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.

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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)

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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

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Hey Entrepreneur, does this look familiar?

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Q: How do you negotiate with big players? A: The same way you eat an elephant!

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One Bite At A Time.

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“Negotiation”

•  Multilateral

•  Interactive

•  Usually iterative

•  Sometimes repetitive

•  Process

•  To accomplish goals

•  At least 2 parties

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David  vs.  Goliath  

Time  

Power  Informa?on  

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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  

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Where does negotiating power comes from?

Percep?on,  An?cipa?on  

Knowing  Process,  Facts,  &  Strategy  

Confidence,  Ability  to  Act  

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Negotiating Power

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Four-Stage Negotiation Process

Prepare   Set  the  Stage   Close  the  Deal  Make  the  Deal  

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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

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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  

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Negotiation Process Iceberg

Preparation

Closing the Deal

Making the Deal

Setting the Stage

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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

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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?

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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?

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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?

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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  

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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  

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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.  

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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

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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?

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Best Practices of Effective Negotiators

•  10 Traits

•  10 Dos

•  10 Don’ts

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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

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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

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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

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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

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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

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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

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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  

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Thank You!

Question or Comments? Please contact me! Rhett Weiss: rweiss@cornell.edu