What is More Important: Transactions or Relationships?

Cooperation and collaboration

In its very basic expression, business involves a transaction between a willing seller and a willing buyer. This is, of course, true. You have to sell and collect the money in order to stay in business. And, most of us tend to focus on that part of the equation. However, the precondition for the transaction to occur is the “willing” part, which we tend not to place a lot of attention on. I think this is a mistake, the willingness to engage in the transaction is even more important.

Have you ever been to a really good restaurant but the service is lousy? Have you ever bought a product that didn’t work as you thought it would? Did you ever buy a garment and then changed your mind and sought to return it? Did you ever use a website that promised you certain results but not fulfilled that promise? Have you ever wondered if it is a good idea to work with a colleague, client or supplier? Have you ever asked your lawyer how to add make a contract even stronger than is normal? I could go on and on with example, but I think you get the idea.

Every transaction is based on establishing and maintaining a relationship between between, at least, two parties.

Unfortunately, many of the business leaders who seek out my counsel focus on increasing the number of transactions instead of first focusing on the relationship which will lead to the first transaction and hopefully many more.

I’d like to go even further into this reasoning by arguing that our ability to evolve as a society – even a species – is entirely dependent on our ability to cooperate and collaborate with each other. Consequently, a business can be better understood as cooperating and collaborating at a large scale, with many people near and far.

After all, a business exists because it owns and/or controls a asset that it uses in its products/services which customers will acquire if it provides them with a competitive advantage in achieving a specific task. By definition, the company needs to establish a relationship with the client in order to supports them in what they are trying to achieve.

The real value is in the relationship.

Interestingly, the superior value of relationships can also be found in company valuations. Relationship-based companies like Facebook and Twitter trade for much higher multiples than a transaction-based company like eBay.

  • Facebook: P/B 7.1; P/S 19.2; P/CF 42.2
  • Twitter: P/B 6.4; P/S 14.2; P/CF 172.4
  • Ebay: P/B 1.7; P/S 1.6; P/CF 6.6

(Where P/B = Price/Book; P/S= Price/Sales; P/CF= Price/Cash Flow)

In fact, the most successful Internet companies are successful because they help the user establish and maintain a relationship, for example: WhatsApp, Instagram, AirBnB, Uber,…etc. In the future, with the “Internet Of Things”, I am sure we will see many new companies establish themselves as relationship leaders with things and places, too. Do you have a relationship with your thermostat today? What a bout your front and back door? Your HVAC unit? Doesn’t Telsa manage energy by managing the relationship between the road, the car and the driver? Soon, the car will manage its relationship with other cars, people, the road, …etc.

I’m sure most of you don’t look at the Internet as a relationship platform but, in my view, it is for the very simple reason that at the base of it the Internet is a communication device. And, relationships are all about communicating efficiently and effectively.

But a focus on the relationships does not require us to only look at the Internet. If we recall the list at the start of this article, most of the questions involved traditional brick and mortar businesses. So, I recently asked a couple of my clients to approach their business as relationship building and the results have phenomenal. Client 1 has so much work he cancelled our coaching sessions so he could catch up. And client 2, whom I career coach, for the first time in year, has no problems to discuss with me. So what is the takeaway here?

Focus on building relationships that allow you to cooperate and collaborate and the transactions will follow.