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Entrepreneurial Dealmaking: Negotiating Something from Nothing
With Rhett Weiss, Executive Director, Entrepreneurship and Innovation Institute, Cornell University
Rhett Weiss Class of ’81 Executive Director Entrepreneurship and Innovation InstituteCornell University
Senior Lecturer of Management,Samuel Curtis Johnson Graduate School of Mgmt.
Intro: Overview• Goals
• Provide quick exposure to process
• Help you negotiate successfully, including with “big players”
• Think and act like a strong, conscientious negotiator without being big
• Warning: very high and quick orbit; short presentation (there is much more)
• Content• Introduction; My Background
• Typical Entrepreneur’s View of Negotiation
• Negotiation Defined; Process
• 3 Dynamic Parts
• Common Startup Deal Types
• Strategy Framework; Tactics
• Best Practices (time permitting)
• Conclude
Intro: Rhett Weiss at a glance• At Cornell
EII Executive Director; BR Startup Suite, Fellows Program, events, programmingJohnson Faculty: entrepreneurship, venture capital, & negotiationsCornell Tech in NYC: Tech Enterprises (entrepreneurship); Pitch Lab; Innovation
• At GoogleStrategic acquisition & dev. projects; negotiated deals with heads of state, CEOsConducted negotiation training worldwide
• Pre- and Post-GoogleEntrepreneur, 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 (now Sirius), Orbital Sciences, Motorola, AOL, Oracle JV; others
Boards of Directors; C-level positions; bank COO; boards of advisors; mentorConsultant; former Big 4 director and national mgt. team; now, global consulting“Recovering attorney”; corporate, business, finance, and real estate transactionsPresenter, author
Hey Entrepreneur, does this look familiar?
Q: How do you negotiate with big players?A: The same way you eat an elephant!
One bite at a time.
Negotiation
• Multilateral
• Interactive
• Usually iterative
• Sometimes repetitive
• Process
• To accomplish goals
• At least 2 parties
Four-Stage Negotiation Process
Prepare Set the Stage
Make the Deal
Close the Deal
Four-Stage Negotiation Process
• Prepare. Then, prepare some more.
• Develop Game Plan; goal setting; values
• Strategy and Tactics: links, de-links, and concessions
• Assess 3 Dynamic Parts: time, “leverage,” and information
Prepare
Four-Stage Negotiation Process
• 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, and information
• Set ground rules; protocols; agendas
• Decision making authority vs. responsibility
Set the Stage
Four-Stage Negotiation Process
• Proposals: if ____, then ____; tentative/conditional
• 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)
Make the DealMake the Deal
Four-Stage Negotiation Process
• 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
• Confirming/memorializing the deal
Close the Deal
Negotiation Process Iceberg
Closing the Deal
Making the Deal
Setting the Stage
Preparation
Negotiation’s 3 Dynamic Parts: Time, Power, & Info
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
David vs. Goliath
Time
PowerInformation
Time Available time to each parties; time
constraints Timing strategy and tactics
Power - 7 Types: Title Reward/Punishment Consistency Charisma Expertise Situation Information
Common Startup Deal Types
• Contracts – from Ordinary Course of Business to Infrastructure to Strategic
• Goods (supplies, materials), Services/Outsourcing (project-specific and functional), Utilities
• Company-Level Buy/Sell (M&A); Asset vs. Stock Deal
• Founders Agreements; Investment Agreements
• Stock Option Agreements; Profit Sharing Agreements
• Employment Agreements
• 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
1. Process
• 1. Preparation; 2. Setting the Stage; 3. Making the Deal; & 4. Closing the Deal
2. Parties
• Identify Your Side (YS) & Other Side or Sides (OS).
• Any additional players that are calling shots in or influencing the negotiation?
• Roles: Buyer, customer, seller, developer, strategic partner, acquisition target, technology licensor, principal, agent, advertiser, etc.
• Key team members for each.
3. Deal Fundamentals
• Subject or Object. What is the deal or negotiation about?
• Only a one-time deal, or are there future opportunities to bring into the mix?
• Transactional or relational? Desired deal structure? Alternative structures?
Suggested Negotiation Strategy Framework
4. Necessary Deal Points
• Examples: subject/object, structure, price, duration, frequency, quantities, definitions, IP ownership, due diligence/inspection rights, reps & warranties
5. Each Side’s Key Goals or Interests
• Shared, complementary, and competing.
• What does each side really need vs. want?
• Separate positions from interests
6. Each Side’s Issues
• Problems, obstacles, or challenges that need solutions
7. Values, Principles, or Standards
• What values (principles or standards) are important to each side?
• Compare: What is something’s value (valuation or worth) to each side?
• Affect on each side’s framing of interests, positions, issues?
Negotiation Strategy Framework, continued
8. Time, Power (or Leverage or Influence), and Information• Time:
• Available time to all parties; time constraints• Timing strategy and tactics
• Power: presence of the various types among all parties –• Title• Reward/Punishment• Consistency (a/k/a “Referent”)• Charisma• Expertise• Situation• Information
• Information• Known to all sides already (public, industry, market, or company info)• Known only to YS and can be disclosed to OS, and vice versa• Known only to YS but cannot be disclosed, and vice versa• Needed but not yet possessed by one or more sides
Negotiation Strategy Framework, continued
9. Impasse(s) or Sticking Point(s)
• What may prevent or is preventing an agreement?
• Where and why might the parties become stuck?
• Where and why are they stuck?
• What are the alternatives and substitutes for all sides?
10. Desired vs. Actual Results
• 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 actual key provisions?
• Reality Check: What is the 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? Did one side walk away? Other?
Negotiation Strategy Framework, continued
• Viability, Likely Success• May seem counterintuitive
• Often are used incorrectly, like “splitting the difference”
• Generally work when used correctly; never work all the time
• 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
Common Tactics: Tools, Moves, Tricks of the Trade
• 24
Closing the Deal
Making the Deal
Set the Stage
Reluctant
buyer/seller
The list
Feel, felt, found
Flinching
Uproar (we want it all)
First offer
Best offer
Flinch; Grimace
Play dumb, act smart
Trade-off
Good cop, bad cop
Higher authority
Squeeze
Funny money
Splitting the
difference
Printed word
Set aside
Decoy
Red herring
Nibble
Fait accompli
Set aside
Turn down, walk away
Withdrawn offer
Hot potato
Throw-away concession; So what?
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
Best Practices: 5 Do’s1. 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
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
Time/Timing Power: 7 types Information: 4 types Strategies & Tactics Best Practices: 5+ traits,
5+ dos, & 5+ don’ts Thoughts & Actions:
Know how Goliath thinks but don’t act like Goliath
Conclusion.
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Thanks everyone, and stay in touch.
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