have the money to take me to court in the process.

Tim, can’t be fucked with, because Tim has abundance.

Tim is in A Position of Fuck You


Lessons learned

This is just one rule of business that I’ve learned through the years being mentored by some truly alpha men. I never correlated it with abundance mentality till TRP though. But it is the #1 rule of business and it’s one they constantly drill into my head. The shit these men have shared with me and taught me is invaluable and stuff you can’t find in textbooks. It’s only learned through experience. Textbooks will teach you what to do if everyone plays by the rules. It won’t teach you a damn thing when it comes to playing the game with people that break the rules.

There is a lot of benefits to the golden rule than foreseeing getting fucked over. For instance it’s not always some dickbag trying to fuck you. Maybe one of your customers goes out of business just due to the economy. Trust me, they won’t tell you they are going under, a lot of times you won’t even know, their purchase orders will just stop coming in or they just go radio silent. If they were 25% of your business, you’ve got problems. You may not go under but you will be laying employees off or taking a pay cut yourself.

At our company we tried to make sure none of our customers gets above 10% of our sales for the year. 5-7% is the sweet zone. If you can manage that, no customer can fuck with you. you should track these number religiously, because trust me, your customers know how much money they pay you a year. And they will use that number to throw their weight around. If you don’t know your % then you don’t know what kind of negotiating power you have. Basic Sun Tzu teachings, ”Know yourself and know your enemy.”

If rule # 1 is never have all your eggs in one basket, then #2 is never let your customer know how many baskets you have or how big their basket is(also a Sun Tzu teaching). Customers will straight up ask you sometimes, ”How much of our work is your business.” If they are above 10%, your answer to that question is always, ”I have no idea off the top of my head, I’d have to speak with my accountant on that.”. They can’t use what they don’t know against you. If it’s below 10%, you tell them exactly what their % is so they know they can’t fuck with you.

Basic misdirection and power play.

If a customer is over 25% of your business, you should be sweating bullets every day, you should be losing sleep and pulling your fucking hair out. You should not be eating till you secure another account and drop that 25% to 10%. At my company we have dynamic employees, we don’t have dedicated sales reps as sometimes sales are not what we need. When customers hit 15-20%, sales reps head out the door looking for new work or we contact current customers for more work to level the playing field. Growing horizontally is always better than vertically. This is also why consumer goods are great to get into, then you literally have thousands of customers that don’t even equate to 0.1% of your sales. No one owns you and no one can bully you.

If a customer knows they are 35%+ of your work, I don't give a shit who's name is on the sign out front. I don't care who or how many people own shares of your company. If a company is 35%+ of your total work, they now own your business. They just may or may not know it yet. This the most important thing I can ever teach you about business. You become a slave to your customer the moment you are not in a position of Fuck You.


This post is the first of two. The second is called, "The Dark Rule: How To Fuck Someone Over In Business". I strongly suggest you read it as it contrasts the opposite side of the moral spectrum. You can find it in my post history or search in the sidebar.

I’ve been wanting to make post on business for a while now but find it hard to separate and distance myself without revealing too much personal information. I grew up in a family business since i was a kid and I’ve read some post on askTRP that sparked me to write from my experiences. I usually write based off of a comment or question i come across so if you have any questions or topics you’d be interested in me covering, feel free to ask away. I think the next post will be on navigating the business world as a kid coming into a family business. There is a lot of do’s and don’t, how to manage co workers, conflict resolution, workplace efficiency, the shift you have from going to employee to management level, etc.

Edit:

It's came to light in the comment section that there are many other pitfalls that could have been avoided by Kevin if he took more preventative measures. While I am aware of them, I felt adding them would detract from the main point of the topic. I solely wanted to revolve the article around diversification and horizontal growth. I strong recommend you read the entirety of the comment section as there is a tremendous amount of advice in it, If not more, than the main article.


[–]Do not send modmail to my personal inboxCrazyHorseInvincible[M] [score hidden] stickied comment (5 children)

Would the people reporting this please learn the difference between "lie" and "obvious hypothetical"?

Thank you.

[–]HS-Thompson 112 points113 points  (12 children)

There is a lot of truth to this, but as someone who as started and run several businesses, and currently gets a large chunk of my billing from F100 companies, I think it's at least somewhat overblown.

There are many things Kevin could have done to minimize his exposure to this situation besides just being scared of a big order:

1) He could have ensured his business was properly capitalized. If he had secured sufficient credit with sufficiently long payment terms (even if he personally guaranteed it) he would have had enough runway to chase you for the money.

2) He could have insisted on at least some payment up front, enough to cover out of pocket expenses, and walked if/when your firm balked. In my experience this is the number one simplest thing a small business can do. The people who won't pay deposits are the people who will stiff you.

3) He could have redlined the contract before signing it. If it had onerous anti-lien clauses and whatnot he could have insisted they be struck in the absence of a deposit. If you were using a purpose-built entity (as is common in the CRE business) he could have insisted on joint and several liability with the parent company, or asked for a "good guy clause" of some sort.

4) He could have worked out better relationships with his suppliers and negotiated slow-pay for his costs as part of his procurement process.

5) He could have played legal hardball when you made it clear you wouldn't be paying on time. You paint this picture of a massive all-powerful corporate entity that you can't sue, which in my experience doesn't match reality at all. You can and should use litigation and the threat of litigation to get results. I have gone up against companies that are way more well-funded than me without many resources and it's totally workable, just requires different tactics. Force the issue with an OSC hearing and a TRO prohibiting them from using the work product until the case concludes. File an ex-parte trespass to chattels to reclaim any materials delivered, since you still have title to anything they haven't paid for. File against out of state business executives personally and subpoena them for depositions. Are their wives or children part of the business? Great, file and serve them too as codefendants, let them show up and ask for removal. And so on.

Those are just off the top of my head. This post is decent advice but to me all it's saying is just something like "don't go into business unless you know what you're doing and understand risks" or maybe just "don't risk your entire financial status on a contract if you don't already have a decent lawyer on your team."

Most of us who run businesses learn lessons the hard way from painful experience, and maybe a great mentor if we're lucky. I'm not sure if there are any shortcuts.

Furthermore, you present a very one-sided view of taking on business risk. Many if not most entrepreneurs have at least one story of being completely underfunded and exposed to ruin during their early years. Sure you can avoid taking on the project at all, but getting business is hard, and growing a business is hard. It's entirely possible that by avoiding all situations where you have one big whale of a customer you'll just never get off the ground and also fail.

At the end of the day good business people build good businesses. Managing risk and having contingency plans is part of being a good businessman.

[–]BradPill 18 points19 points  (2 children)

Finally some sense here - I commented just now, worded differently - yours being more laid out and specific - well done.

[–]JustClickingButtons 2 points3 points  (1 child)

I don't get the love for this thread. If one is dumb enough to fall for the plotline of horrible bosses 2, they deserve it imo.

[–]BradPill 1 point2 points  (0 children)

"Business for dummies" .... 1.058 votes.... WTF LOL

[–]Endorsed ContributorClint_Redwood[S] 15 points16 points  (3 children)

I am very aware of the other preventative measures Kevin could have taken. However, it would have detracted from the main point of diversification and horizontal growth. I didn't want the article to go off into a tangent or throw too much information at the reader as there is already a ton of info in both articles.

I've edited the main article to tell readers to go through the comment section as there is a great deal of information on how to prevent the shortcomings of Kevin.

[–]Endorsed ContributorRedBigMan 4 points5 points  (0 children)

You forgot to add a tl;dr which would have summarized the whole situation.

Avoid getting into a situation where one contract going sour can screw you.

Works as well in business as it does with women.

[–]netherlanddwarf 2 points3 points  (0 children)

The post is a great way of teaching would be business owners to watch their ass no matter what. I was naive and I still sometimes catch myself wanting to believe in the good of people, it's just not okay to give goodwill and put your own ass on the line when it comes to business.

[–]_TheRP 2 points3 points  (2 children)

Yeah I agree. This is easily avoided.

First of all - make sure you understand the nature of legal agreements in the business you are working. If you don't, it's worth the $500-$2000 (depends on the agreement, of course) to have an attorney look over agreements and give you advice on negotiating changes. That in and of itself will prevent pretty much everything in the above from happening.

Second, if you need to buy a lot of capital equipment or supplies up front to start work, you should always be negotiating to get some portion of the money up front. Ex: I won't start work without 40% in my hand. Period.

Third, companies hate lawsuits. No major company is going to fight you over a few hundred grand when you've got a valid agreement, they're going to either flat pay it or start negotiating in good faith. They aren't going to blow a pile of money on lawyers with the risk of still losing on top of a potential public shit storm for fucking over Joe-The-Plummer for a few hundred grand. They're going to write checks pretty fucking quick.

[–]notaserialkiller 47 points47 points [recovered]

There‘s a chinese saying about how to succeed at business:
先收錢后花錢
多收錢少花錢
first receive money, then spend money
receive more than you spend.

[–]Dopebear 7 points8 points  (1 child)

Something so benign and logical yet many seem to make a purposeful effort to go against.

[–]happyhorse_g 2 points3 points  (0 children)

Almost as blunt as the Japanese motto of 'do it now, do it right away'. And that's for life, not just business.

[–][deleted] 191 points192 points  (90 children)

As the lawyer who shows up, that the big boys don't expect. I can tell you the OP is giving you the truth. Big companies will rape you like a prison bitch because they know most people will lay down and take it. That no law firm will step up to take them on (even when there is an arbitration clause). And that the people fucked over won't show up and righteously murder the scum who fucked them over, killing the people who fucked them over, their friends, their family, and everyone else in the business. So they have nothing to fear. No one is going to rig a pipe bomb to their toilet so that when they flush sodium powder mealed with fine powder magnesium is then dumped into the water tank to detonate a ten pound black powder charge in a waterproof case filled with screws. No one is going to rig simple mousetrap bombs to their wheels so when they pull out of their drive way, a thirty pound black charge bomb mixed with twenty pounds of red phosphorus goes off underneath the driver's side.

If you go into business, get a good lawyer to act as your admin and give you a heads up on how not to get fucked. How to demand installment payments on work instead of doing all the work and awaiting pay. How to file a lien on a property you did work on even though there is a lien waiver clause in the contract (question of first material breach). And how not to do work based on verbal requests that the company will later deny having asked even though there are emails for the requests, some paid invoices for the work, and all kind of evidence showing the work was requested and done in violation of the Master Services Agreement which the contractor will hold up and say you shouldn't get paid because you violated.

But people think they can do things cheap, skip the lawyers, and then rationalize their fiscal rape. And they won't kill those who fucked them. Thus they get what they deserve.

[–]HS-Thompson 21 points22 points  (3 children)

That no law firm will step up to take them on

As someone who has been a party to commercial litigation multiple times this doesn't ring true to me at all.

I literally can't imagine a situation where you have a company on a clear breach of contract/payment case and can't find at least a half-decent lawyer to threaten and/or file against them for a couple grand.

Do you guys live in towns with like a thousand people in them or something where there are three lawyers and they are all recused out? Have you watched Erin Brockvich too many times?

[–]BleachedWhale 4 points5 points  (2 children)

Agreed. This whole post is masturbatory..

[–]HS-Thompson 1 point2 points  (1 child)

Indeed. And I know a lot of lawyers, I find it incredibly unlikely that there's an attorney thorough enough to pass the bar and succeed in commercial contracts practice but stupid enough to claim they are a lawyer in a public forum while implying they would consider using explosives to target their adversaries, with specific details.

But it's a big world out there I guess.

[–][deleted] 17 points18 points