April 24, 2013

The Value of a Handshake

          William Sargent, 35, the author of the following essay, is chairman of Spitting Image productions and Managing Director of Viva Pictures. He became a financier in the television industry after taking a degree in business and legal studies at Trinity College, Dublin. In 1985, he founded The Frame Store, one of London’s leading digital video post-production facilities. Recently he has put together more than £15m of funding for European programming, and acted as executive producer on Prix Italia winners and British Academy nominees.

          My biggest mistake was trying to do business on the strength of a handshake without doing my research first. In 1983, I had just sold a company that distributed video equipment around Europe, and I was looking for new opportunities. Quite idealistically, I decided I should be trying to put something back into Ireland, where I come from. I had run three businesses while I was at college to pay for my education, so I knew my way around. And over the next two years, I attempted to set up three partnerships. On each occasion I did so without a contract. It cost me around £100,000.

        The first two cases involved importing various video-related goods. On both occasions they refused to pay the agreed price on delivery. Both sets of people reckoned they could renegotiate the package because the goods were already in the country. And because I had paid the freight bills to get them there, I didn’t really have the option of shipping them back again. On the third attempt, the problem was that both the people selling the equipment and the potential customers were never honest with us in terms of their ability to pay. Instead of a business, we had a number of people saying they could do things which they couldn’t, and at the point when I owed £40,000 to the Irish banks, I called it a day. I paid the money back, but as a result, when we started The Frame Store, my wife and I didn’t have the capital to take a big enough stake. It went on to become one of the most successful companies in the industry, and in order to own the stake we deserved, we really had to pay for it.

          Funnily enough, I still do business on a handshake. I never want to go into business on my own: I always look for a partner. I have neither the aptitude nor the desire to run a business on a day-to-day level. I work as a strategist, identifying opportunities and creating relationships, preferably in niche markets. If you’re going to make money in the long-term, you’ve got to stick with someone you trust, because you don’t control the cheque-book and therefore you can be fiddled. After five years, it could cost you a substantial amount of money, so you might as well find out in the first twelve months if that trust is going to be betrayed. Trying to enforce contracts only creates ulcers; it’s virtually impossible. If, instead, you recognize that you’re never going to get what you set out to get or that you made a mistake, you save yourself a lot of angst. On that basis, I decided quite early on that I would try to do business with people on trust. Most times it works …

          The Germans and the Japanese understand long-term partnerships. They’re not in it for this year’s deal. That is the reason for doing business on a handshake. It is an incentive for the person to mislead you; so you find out in time that you shouldn’t be in partnership. No person has all the skills to create a successful business. It has to be a team effort. I’ve learnt to spend a lot more time on research before entering a partnership. You have to be partners in spirit, not in contract. And if the partnership can’t be based on a handshake, then when the pressure is on, your business will fall apart.