Entrepreneurial Deal Making: David Meets Goliath
-
Upload
the-idea-village -
Category
Education
-
view
239 -
download
1
description
Transcript of Entrepreneurial Deal Making: David Meets Goliath
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
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
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
Hey Entrepreneur, does this look familiar?
5
Q: How do you negotiate with big players? A: The same way you eat an elephant!
6
One Bite At A Time.
7
“Negotiation”
• Multilateral
• Interactive
• Usually iterative
• Sometimes repetitive
• Process
• To accomplish goals
• At least 2 parties
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
Where does negotiating power comes from?
Percep?on, An?cipa?on
Knowing Process, Facts, & Strategy
Confidence, Ability to Act
10
10
Negotiating Power
11
Four-Stage Negotiation Process
Prepare Set the Stage Close the Deal Make the Deal
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
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
Negotiation Process Iceberg
Preparation
Closing the Deal
Making the Deal
Setting the Stage
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
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
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
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
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
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
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
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
Best Practices of Effective Negotiators
• 10 Traits
• 10 Dos
• 10 Don’ts
23
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
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
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
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
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
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
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