Why it is important to vet everyone you deal with

If there is one thing that this economic crisis has taught me, it is that it is VITALLY important to conduct a thorough process of due diligence on any company you plan on doing business with. Professionally every client we consult with goes through an extensive credit check before we agree to deal with them. Once this process is conducted, we make sure they agree to our terms of 30 days with NO EXCEPTIONS. This may put some big corporations‘ noses out of joint, but if the likes of Lehman Brothers can disappear, then no one is safe.

However, it is personally where I have been left surprised, and consequently learnt the biggest lessons. There are two companies in paticular that I have been looking at dealing with for two individual reasons.

1) I have always had more than a passing intrigue into the property market, and have been looking at differing ways to make a passive income through land and property. One method of which interested me was making money on the purchase by buying below value, mainly through off-plan purchases, and one comapny who specialised in these purchases was Inside Track. Inside Track claimed to be a multi-national organisation with the financial muscle and expertise to be able to negotiate big discounts from major property groups worldwide. These discounts they then passed on to their clients. All sounded good. The fact that their adverts were literally everywhere made me think that there was no harm in attending a free seminar. I did, and I’m glad I did. They rolled out what I now realise to be the standard slick knowledgeable senior salesman, who answered all questions thrown at him like a politician with a dark secret. But he had people convinced to part with their money there and then. I was not one of them, and decided to look around a bit more, but subscribe to their newsletter to understand more. I also kept in touch with a few people that I met at the seminar, who bought into the promise to become wealthy through property investment. To cut a long story short, as we know, Inside Track are no more, and these people have lost thousands, and are still waiting for their money back from the administrators.

2) The second company that I came across was New Star Asset Management, a newly created ‘stellar’ fund management company. Their adverts claimed that they had the best performing retail fund managers within the industry and despite their various disclaimers and risk warnings, their website displayed an air of confidence on their ability to obtain a return on your investment. Now I must stress here that my due diligence witih New Star essentially consisted of talking to a few people I know who invested money with New Star in various retail funds. Just as a status update, New star are currently suspending trading on their much lauded Heart of Africa fund, whilst struggling to keep their vastly under performing ‘stars’ from walking out on them.

The main point of this is not to rant against the mis-fortune of two major companies within their respective sectors, but to highlight a common theme between them. The main reason how I came across both companies was through adverts. Both companies posted big billboards on motorways, took out flashy ads in the FT and various money magazines and basically plastered their brand on most surfaces guaranteed to be looked upon by people like me who have little knowledge of their respective industries. I have learnt that the more a company advertises, the less credible it becomes.  If I want to do business with someone, I want to do business with an expert in their field. If someone is advertising everywhere, it screams desperation. With hindsight, both Inside Track and New Star had business models which seemed to consist of building a list to make a decent return. Unfortunately the downturn in the economy found both these companies wanting. In my next blog, I will talk a little about positioning yourself as an expert, as then and only then can you really start to attract clients, as opposed to chasing them and consequently seeming desperate.

I hope you have a great Christmas!

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3 Responses to “Why it is important to vet everyone you deal with”

  1. 1 AZMike January 1, 2009 at 5:45 pm

    Carlos your post is timely, due diligence is something we all “sometimes’ put off on others. A line I often quote by the late Cavett Robert’s, “Most people are walking around with their umbilical cord in hand looking for a new place to plug it in.” We all get lazy with our “need” to let someone smarter, wiser and better than us to do it for us. Me too.

    In my own experience I came into an economic upswing and decided it was time to ‘invest in my education’. Well I got an MBA in the lesson of coaching groups, importance of “doing something even if it aint perfect yet” and doing it NOW! I joined a marketing program in a niche business(one I had no knowledge or experience in) because that was ‘where the money was’. The coach gave a multiple item list of things to do but since the business was new to me I did not implement those things ASAP, I mule-trained-it(Taking classes to learn the biz, learning how to do a website, etc.). Well it just so happened that this particular niche was going to die in 6 months, but it was Red Hot for 5 months if I would have took massive action, maybe found a partner that new the business and implemented across the board the program would have paid for itself many times over. Keywords being “would have”.

    Now you don’t completely explain why you did not get involved with the programs above, maybe you are smarter than the average bear, maybe that’s your way. My way has been procrastination, looking for someone to do it for me, “looking for a new place to plug my umbilical cord in.”

    Now out of even the expensive lessons in life you can learn a ton, and I did. I met some great people just like you. I still have a ways’ to go but the contacts I have found because of choosing my path will be worth their weight in gold. Jay Abraham mentions in his “Your Secret Wealth” program that when he starts anything he visualizes a pot or bag of Gold coming from it and it always is found. That’s an excellent program as all of Jay’s stuff are, that and his book “Getting Everything You Can Out of All That You’ve Got” are his least costly programs but they are great lessons in marketing and seeing the unseen.

    Mike Feddersen

    • 2 carlosdajackal January 2, 2009 at 10:23 pm

      Hi Mike. Thanks for the great comment. I’m very new to investing, so for me, the main reason why no action was taken was purely down to analysing and experimenting with the markets, as well as lack of capital. For me 2008 was used purely to analyse trends with varying funds and other investment instruments to gauge their performance. In your words, I was walking around with both hands firmly grasping my umbilical cord! However, despite this cautious outlook, I have been able to learn a lot about various instruments and different techniques to gauge their level of performance. I also feel that the research I conducted into every ‘option’ will stand me in good stead for this year, when I will be making the transition into a much more active investor. I feel, like you, that any mistakes provide you with an opportunity to learn. As my mother always used to tell me, “Whatever doesn’t kill you will only make you stronger!”

      Also, thanks for the tip relating to Jay Abraham. Must admit I have purchased one of his Mastermind marketing programs and it something that I constantly refer back to for his timeless direct marketing techniques and principles.

  1. 1 Due Diligence Process Trackback on December 27, 2008 at 12:47 am

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