Published on March 3, 2014
NJ Startups – Meetup #2 New Brunswick, NJ 27 February 2014 Entrepreneurial Negotiations and Deals: A Really, Really, Really Short Primer Rhett L. Weiss, J.D. Executive Director, Entrepreneurship & Innovation Institute Senior Lecturer of Management, Johnson Grad. School of Mgt. Visiting Senior Lecturer, Cornell Tech Cornell University © 2014 Rhett L. Weiss. All rights reserved.
Introduction: Presentation Overview • Goals 1. Help you – as an entrepreneur -- negotiate well, including with “big players” -- Think and act like a strong, conscientious negotiator without being big 2. Learn some negotiation similarities/differences between startups and big players 3. Warning: very high and quick orbit; short presentation (there is much more) • Content 1. Introduction; My Background; Some Questions 2. Typical Entrepreneur’s View of Negotiation 3. Negotiation Defined; 3 Dynamic Parts; Sources of Negotiation Power 4. Deal Types 5. Process 6. Suggested Strategy Framework; Two Examples 7. Tactics Overview 8. Best Practices 9. Take Aways; Q&A 2
Introduction: RLW at a Glance • At Cornell – EII Executive Director; BR Suite, fellows program, events, other programming – Johnson Faculty: entrepreneurship, venture capital, & negotiations – Cornell Tech in NYC: Tech Enterprises (entrepreneurship); Innovation; Pitch Lab • At Google – Strategic acquisition & dev. projects; negotiated deals with heads of state, CEOs – Conducted negotiation training worldwide • Pre- and Post-Google – Serial and parallel entrepreneur, innovator, “dealaholic” – Founded, co-founded: bulk mailing (Jr HS through HS); DEALS® software (patent holder) & DEALTEK consulting, data center, commercial bank, RE dev., aquaculture – XM Satellite Radio, Orbital Sciences, Motorola, AOL, Oracle JV, & other deals – Boards of Directors; C-level positions; bank COO; boards of advisors; mentor – Consultant; former Big 4 director and national mgt. team; now, global consulting – “Recovering attorney”; corporate, business, finance, and real estate transactions – Presenter, author 3
Hey Entrepreneur, does this look familiar? 4
Q: How do you negotiate with big players? A: The same way you eat an elephant! 5
One bite at a time. 6
“Negotiation” • Multilateral • Interactive • Usually iterative • Sometimes repetitive • Process • To accomplish goals • At least 2 parties 7
Negotiation’s 3 Dynamic Parts: Time, Power, & Info Time Information - 4 Types: Known to all sides: Internet/public -- industry, market, or company info Known only to your side (YS) & can be disclosed to other side (OS); vice versa Known only to YS but cannot be disclosed to OS; vice versa Needed but not yet possessed by one or more sides Information Available time to each parties; time constraints Timing strategy and tactics Power - 7 Types: Time David vs. Goliath Title Reward/Punishment Consistency Charisma Expertise Situation Information Power 8 8
Where does negotiating power comes from? Perception, Anticipation Knowing Process, Facts, & Strategy Confidence, Ability to Act 9 9
Negotiating Power 10 10
Common Startup Deal Types • Contracts – from Ordinary Course of Business to Infrastructure to Strategic • • Company-Level Buy/Sell (M&A); Asset vs. Stock Deal • Founders Agreements; Investment Agreements • Stock Option Agreements; Profit Sharing Agreements • Employment Agreements • • Goods (supplies, materials), Services/Outsourcing (project-specific and functional), Utilities IT Agreements: Data Center Hosting, Cloud, Storage, Service Level Agreements; Others Intellectual Property • NDAs – Nondisclosure or Confidentiality Agreements • License Agreements • Development Agreements; Professional Services Agreements; “Work for Hire” • Plans, Specs, Drawings, Designs, Trademark, Copyright • • Patent Assignments Leases • Equipment • Real Estate 11
Four-Stage Negotiation Process Prepare Set the Stage Make the Deal Close the Deal 12
• • Contact w/ OS starts; building relationship; questioning Likelihood of agreement/no agreement Determine each other’s goals, values (2 meanings: valuations & standards), parameters, constraints, upsides, and downsides • Determine opportunities: one-time deal, piece of action, future deals • Start framing interests, positions, and issues • Reassess time, leverage, information • 13 Assess 3 Components: time, “leverage,” and information • Close the Deal Strategy and Tactics: links, de-links, and concessions • Make the Deal • • Set the Stage Develop Game Plan; goal setting; values • Prepare Prepare. Then, prepare some more. Set ground rules; protocols; agendas • Decision making authority vs. responsibility 13
Communication; watch for changes; question; listen Rapport or ‘chemistry’ • Roles in communications and at meetings; watch for changes • Separating interests and positions; solving Issues • Start compromising (make/trade interim concessions and agreements) • Going from tentative to firm agreements, iteratively • Conflicting pressures to close • Retrading • Common types of closes • Walkaway power (real ability vs. theatrical) • Getting through slow times, breaking deadlocks/impasses • Going to war; how to fight in tough situations • Close the Deal Proposals: if . . ., then . . .; tentative/conditional • Make the Deal • • Prepare Confirming/memorializing the deal 14 14
Negotiation Process Iceberg Closing the Deal Making the Deal Setting the Stage Preparation 15
Suggested Negotiation Strategy Framework 1. Process • 2. 1. Preparation; 2. Setting the Stage; 3. Making the Deal; & 4. Closing the Deal Parties • Identify Your Side (YS) & Other Side or Sides (OS). • Key team members for each side. • Roles: Buyer, customer, seller, developer, strategic partner, acquisition target, technology licensor, principal, agent, advertiser, etc. • Any additional players calling shots in or influencing the negotiation? 3. Deal Fundamentals • Subject or Object. What is the deal or negotiation about? • Only a one-time deal, or future opportunities? Transactional or relational? • Desired deal structure? Alternative structures? 16
Negotiation Strategy Framework, continued 4. Necessary Deal Points • Examples: subject/object, structure, price, quantities, duration/term, frequency, scope, IP ownership, due diligence/inspection rights, reps & warranties Each Side’s Key Goals or Interests 5. • Shared, complementary, and competing. • What does each side really need vs. want? Separate positions from interests. Each Side’s Issues 6. • 7. Problems, obstacles, or challenges that need solutions Values, Principles, or Standards • What values (principles or standards) are important to each side? • Compare: What is a deal point’s value (valuation or worth) to each side? • Affect on each side’s framing of interests, positions, issues? 17
Negotiation Strategy Framework, continued 8. Time, Power (or Leverage or Influence), and Information 9. Impasse(s) or Sticking Point(s) • What may prevent or is preventing an agreement? • Where and why might the parties become stuck? Where/why are they stuck? • What are the alternatives and substitutes for all sides? 10. Desired vs. Actual Results; Reality Check and Debrief • What is YS’s desired agreement? What is OS’s desired agreement? • Must a complete agreement be reached by either side? • At end of process, was a complete agreement reached? • If so, what are its key provisions? Detailed resolution of each difficult issue? • What exactly, if anything, is left unresolved or set aside? Only a partial deal? • Or, if no deal at all, why not? Unresolved issue? One side walk away? Other? 18
Two Entrepreneurial Strategy Examples -Example 1: Frame Disadvantages as Opportunities David’s Perceived Disadvantages … Framed as … Goliath’s Opportunities Limited Capital Ready for Investment Lack of Experience Open to New Ideas No Sales Can Adapt/Modify Prototype Entrepreneur’s framing can shape larger party’s strategy and behavior for the negotiation’s duration. 19 19
Strategy Example 2: Pit Big Players Against Each Other SoBe • Rivals can work against each other to their detriment and Entrepreneur’s benefit. • Entrepreneur with strong “Plan B” pressures rivals to make concessions. 20 20
Common Tactics: Tools, Moves, Tricks of the Trade • Viability, Likely Success • • Often are used incorrectly, like “splitting the difference” • Generally work when used correctly; never work all the time • • May seem counterintuitive Each has a counter-tactic Recognize OS's tactics • • Let OS know: decreases OS’s game playing, increases your power Recognize the Difference Among Smart Plays, Bluffs, and Lies • Tactics reveal each side’s negotiation ethics, good or bad 21
Reluctant buyer/seller Flinching Best offer The list Feel, felt, found Uproar (we want Flinch; Grimace it all) Play dumb, act First offer smart Trade-off Good cop, bad cop Higher authority Making the Deal Set the Stage Squeeze Funny money Set aside Splitting the difference Decoy Red herring Nibble Printed word Fait accompli Withdrawn offer Set aside Hot potato Turn down, walk away Closing the Deal Throw away concession; So what? 22 22
Best Practices: 5 Traits of an Effective Negotiator 1. Understands and conducts negotiations as a process • A multilateral, interactive, and often iterative process to accomplish the goals of two or more parties 2. Does the homework on a regular basis • Masters the issues & their interrelationships • Masters information and adapts to changes in it 3. Maintains sensitivity and tolerance for interpersonal differences • Personality types • Nationalities, Cultures • Communication styles, methods, and content; notice the changes 4. Emphasizes areas of agreement, not disagreement • Explains and substantiates own points 5. Instills strong belief in OS that YS will uphold the deal • Shows integrity, reliability, and credibility 23 23
Best Practices: 5 Do’s 1. Know your stuff – be on top of all sides’ facts, interests, and issues 2. Be a great communicator ( = listener, not just talker) • Keep your side informed of all key negotiation communications • Communicate regularly but carefully with OS 3. Consider own enthusiasm’s affect on concessions, agreements 4. Be alert to pressure • All sides are under pressure to deal, settle, compromise • Generally, the side under the most real or perceived pressure "loses” 5. “Keep your eye on the ball”: focus on movement, measure progress • Concessions and interim agreements • Statements, sometimes silence • Action, sometimes inaction 24 24
• Best Practices: 5 Don’ts 1. Don't assume money or price is the all-important deal point • After all, it probably isn’t 2. Don't unnecessarily narrow your negotiating range or flexibility • When possible, don’t be the first side to make an offer or name a price 3. Don't narrow the negotiation down to only one issue • Negotiations are so much easier with at least two issues in play 4. Don't disclose your side's time constraints, deadlines, or pressures • . . . unless there is a compelling reason to do so 5. Don't become emotionally involved or egotistical • Don’t get personal • It’s typically counterproductive, and it’s a lonely place 25 25
Time/Timing Power: 7 types Information: 4 types Process: 4 stages Strategies & Tactics Best Practices: 5+ traits, 5+ dos, & 5+ don’ts Thoughts & Actions: Know how Goliath thinks but don’t act like Goliath 26
Question or Comments? Please contact me! Rhett Weiss: firstname.lastname@example.org 27
5 Tips for Negotiating a Big Deal. ... related products from bigger companies, ... just won’t do the deal before you start the negotiation.
Where does negotiation apply in your small ... service level agreements with other companies. Your negotiation skills will be needed when ... Startups ...
Negotiation Case Studies. ... Analyzes a series of successful deal-making strategies useful ... US company Kennecott managed to enhance and turn ...
Learn valuable entrepreneur negotiation skills to help your startup ... How NOT to Negotiate With Bigger ... negotiation process that cost our company ...
6 Financial Mistakes Small Businesses ... as a merger of two public companies. ... negotiation, the side that needs the deal more is the ...
Small Business; Small ... Tips for Negotiating With an Insurance Company. ... your claim negotiation process will probably consist of nothing more than a ...
Every day, at work and at home, you are involved in dozens of negotiations, big and small. Many people find negotiation difficult because of their desire ...
How do small companies get big? It’s a question that gets asked a lot. It’s also a hard one to answer. Great execution is always key, but if ...
Essential Negotiation Strategies 1. ... the owner of a small ... who ends up with the greatest advantage in the negotiation. By making the ...
... form of influence to get a better deal, ... before participating in negotiations. Making one's BATNA ... a small group of thoughtful ...