Contrary to popular belief, many large financial transactions are based on verbal agreements. In a world where reputation is everything, your word is your bond because, as Lloyd Blankfein says, if you break it, "you'll never eat lunch in this town again."

Bill Stone has a zero-tolerance policy for dishonesty during due diligence. He argues that because an acquirer will never know as much about the business as the seller, any lie—no matter how small—is a critical red flag. It indicates a fundamental lack of trust and suggests larger, hidden problems, justifying immediate termination of the deal process.

Most technical problems discovered during diligence can be fixed. The real deal-killer is a loss of trust. When a company actively hides major issues, like a failed penetration test, it signals a fundamental dishonesty that makes a future partnership untenable, leading to an immediate abort.

The founder’s 76-year-old partner, having been "screwed over" in past deals, acted out of extreme self-preservation. This past business trauma led him to prioritize his own financial security at all costs, even if it meant reneging on promises to his trusted partner.

When a business partner agreed to a deal and then came back the next morning demanding more, Ken Langone conceded. However, he also immediately stated, "I will never do business with you again." This strategy upholds the current deal's integrity while protecting future dealings from bad-faith actors.

Trust is built incrementally but destroyed absolutely. A single punishing event, such as a betrayal of confidence, can instantly erase all the accumulated positive actions and rewards from a long-term relationship. To be considered trustworthy, one must maintain a perfect record of not using another's vulnerability against them.

To avoid disastrous partnerships, propose a radical transparency exercise. Each party agrees to hire a private investigator to vet the other, then discuss the findings. This surfaces red flags and demonstrates a commitment to honesty, saving years of potential pain.

Kevin Bartlett's story shows how relying on a handshake deal with a trusted, older partner led to a complete loss of his expected multi-million dollar exit. Good intentions and personal relationships are not a substitute for formal contracts when business stakes are high.

After working out 22 distressed joint ventures during the GFC, the key lesson was that partner quality dictates outcomes more than the deal itself. When things go wrong, good partners collaborate to find solutions, while bad partners create conflict, making even a good deal untenable.