Negotiation Style

There is a common misconception that to be a good negotiator you need to be tough, mean, and hard-nosed. Negotiation can be confrontational and the stakes can be extreme. You don't!

Confrontation is not a good environment for negotiating. Most people are intimidated by the prospect of having to barter to begin with. Create a pleasant environment for the other party and show respect and genuine interest for the other parties concerns and values. Treating the other side with respect means less defensiveness and more rational, reasonable communication. Better yet, build a reputation as someone who is honest, prepared, and intelligent, and deliver on that every time.

The Disclosure Dilemma

One topic that comes up frequently with entrepreneurs is when and to what extent a company should disclose intellectual property (IP). IP comes in many forms: technology, marketing plans, partnership and alliance strategy, even HR strategies. Often this core information collectively drives a significant portion of the strategic advantage of the business. So what happens when that large, cash rich, market leading competitor decides they are interested in discussing a buyout?

Role of the Non-Disclosure

As most of you know, non-disclosure documents are difficult to enforce in the best of cases, being both expensive and uncertain. Although most M&A banks will insist on interest parties signing them, they bring little real consolation to the business owner. (M&A and law firms need to cover their bases in the process irrespective) The safest way to protect yourself is to properly stage the deal process to vet interest and gain certain soft commitments before opening up.

Validate Interests

Use your advisors to help assess the authenticity of the interest. One of the main advantages an advisor has in the deal is the number of times he or she has been through similar transactions. Buyer behavior often raises red flags regarding the level of true interest vs. fishing expeditions. The type of questions, follow up, too much interest too soon, etc lead to questions that can be explored further and qualified. Examples of ways to do this include: requiring term sheets earlier, gaining reciprocal disclosures from the buyer, and raising the cost of being in the process. In extreme cases, companies ask for some money when the letter of intent is signed as compensation for costs associated with due diligence and exclusivity. This can be another way to raise costs and qualify a prospective buyer.

Communicate the Value

Once the letter of intent has been signed and real due diligence begins the challenge is to deliver the IP message clearly. Holding back key value points will work to reduce the probability a transaction will occur and predictably reduce the buyers perception of the value of your company, and hence the price they are willing to pay. Fear that the buyer will steal source code or ideas is real, but the decision to move forward requires taking that step. If you don't feel comfortable enough to open the doors fully, you may want to slow down the process and further raise their costs/commitment required to hang around.

Each situation is different, fight to find some mutual trust before moving through the due diligence process and find advisors who have the experience to read between the lines on your behalf.

Negotiation and Creativity

Another key negotiation fundamental is creativity. Thinking broadly, outside the normal construct of price and predefined terms to expand the number of potential synergies allows for a larger set of positive outcomes. An example of this came out in a recent negotiation on behalf of one of our clients. Without getting into the details, there were significant value drivers for the client that didn't require a bump in cash compensation to obtain. In fact, they are much more valuable than even the equivalent cash!

Creativity when brainstorming solutions is a good start, problem solving at the table uses the same framework in real time to close the deal. Preparation is the container for being ready to see the possibilities on the fly.

Some of the things I try to keep in mind before a negotiation:

• Empathize: What is motivating the other party's decision maker? Money? Affirmation from a boss? Promotion? Fear of failure? Fairness? Historical experiences?


• Standards: Are there any favorable standards you can point to that will help you be more persuasive? Most people think of themselves as fair, using a third party standard can be helpful. Negotiation is about pursuasion, try to be prepared with all the historical info you can.


• Alternatives: At what point does a deal make sense? Sometimes no deal is the best deal. Write down your walk away and take it along. If you get confused, ask for a break and read it.


• Linkage: One of my favorites. Can the current proposal be linked to other deals or proposals. Often times there are other interests outside your current discussion. You can also sometimes create leverage here by coupling a small issue with larger more important issues. (Congress is good at this!)

Preparation in a Negotiation

Negotiations have some of the largest impacts on outcomes in business and in our personal lives. I find that most of the time clients are not used to adequately preparing themselves for important negotiations. Many seem to rely on their gut feeling and intuiting to steer them through. Although those are both important factors, this is usually a mistake.

Adequate preparation should include several meaningful steps.

1. What am I trying to gain? -or- What problem am I trying to solve?


2. Who am I negotiating with? Who is the decision maker? Who are my allies? What are their interests?


3. What alternatives do I have? What is the minimum I will take to have a deal?


4. Are there any precedents that would suit this negotiation?

Once you have a clear vision of who you are negotiating with, brainstorm options that will both meet their interests and your stated goals. Often price is the center of the negotiation, but rarely is it the only important point. Expand the pie by creating value outside of price.

Preparation builds confidence and also provides you with the supporting materials and intelligence to persuade the other party that you are being both reasonable and that you are informed. Not all negotiations will conclude with a deal, but knowing why it makes sense to walk away comes from research and preparation.