Played for a Sucker

We're the best con man we know. Most often we're our own mark.

Everybody knows the con man. He's on a first-name basis with the bottom of the deck. He shows up with a story, the story is good, you're busy, the money moves. Afterward he's called sophisticated and you're called the sucker, and the money doesn't come back. That's the last five minutes of the con. The first five years were yours, and they're the part you can do something about.

You decided what had to be true this year. You did that at home, with nobody watching, the way a man chooses his next truck in his own driveway and drives to the lot to be agreed with. The con man didn't build any of it.

The con man doesn't make the sucker. He finds one who's already made.

The want comes first

A company buys a competitor at a price that only works if the next three years go the way the last three did. A family hands the business to an outsider on references that read like fan mail and skips the one call to someone with no stake in the hire. An investor commits to a fund because the people already in it are the people he'd like to be seen with. Nobody lied in any of those. Someone wanted something. A story arrived, cut to the shape of the want. The lie, when there's one, is tailoring.

To understand why a careful buyer overpaid, don't study his model; find out what he was tired of. When a board approves a bad hire, find out which problem the directors had stopped wanting to own. The numbers in the pitch were real, and nobody's decision turned on them.

Say the offer is for a business doing $40 million with a margin that has drifted up two points a year for three years. The model carries the drift forward. Nobody built the model to lie. The analyst was told what the deal needed to clear, and he built a model that cleared it. The question that would have stopped the deal wasn't in the model. It was whether the margin came from pricing the customers would keep paying or from cutting the maintenance that comes due in year two. One call to a former plant manager would have answered it in 10 minutes. The call wasn't made, because the man who could have made it already knew what he wanted to hear.

Do you see a man who is wise in his own eyes? There is more hope for a fool than for him.

The man who's sure he can't be taken is rated below the fool, because the fool can still be told something.

Three kinds of mark

There are three kinds of mark, and each does his own share of the work.

The tired one wants a problem to be over, and anyone offering an ending gets a warmer hearing than anyone offering a solution, because a solution means more work and an ending means rest. An acquirer six months from year end is tired, with an investment committee that meets twice more before the fund closes. So is a founder in year nine.

The flattered one has been told the thing he was waiting to hear. That he sees what others miss. That his firm is the natural home for this company. He didn't need the flatterer; he'd agreed with him before he arrived.

The insider wants to be inside more than he wants to be right. An investor commits to a fund because the three names on the first close are the three he'd like to sit beside at the annual meeting, and funds have been raised on that want, with the diligence done after the commitment. It feels like judgment, because the people confirming it are the people whose judgment he trusts.

A good record makes all three worse. Twenty years of being right in your field can be 20 years of never checking outside it, and you arrive at the one decision outside your field carrying the confidence you earned inside it. The one thing the con man can't bring is your confidence.

Who wrote it down first

The people who wrote down that the mark makes himself weren't in finance. Eric Hoffer loaded ships in San Francisco and wrote The True Believer in 1951, about mass movements. He put it this way: "The rule seems to be that those who find no difficulty in deceiving themselves are easily deceived by others. They are easily persuaded and led."

Daniel Kahneman wrote down how it works in the mind, in Thinking, Fast and Slow. The fast part of the mind understands a sentence by trying to make it true. You believe first and check later, if there's time and appetite. There's no appetite when the sentence is the one you were hoping for.

Daniel Boorstin worked out the economics of it in The Image, in 1962: "By harboring, nourishing, and ever enlarging our extravagant expectations we create the demand for the illusions with which we deceive ourselves. And which we pay others to make to deceive us." You're the demand.

Why the pitches sometimes pay

The tailoring starts before any pitch arrives, with the reason you give yourself. The insecurities of a leader are often dressed up as strategy.

The dressing up happens at home, before the meeting. A man afraid the business has stalled calls the acquisition a growth strategy. A woman afraid of the partner who keeps disagreeing with her calls the reorganization an alignment. Each has found the words that let a want be said aloud in a boardroom, and once it can be said there it can be funded.

Flattery, a pitch and a packaged strategy work the same way: each tells you something you hoped was true about yourself. The worst thing about a lot of pre-packaged strategies a leader might buy off the shelf is that they can actually work. What keeps you buying is the memory of the time it paid, which is what a casino sells.

Is there a sales pitch for folly? Yes, but foolishness is packaged up and sold as a better way to be successful. It arrives as a growth thesis or a partner who gets it. The packaging is a description of what you asked for.

Which side the mark sits on

All of this assumes you can tell which side of the table the mark is on. Nassim Taleb, in Skin in the Game: "Outside of friendship and love, it is very hard to find situations with bilateral, two-way suckers." Friends can be suckers together and nobody keeps score. Across a deal table, someone is the mark. The only question is which side he's sitting on, and the people most certain it's the other side are the ones Proverbs has in mind.

Most of the cons you'll meet aren't crimes. They're agreements between two people who each wanted something and neither of whom checked. The buyer wanted it closed by June, because his fund's investment period ended in July. The seller wanted the number in the letter, because his partner's buyout was priced off it. Both wanted the diligence clean, and diligence scoped by people who want it clean comes back clean.

What to check before the meeting

The fix is cheaper than the con. You skip the one question whose answer could take away the thing you already want. The people who don't get taken write down, before the meeting, what has to be true for this to be right at this price, and the item they haven't tested is the one they least want tested. That item is the one to make a call on, to someone with no stake in your relief. There is a man in every market so honest you could shoot craps with him over the phone, and the ones who don't get taken found theirs before they needed him.

The adviser and the seller are often the same man. Taleb's book is about the person who says a move is good for you when it's also good for him and costs him nothing if it isn't. The banker who says the deal is strategic and the friend who says you'd be great on that board are quoting you a price. The opinion has to come from someone with no price in it.

Which mark you are changes by the deal: tired, flattered or inside. You're one of them more often than you'd like, and the con man doesn't need you to be all three.

If you're the one selling, the same want is working for you. It's a lot easier to sell the dream than it is to deliver on it. When the buyer stops asking hard questions, you've found a man who wants something more than he wants to be right, and he'll remember, later, who let him.

You can't audit every want. You can name the one behind this quarter's story and keep it off the diligence list.

The mark is the last to know, and the only one who could have known first.