Entrepreneurial Deal Making: David Meets Goliath


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This session was presented by Rhett Weiss, Executive Director at the Entrepreneurship & Innovation Institute, Cornell University. Find out more at http://www.johnson.cornell.edu/EII.aspx.

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Entrepreneurial Deal Making: David Meets Goliath

  1. 1. Entrepreneurial Deal Making: David Meets Goliath New Orleans Entrepreneur Week New Orleans, Louisiana 27 March 2014 Rhett L. Weiss, J.D. Executive Director Entrepreneurship & Innovation Institute Cornell University, Ithaca, New York USA © 2014 Rhett L. Weiss. All rights reserved. 1  
  2. 2. 2   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 •  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.  Process 5.  Deal Types 6.  Suggested Strategy Framework; Two Examples 7.  Tactics Overview 8.  Best Practices 9.  Q&A •  Warning: high and quick orbit; short presentation (there is much more)
  3. 3. 3   Introduction: RLW at a Glance •  At Cornell –  EII Executive Director; BR Suite, fellows program, events, other programming –  Johnson Faculty: entrepreneurship, innovation, 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/FDI consulting –  “Recovering attorney”; corporate, business, finance, and real estate transactions –  Presenter, author
  4. 4. 4   Hey Entrepreneur, does this look familiar?
  5. 5. 5   Q: How do you negotiate with big players? A: The same way you eat an elephant!
  6. 6. 6   One Bite At A Time.
  7. 7. 7   “Negotiation” •  Multilateral •  Interactive •  Usually iterative •  Sometimes repetitive •  Process •  To accomplish goals •  At least 2 parties
  8. 8. 8   David  vs.  Goliath   Time   Power  Informa?on   8 Negotiation’s 3 Dynamic Parts: Time, Power, & Info Time  -­‐  2  Types   Ø  Available  )me  to  each  par)es;   )me  constraints   Ø  Timing  strategy  and  tac)cs   Informa?on  -­‐  4  Types:   Ø  Known  to  all  sides:   Internet/public  -­‐-­‐   industry,  market,  or   company  info   Ø  Known  only  to  your  side   (YS)    &  can  be  disclosed  to   other  side  (OS);  vice  versa   Ø  Known  only  to  YS  but   cannot  be  disclosed  to  OS;   vice  versa   Ø  Needed  but  not  yet   possessed  by  one    or   more  sides   Power  -­‐  7  Types:   Ø  Title   Ø  Reward/Punishment   Ø  Consistency   Ø  Charisma   Ø  Exper)se   Ø  Situa)on   Ø  Informa)on  
  9. 9. 9   9 Where does negotiating power comes from? Percep?on,   An?cipa?on   Knowing  Process,   Facts,  &  Strategy   Confidence,   Ability  to  Act  
  10. 10. 10   10 Negotiating Power
  11. 11. 11   Four-Stage Negotiation Process Prepare   Set  the  Stage   Close  the  Deal  Make  the  Deal  
  12. 12. 12   12 Prepare   •  Prepare. Then, prepare some more. •  Develop Game Plan; set goals & values (valuations & standards) •  Set strategies and Tactics: links, de-links, and concessions •  Assess 3 Parts: time, power, and information Set  the  Stage   Make  the  Deal   Close  the  Deal   •  Contact w/ OS starts; building relationship; questioning •  Explore likelihood of agreement/no agreement •  Determine each other’s goals, parameters, constraints, upsides, downsides, & values (both meanings) •  Determine opportunities: 1 deal, future deals, piece of action •  Start framing interests, positions, and issues •  Reassess time, power, information •  Set ground rules; protocols; agendas •  Decision making authority vs. responsibility
  13. 13. 13   13 Close  the  Deal   •  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 & agrs.) •  Going from tentative to firm agreements, iteratively •  Walkaway power (real ability vs. theatrical) •  Conflicting pressures to close •  Retrading •  Breaking deadlocks; getting through slow times •  Going to war; how to fight in tough situations •  Common types of closes •  Confirming/memorializing the deal Make  the  Deal   Prepare  
  14. 14. 14   Negotiation Process Iceberg Preparation Closing the Deal Making the Deal Setting the Stage
  15. 15. 15   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
  16. 16. 16   Suggested Negotiation Strategy Framework 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). •  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?
  17. 17. 17   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 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 a deal point’s value (valuation or worth) to each side? •  Affect on each side’s framing of interests, positions, issues?
  18. 18. 18   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?
  19. 19. 19   David’s  Perceived   Disadvantages  …   …  Goliath’s  Opportuni)es   ü  Limited  Capital     ü  Lack  of  Experience   ü  No  Sales     ü  Ready  for  Investment     ü  Open  to  New  Ideas       ü  Can  Adapt/Modify  Prototype   19 Entrepreneur’s  framing  can  shape  larger  party’s  strategy  and   behavior  for  the  nego)a)on’s  dura)on.   Two Entrepreneurial Strategy Examples -- Example 1: Frame Disadvantages as Opportunities Framed  as  
  20. 20. 20   20 Strategy Example 2: Pit Big Players Against Each Other SoBe   $100mm   $100mm   $100mm   $70mm   $100mm   $100mm   $40mm   •  Rivals  can  work  against  each  other  to  their  detriment  and  Entrepreneur’s  benefit.   •  Entrepreneur  with  strong  “Plan  B”  pressures  rivals  to  make  concessions.  
  21. 21. 21   Common Tactics: Tools, Moves, Tricks of the Trade •  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 •  Entrepreneurs can use them, too. And, they’re free! •  Recognize OS's tactics •  Let OS know: decreases OS’s game playing, increases your power •  Difference Among Smart Plays, Bluffs, and Lies •  Tactics reveal each side’s negotiation ethics, good or bad
  22. 22. 22   22 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 v1 §  Decoy §  Red herring §  Nibble §  Fait accompli §  Hot potato §  Turn down, walk away §  Withdrawn offer §  Set aside v2 §  Throw away concession; So what?
  23. 23. 23   Best Practices of Effective Negotiators •  10 Traits •  10 Dos •  10 Don’ts 23
  24. 24. 24   Best Practices: 10 Traits 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. Learns when and how to use process-specific skills and techniques 3. Does the homework on a regular basis •  Masters the information and adapts to changes in it •  Masters the issues and their interrelationships 4. Conducts negotiations fairly and reasonably •  Follows internal agreements and decisions •  Creates open and direct lines of communication •  Cares sincerely about OS’s objectives 5. Maintains sensitivity and tolerance for interpersonal differences •  Personality types •  Nationalities; Cultures •  Communication styles, methods, and content; notice the changes 24
  25. 25. 25   Best Practices: 10 Traits 6.  Emphasizes areas of agreement, not disagreement •  Explains and substantiates own points 7. Controls negotiations by positioning OS, not by posturing your side •  Makes acceptance "easy” for OS instead of resorting to persuasion or coercion 8. Strives for “win-win” outcomes •  Enables OS to have a sense of gain or accomplishment •  Creates environment in which OS feels it both can "win" and in fact has won 9. Conducts and concludes negotiations such that OS would want "rematch“ •  All sides would want to deal with each other again 10. Instills strong belief in OS that your side will uphold the deal •  Shows integrity, reliability, and credibility 25
  26. 26. 26   Best Practices: 10 Do’s 1. Know the importance of (1) time, (2) power, and (3) information •  Before negotiations start and throughout them 2. Know your stuff – be on top of all sides’ facts, interests, and issues 3. Stay mindful of, and adapt to, new or changed information 4. Be a great communicator ( = listener, not just talker) •  Keep your side informed of all key negotiation communications •  Communicate regularly but carefully with OS 5. Remember that location and other “stage setting” impact outcome 26
  27. 27. 27   Best Practices: 10 Do’s 6. Consider own enthusiasm’s affect on concessions, agreements 7. Be alert to pressure •  All sides are under pressure to deal, settle, compromise •  Generally, side under most real or perceived pressure "loses" 8. “Keep your eye on the ball”: focus on movement, measure progress •  Concessions and interim agreements = progress •  Statements, sometimes silence; action, sometimes inaction 9. Maintain records of concessions and interim agreements •  Concessions and interim agreements; any relationships •  Remaining differences among parties; any relationships 10. Congratulate OS upon negotiation's conclusion •  Congratulate even if your side got its way •  Avoid gloating about YS’s results or what OS's results could have been 27
  28. 28. 28   Best Practices: 10 Don’ts 1. Don't assume all sides want the same thing •  After all, they probably don’t 2. Don't assume money or price is the all-important deal point •  After all, it probably isn’t 3. Don't assume that your side has the stronger – or weaker -- position •  After all, it probably doesn’t 4. 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 5. Don't disclose your side's time constraints, deadlines, or pressures •  . . . unless there is a compelling reason to do so 28
  29. 29. 29   Best Practices: 10 Don’ts 6. Don't narrow the negotiation down to only one issue •  Negotiations are so much easier with at least two issues in play 7. Don't lose sight of the issues and what it takes to solve them •  Don't leave the details until later •  Don’t fancy yourself as “only a big picture person”; you may have no picture 8. Don't get greedy •  Don’t seek or hold out for “that last little bit”; whole deal may blow up 9. Don't become emotionally involved or egotistical •  Typically counterproductive •  Don’t get personal; it’s a lonely place 10. Don't exceed your authority, and don’t confuse it with responsibility •  To negotiate, agree, concede, or decide 29
  30. 30. 30   ü  Time/Timing:  2  types   ü  Power:  7  types   ü  Informa?on:    4  types   ü  Strategies  &  Tac?cs   ü  Best  Prac?ces:  10  traits,   10  dos,  &  10  don’ts   ü  Thoughts  &  Ac?ons:   Know  how  Goliath  thinks   but  don’t  act  like  Goliath  
  31. 31. 31   Thank You! Question or Comments? Please contact me! Rhett Weiss: rweiss@cornell.edu