A few weeks ago we had a series of articles about making due diligence on potential new suppliers and buyers. These articles became very popular and we received many feedbacks and comments from you for which we are very thankful. However there is a part of due diligence we haven’t adressed yet, and perhaps it is the most important part of all. The psychology and the mindset. You can have amazing detective skills, you can have access to the most detailed databases of the entire web, but if you succumb to the tricks of your own mind, you will be scammed. I guarantee it.
The psychology of making due diligence
This is perhaps the most important part of due diligence, that I have already pointed out earlier. I also talked about this in our interview with Douglas Stein from PPE Advantage. In the end, the efficacy of due diligence boils down to the mindset of the person conducting it. And there are no exceptions from it. I have seen several people boasting about having hundreds of “verified” contacts. Contacts that turned out to be outright scammers. And I have no doubt that these people carried out some sort of verification on them. But wishful thinking is a very brutal trap of the mind, and the only escape from it is discipline.
My experience with wishful thinking
Those who follow my blog would probably never picture me as a guy who has ever believed in the existence of billion-sized stocks. That is wrong: as many people before me I have also fallen into this trap. During last summer I was in close contact with a person. I will not disclose his name, let’s just say, he had an amazing pedigree. He worked formerly at a very well-known, even infamous company, and I believed him everything blindly because he had supposedly very strong political connections. I believed that there is a secret program to sell billions of facemasks. That LOIs and POFs are standard practice in this business. That I should never trust anyone, only him. Back then we had 29 years of experience with pharmaceutical products and medical devices, yet somehow this guy managed to overwrite this and I blindly followed him.
And in the end guess what happened: there were never any masks. I have been fooled. I felt humiliated and embarassed. It was like waking up after a drunken night – the hangover was cruel, and even the memories were so embarassing they were unbearable. But this brought me down this road, and it is the main cause why I am always extremely cautious with everything and everyone on the internet.
Has this happened to you too?
I would bet it happened. That’s how the brain works – we like to succumb to our wishes and desires. This is nothing to be ashamed of, however you have to overcome this trap of your mind. I have seen many smart people get blinded by the promise of instant riches or by just the sensation of being “part of” something bigger. But that is a trap.
How the trap works
Everyone is scared to some degree during such hard times like the COVID-19 pandemic. We are literally plagued by all kind of fears. We fear for our or our loved ones health. We fear the financial instability that comes with the pandemic. Or fear that our businesses will go bankrupt, our way of life will be threatened or our plans for the future will fall apart. And this fear is what lures us into the trap. People simply love to believe that everything will turn out fine. It is like in the fairy tales we read when we were children: in the end the villain gets punished and the hero gets his reward. Sadly, life doesn’t work this way. However this is the exact belief that gets exploited by the fraudsters. Everyone wants to be a part of something special, something big. What sounds better? That you managed to sell a container of gloves, or to brag about being part of a secret scheme to secure and sell billions of facemasks? And if you calculate the rewards: if you’re doing a good job, you get maybe 50,000 dollars by importing and selling a container . Try to broker 1 billion boxes and secure a commission of 1 percent… and you’re a millionaire. Not to mention, importing and selling requires time, money, contacts and hard work. Forwarding 4-5 Whatsapp messages and sitting on a Zoom call is easier… in fact it is so easy, that this is already a red flag.
An example about the effects of wishful thinking
There was a guy from Nigeria who successfully managed to sell a non-existing nigerian airport to a bank in Brazil. He and his acomplices took the money tried to vanish with it. And he was so good that the fraud wasn’t uncovered for years.
So you are probably wondering, how could a nigerian guy scam a major bank in Brazil by selling them a non-existent airport, something which they could have uncovered with two phone calls? Once again, wishful thinking. The trap was that they promised a commission of 10 million USD for the director of the bank. And if you are hoping for a nice chunk from a sale, you will not make proper background check simply because you are too afraid of what you will discover might kill the dream. I have seen the same effect several times: a scam artist promises people that they will get millions of dollars as commission if they find him a buyer (victim), and with this promise only he managed to keep 9 out of 10 intermediaries away from conducting basic due diligence on him and uncovering the fraud.
So how can we escape this trap of the mind?
I’m not a psychologist, so I cannot tell you exactly how to get rid of the roorts and ground causes of wishful thinking. I only can teach you the practices that worked for me:
Let’s face it, most people are sloppy. Due diligence requires the same discipline as working out for example. If you want to get in shape, you have to drag yourself into a gym three times every week. We’re talking about the same thing here as well: every time a new company comes around and promises you something, you have to force yourself to conduct due diligence. I already showed you basic tricks how to do this, and now you have to make this a habit. In other words: if you receive an offer, don’t take “it comes from a trusted source” as an excuse, and conduct research yourself!
Let’s make a test out of it. Assemble ten questions that you will ask yourself about any new partner, and give out grades, just like in high school. And don’t make it overly complex: the best questions to ask yourself are the yes-or-no ones. For example: “am I in direct contact with this company or is it coming through a broker?”, ” has this company showed me any evidence of their claims?”, or “have they any previous experience in this industry?”. If you do this to every new partner, and you try to be as honest as you can when evaluating them, you’ll see through the facade.
Change the perception
I know every self-help guru, trainer, motivational speaker and other type of leeches say to be open to new opportunities, and never turn one down. And I wish these people would spend just a month trying to find a product like Cranberry gloves… and hear their opinion afterwards. You have to change the way you see opportunities in this business. Don’t see opportunities, see every new “lead” as a potential threat. And it is indeed a threat: it might not trick you out of your money, but you will lose something more valuable than cash – time and reputation.
I always try to minimalize the time I waste for companies and people that cannot deliver me what they promise. If a new company comes around, I ask for documents, background information, a call with the CEO etc. In the meanwhile I make due diligence based on those practices I already wrote about. When it turns out they cannot organize it, or I find something fishy, I quit. Simple as that. This way I minimalized my loss of time: usually I can decide after 30 minutes if I want to go with a company or not.
Ask for an objective advice
We also have a service to help people dodge the scams. If you have someone with you who is not involved in your deal (a friend, a family member etc.), tell them the entire truth and ask for their advice. You have personal attachment and involvment in deals, but they don’t have this and are way more objective than you. And this means they can see the traps more clearly than you ever could. If I’m in doubt, I also ask friends about their opinion – and often they can point out things I have never even thought about. So, if you are not sure, ask someone. You can even ask us, and we’ll answer you in good faith. We have done that and helped dozens of people avoiding scams.
Do not count money you haven't earned
Everyone loves to phantasize about hitting the jackpot. What amazing things you could accomplish if you would have tens of millions of dollars. What luxury cars and mansions you would buy. Where you would go on a vacation.I also like to daydream about stuff like that sometimes. But keep it as a daydream, and never ever let this influence your business decisions.
Example: Someone comes to you and claims “being direct” to a seller that has 20 billion 3M masks on the ground. Your brain automatically makes a quick calculation about the commission you can make on this deal. And afterwards it moves on to these dreams: you could buy a Ferrari from this. Or you could buy a mansion in Malibu. Or a private yacht. Or whatever you desire. And this is wrong, wrong and wrong. You are dragged into the rabbit hole by your own mind, because it refuses to give up on these dreams. Try to forcefully stop it. Take a walk, a cold shower, clean your apartment, anything, just draw your attention away. And take a look at it once you have cleared your mind.
Get your values right
Let’s face it, there is no free meal here. There is a good reason why most of us don’t like people that have money that is perceived as unjust. We don’t like people who never a lifted a finger for success but were born into it. We despise people that use political connections (aka corruption) to get rich. And often we don’t like them because we are jealous, but because we think they don’t deserve their money.
Now let’s turn this around: do you see it as justifiable to get rich overnight by forwarding three Whatsapp messages? It is not your risk to take, not your money on stake, you don’t have to do anything just sit through a Zoom call, sign some kind of a contract, and forward messages. That is not hard work, that’s nothing. Do you really see it justified that you get millions of dollars for all this?
As mentioned above, this is perhaps the single most important article I have ever written about making due diligence. Because it starts with you: your mind, your psychology, your weaknesses. It does not matter who you are. You can be a millionaire, a doctor, a politician, a plumber, a cashier – wishful thinking and the trouble it causes affect everyone. You can have years of experience in this field, like we had, it won’t protect you. You can be a seller, a buyer, an intermediary – you can fall victim to it. And this industry became one of the most scam-infested hellholes of the entire global economy with fraudster, joker brokers, clueless buyers and sellers running around in circles. And the best protection and way to success is pure logic, asking the right questions and not succumbing to your own wishes.