This article was written for the Tony Robbins blog by guest contributor Oren Klaff, and is inspired by content contained in his new book, Flip the Script: Getting People to Think Your Idea is Their Idea.
Building a dream home is something many people look forward to for years. But the moment you’re ready to make it happen, the first thing you’ll realize – before you can get anyone to do a lick of work – is the number of people who start asking you to write checks. Very large checks. To start with, you’re going to need an architect, and it’s going to take a few bucks up front to get a good one. The architect wants you to pay immediately, and sends you an invoice for something like $50,000, due upon receipt. In other words, show me the money. Pay the whole thing up front? Are you crazy?
This is the classic transactional puzzle: In a given deal, how much financial risk should you accept? How much risk should you expect the other party to accept? To sort this out, you talk to the architect about payment terms and come to the following arrangement: You’ll pay 50% of the total in advance and 50% when the plans are delivered. Yes, he can harm you by taking your advance payment and not completing the work as agreed. But you can also harm him by not paying the final bill. So “half now, half later” is a very useful form of a “mutually assured destruction.”
Does this work? Absolutely. In the United States, this simple formula is responsible for at least $1 trillion of deals each year: 50% in advance and 50% upon receipt. What’s happening below the surface is that you and the architect are both seeking enough certainty to go ahead with the deal. You each want the sense of control – that you’re not at the mercy of the other party.
Our ancient ancestors didn’t have to deal with this problem because before the invention of money, they relied on a system of equal barter. But in today’s world, when you’re selling an idea, a company, or a service to be performed in the future, the buyer can no longer hold it in their hand and have it immediately when the deal is done. Today, almost every transaction has inherent uncertainty, which makes us uncomfortable because our brains are wired to expect the type of total certainty our species experienced for a million years in equal barter.