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- 1 Negotiating tip led to $5 million [Updated]
1 Negotiating tip led to $5 million [Updated]
After a month of negotiating with the Muhammad Ali of negotiations (Ric Elias), we were extremely close to a deal where Red Ventures would buy ~20% of Ampush...then I made one critical request.
I got on the phone with Ric and said:
“Thank you for believing in us. We are going to take this deal no matter what and are excited. We DO have one request though. We 3 founders are at an age where we’d love to buy a house. In the Bay Area. It’s quite expensive. Since you’ve said you plan to buy the rest of the company anyway, would you consider a $5M interest-free loan secured by our equity?”
He replied: “So you’ll take the current deal even if I say no?”
I replied: “Yes, but this would really help us.”
He thought for a second and then said: “Would you be willing to personally guarantee it?”
I replied: “Yes, that seems only fair.”
Ric: “OK then, we can make that happen!”Jesse: “OK THANK YOU, WE ARE PSYCHED!!”
Jesse got what he wanted. Ric was a hero. Everyone was pumped. This is how you want most negotiations to end.
That one negotiation technique helped me buy the house that I'm sitting in and writing to you from.
From the minute you start a business, negotiations of all kinds are endless.
There are plenty of books written on the subject but here are my 7 favorite tips for successful negotiations!
You saw this used in the above example.
Before I close a deal, at the moment when the details are pretty well lined up, I ask for one more thing.
I'm not talking about inserting a dealbreaker, like "I will not close this deal we talked about unless you…" This isn't about sabotaging success.
It's about telling your negotiating partner that if they want to make you happier, there's one addition that would do it.
In the case of our $5 million interest-free loan, it made it easier for each of us founders to buy a house.
That put our families at ease, which allowed us to function better as co-owners of the business.
Get everything squared away and do a deal everyone is happy with. Assure the counterparty you will take the deal, as I did. Then, respectfully, make your request.
I use this all the time and it usually works. Of course, the request can’t be insane or weird. Just one more small thing.
My favorite definition of leverage (I think from “Bargaining for Advantage”) is “Who has more to lose from the deal not happening?”
When I was buying the house, my kids had to start school in a new city within a week. My wife was nervous about this. But the sellers refused to fix anything! They knew they had more leverage.
Once you identify who has more leverage, you can do a couple of things:
1) play your hand appropriately or
2) Shift the leverage.
In my house example, I went and found a house that was half the price in the same school district and put a contract on it.
My wife felt better. I told the agents we are OK falling out of contract.
The agents communicated what I had done. All of a sudden, the sellers made the fixes we asked for.
I created leverage and that helped me in my negotiation.
That’s a fun story but oftentimes startups (esp in B2B) are dealing with big companies and never have leverage. That is OK, the sooner you realize it, the sooner you can focus on getting a deal done.
Last but not least, how do you CREATE leverage as a startup?
The best way is to give yourself options/build a pipeline. The more people that want what you have, the better your leverage is.
The second related way is to make your offering/capability VERY valuable.
The more what you do is needed and best in class, the more leverage you have over customers and partners.
One last tip: young entrepreneurs love to FAKE leverage. I did all the time. It doesn’t work, resist this temptation.
Information is the currency of a negotiation. And it requires genuine curiosity and empathy. And Trust. No one will answer your questions if they sense you are trying to screw them.
The better you understand the field, the more you'll be able to present solutions that will work for everyone. I like to start high level and then drill down:
What would a 10/10 be for you?
What are you solving for?
Who is most excited about this deal?
Who is least excited?
What are your concerns? What are X’s concerns?
What happens if you don’t do this?
What is expensive for you?
What is valuable to you?
And keep going until you have a clear picture. Repeat what the person says to show you understand - that often builds trust and leads to more information.
Most buyers don't want to analyze a dozen different aspects of a deal. They want to focus on the few aspects that matter.
Those are the rails that get both parties to a done deal.
Whichever party picks the key aspects takes charge of the negotiation.
At GrowthAssistant, for example, the key parameters are cost, commitment, and volume.
We don't let a deal get sidetracked by negotiating unimportant issues, like how many years of experience an assistant has.
If you’re selling in an M&A situation (where the buyer likely does more deals like this and therefore has the upper hand), they will want to set the parameters.
That doesn’t mean you have to accept them. Ask them what aspects are important for them to negotiate.
They may say “Our deals are structured with cash upfront, earn-outs, and equity. Here’s how we approach them.”
Don’t take that as a given. Hear it out and if you don’t love it, counter-propose rails or ask more questions.
10 out of 10. Ask for theirs. And share yours!
My old Ampush CEO Jon is an awesome negotiator. He does the above tips very very well.
He asks amazing questions and creates structure. But he’s a former poker player so he constantly anticipates the next move and uses it to structure his proposal.
If he can see the other side will give him more than he expected, he'll raise the stakes and ask them to pile on more.
If he thinks they'll never give him less than he wants, he'll reduce his request. I believe this is wrong.
Instead, understand their 10/10. Share yours openly as well. And then a solution around it.
Too many people negotiate against themselves: “Oh THEY will NEVER agree to that!” Or they make an ask too small.
I believe you can ask for anything, as long as you’re not entitled/demanding.
And if you have some sound rationale or POV for why you want that, people will hear you out.
Remember, people are grownups and can say no. If presented the right way, it will not kill the deal.
What is a real value creator? Let's start with what is NOT: Price is rarely one.
That’s usually zero-sum. In GrowthAssistant, if we charge $3k a head vs $2900, there’s a direct transfer of value.
That $100 increase would not create value, it would shift value.
REAL value creators are things that are VALUABLE to one side and COSTLESS to the other side.
Back to GrowthAssistant, a well-known client (True Classic Tee Shirts) was willing to let us use their name as a case study.
WOW, that would let us attract TONS of e-commerce customers, as they are a huge success story (bootstrapped to $400M in 5 years). It costs them nothing and is probably worth 10s to 100s of thousands for us.
I like to write out deal components and brainstorm (often with the counterparty). I list areas where we are zero-sum and areas where we can create value together.
Even if we give/transfer value in one area, how do we create a ton of value in other areas?
Also never give value if you’re not clear where you’re getting value in return.
Look for the value creators. You often will find them by asking questions and collaborating with your counterparty!
I almost didn’t write this one because it felt obvious to me, but it's SO important.
Foot faults KILL negotiations.
A few important ones:
When you promise something at a day/time, DO IT. An unkept promise is a huge trust killer.
Keep lines of communication open. Frequent texts, updates and clarity on where things stand are critical.
Related: Don’t surprise people. If you discussed something, make sure what comes across reflects that.
Do NOT send a proposal without a meeting scheduled to discuss it. Sending something over in writing without a touchpoint has tons of risk of sticker shock, misunderstandings, etc.
Win your counterparty over. There’s a reason countries have diplomats. Often those diplomats are better friends with each other than people in their own home countries.
Be on time, communicate succinctly, and be honest
As I wrote this, I realized there are some larger, critical principles at work here.
Trust - Doing a deal with someone is ALL about trust. The more they trust you during the deal process, the less they worry about trusting you later. Every action you take should build trust.
Collaboration - My best negotiations have been where the counterparty and I are collaborating to get it done. We acknowledge both sides, we don’t take it personally and we remain productive to work through solutions.
Empathy - Understanding and putting yourself in your counterparty's shoes is CRITICAL to getting a great negotiation. That isn’t the same as bending over backward, it's just developing an understanding.
There you have it! Jesse’s favorite negotiation tips.
What are yours? What did I miss? Reply here and I’ll share the best ones back with everyone and on X/LinkedIn.
jesse