In 2003 Warren Buffett and his company Berkshire Hathaway met with the executives of Wal-Mart to discuss a major billion dollar deal. Buffett was interested in purchasing McLane Distribution, which distributes groceries and nonfood items to convenience stores, drug stores, theaters, and others. At the time, McLane had sales of about $23 billion, yet operated on paper-thin margins—about 1% pre-tax.
This deal would swell Berkshire's sales figures far more than their income. It was an attractive deal. McLane was a good business (and still is), but it wasn't in Wal-Mart's mainstream future.
Now if a multi-billion dollar deal doesn't already interest you, here's where it gets downright juicy; after meeting for a mere 2 hours, both parties agreed and shook hands. The deal was done. Within 29 days the money was sent with absolutely zero due diligence being performed on Berkshire's part.
A $23 billion dollar deal in 29 days.
Why? How?!?! A multi-billion dollar deal with no due diligence and not much more than a handshake?
A big, $23 billion merger done in 29 days with no due diligence. I knew a guy once who used to work on Wall Street as an investment banker for a short period. He was involved with big deals. Deals of this size would normally take a year to close, because you’ve got to go through so many hoops and hurdles to jump over. And also, you would spend tens of millions of dollars doing due diligence with accountants, attorneys, auditors, verifying, validating that everything’s right.
But because they had trust in this relationship, they were able to move with incredible speed—29 days instead of a year—and with low cost. No due diligence versus tens of millions of dollars. This is only possible when you operate at the "speed of trust.”
In the words of Buffett himself, "To make the McLane deal, I had a single meeting of about two hours with Tom Schoewe, Wal-Mart’s CFO, and we then shook hands. (He did, however, first call Bentonville). Twenty-nine days later Wal-Mart had its money. We did no 'due diligence.' We knew everything would be exactly as Wal-Mart said it would be – and it was." [Don't believe me? You can read about this in Berkshire-Hathaway's letter to shareholders here.]
That is the "Speed of Trust."
I recently read something that Stephen Covey said and it got me thinking:
"Trust always affects two outcomes in business, in relationships, and in life. Two outcomes are always affected by trust. They are speed and cost. When trust is low, you’re going to see speed go down, and costs will go up. I call this a 'tax.' There’s low trust—you’re paying a tax. You’re in a relationship...it could be with a customer, it could be with someone you’re working with, it could be with a friend. If trust is low, guess what? You’re paying a tax, and a manifestation of that tax will be this: the way you can get things done, the pace at which you can get things done. That’s going to go way down. It’s going to take you a lot longer to do anything, and it’s going to cost you a lot more."
I started thinking about my working relationships. There are some people I absolutely love working with. Why? Because we get a heckuva lot done (a heck-of-a-lot). This is because trust is high, therefore SPEED is big time evident.
Then there are people that just take a really long time to do anything and when they do get back to me, I take a long time to respond. Why? Because I really don't trust them. I don't trust that they're competent. I don't trust that they have my best interests in mind.
Aladdin: "Do you trust me?"
The interesting thing about the "Speed of Trust" concept is that it affects all aspects of your business. Think about it: the faster a person understands and trusts you, the faster you attain more collaboration, more creation, more development, more support, and more financing. The faster the team “gets” you, trusts you, believes in you, understands you, then the faster the clearer, the more complete they execute, the more they accomplish, the more they extend the objective.
Trust In The Form Of Confidence
Now when we talk about trust here, we’re really talking about confidence. And the opposite of that is suspicion. So you don’t trust someone when you’re suspicious about them, about their competence, for instance. You don’t have confidence in them if they don’t have the right capabilities or skill sets, if they don’t have the right track record. You don’t have confidence in people or trust in them if they’re not honest, or if their motive or agenda is hidden, and you’re starting to wonder about it and question. That makes you suspicious, and that’s the opposite of what we’re talking about.
But the opposite is true: as an entrepreneur and an influencer, when you build and establish trust in your relationships, suddenly you’re able to move with incredible speed. There’s nothing as fast as the speed of trust, and for that matter, as profitable.
Case in point? The Warren Buffet/Wal-Mart story. But let's not stop there, let's give you a story that you can relate to in terms that we can all understand. Let's talk dollars and cents instead of billions.
Make Your Own Change, Donut Man
In Dov Seidman's book How: Why HOW We Do Anything Means Everything, he writes about a donut and coffee vendor in New York City. The entrepreneur runs a one-man shop. He has a a little cart on wheels with a covering, shielding him from the elements. He sets up shop right outside of an office building in Manhattan—we're talking New York City. And people come by to go into work, and they buy a donut and coffee from him. But he noticed that there were these long lines forming, and then some people would get out of line because it was too long. And that's when he realized that it was taking him a lot of time to make change for his customers.
So he just decided, “I’m just going to put a small basket on top of my cart here with dollar bills, nickels, dimes and quarters, and I’m going to just serve the customers donuts and coffee, and they’re going to make their own change.”
So he put the onus on them: “Make your own change. I can serve you the donuts and coffee. I can move faster.” The results? He went through customers twice as fast. He doubled his customers. He was able to process all these people. He added no new cost, twice the speed, twice the customers, and guess what? They were honest with him. They didn’t rip him off. I mean, he had some risk in this, of course. Maybe someone takes some extra nickels or quarters.
The trust was high, therefore the speed of operation increased, his customers were served and then in turn reciprocated with honest behavior because of the high level of trust he extended to them.
And now there's a movement started with coffee shops all over the world letting their customers make change.
The Dimensions Of Trust
Trust is important. And it's important to intentionally build trust into your relationships. But how?
There are two dimensions of trust: character and confidence (which is inspired by competence).
So there's this sort of ecosystem that you can walk through that enables you to build trust with someone and solidify your credibility with them:
The first three in the list are pretty straightforward and regarding the fourth, we're not talking about a "be a nice guy" kind of trust, we're talking about getting results, but results in a way that builds the relationship. Yes, you make things happen. But, make the right things happen, and do it in a way that builds a culture of trust so that you can do it again, and again, and again.
In other words, you start with this foundation of integrity and intent, but then you add to it the other cores of credibility—capabilities and results—so that you are all about making things happen, getting stuff done. Those are the people you trust, that also are honest people, and that have the right agenda or motive. They’re not trying to just look out for themselves. They’re always trying to create value, and serve other people.
How trustworthy are you? And how trustworthy are the people in your daily interactions?
If you're interested in more in depth studies about the "Speed of Trust," here's some recommended reading:
How by Dov Siedman
The Speed of Trust by Stephen Covey
The 13 Behaviors Of A High-Trust Leader
On that note, here's what I'd like for you to do next:
1. Have some ideas on how you can build trust in your relationships? Leave a comment below letting us know how you plan to take action on this concept. Or if you're struggling with how to apply this, describe your problem in the comment section.
2. If you like leadership content, and good business stories, sign up for our blog updates underneath the coffee cup. It's free, automatic, and frequent...but not too frequent.
Photos: Éole Wind & Tom Simpson