Negotiations and Deal Making with Bigger Companies as a Small Startup
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Negotiations and Deal Making with Bigger Companies as a Small Startup

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This was originally presented at NJ Startup at February's monthly event. ...

This was originally presented at NJ Startup at February's monthly event.

Are you recognizing and seizing maximum value in your start-up’s opportunities?

Rhett L. Weiss, Executive Director of Cornell University’s Entrepreneurship and Innovation Institute, will discuss creating and negotiating entrepreneurial deals with players that have more resources and leverage.

About the presenter:

Rhett Weiss is the executive director of the Entrepreneurship and Innovation Institute at the Samuel Curtis Johnson Graduate School of Management at Cornell University.

In addition, he serves on its faculty, teaching or advising graduate business students in entrepreneurship, negotiations, and venture capital, including BR Venture Fund, Johnson’s evergreen venture capital fund. He also serves on the faculty of Cornell Tech, Cornell’s new campus in New York City.

Before joining Cornell, Weiss had over 25 years of successful leadership and management roles. He has served as a bank COO, directed a consulting practice at a Big 4 firm, practiced law at a major international law firm, and holds a software and business method patent.

During his career, he has been involved in over $35 Billion of transactions and in dozens of entrepreneurial ventures and innovation initiatives including XM Satellite Radio, Motorola, Orbital Sciences, AOL, and an Oracle joint venture, among others.

From 2005 to 2010, Weiss served as senior team leader - strategic development for Google Inc. He was chief designer and negotiator of several large strategic acquisition and development projects for Google’s global infrastructure, typically involving its legendary data centers.

Weiss holds a BS in management with honors (finance major) from Tulane University, a doctorate of jurisprudence from the College of William & Mary, and an MBA-level executive certificate in international business from Georgetown University. He also has held board chairman and other leadership positions at professional, educational, and civic organizations.

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    Negotiations and Deal Making with Bigger Companies as a Small Startup Negotiations and Deal Making with Bigger Companies as a Small Startup Presentation Transcript

    • 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: rweiss@cornell.edu 27