Early in my entrepreneurial journey I would hear a lot of Silicon Valley folklore about certain founding CEO’s (Larry Ellison and Scott McNealy’s name would come up a lot) who were “tough as nails negotiators”.
The other thing I head from the guy I bought my first car from (yes, I would take advice from anyone) was a pithy “You never earn what you deserve, you only get what you negotiate”.
I resolved to be a bad-a** negotiator and wanted to cultivate a fearless reputation as being difficult to crack under pressure.
I even signed up for one of those negotiation training seminars, which you see in the center-fold of airline magazines.
Boy was I ever more wrong. (Actually I have been more wrong consistently, but that’s another series of blog posts).
Here’s the deal. As an entrepreneur you rarely have the position to have the “upper hand in any negotiation”. Realize that quickly and you’ll be more humble and have less chutzpah.
There are 3 main constituents you have to deal with to negotiate frequently – customers, investors and employees. Realize that when you are small and new they have all the leverage and you have, well, your vision, energy and some potential stock which may or may not be valuable.
When I founded my first company, I had a prospect we were chasing for several months. Eventually after a lot of effort we got to the “negotiating table” after the technical team had given us the go ahead, and asked us to “hammer out the details” with their finance and procurement team.
I was adamant on price, which we believed we deserved a premium for, because we were “proven”, so there were 4-5 clauses we were negotiating. One of them was being a reference, second was payment terms and some others were inclusion of maintenance and support for the first year (it was 19% of the license sale).
After multiple phone calls and getting nowhere, they and I realized we were stuck and I pulled the “I am going back to the technical champion and tell him we cant work out a deal”. I was seriously under the assumption that they had no alternative solution so I could “throw my weight around”. I was willing to give on some parts of the negotiations, but was deemed as inflexible by the procurement guy at the other end.
Well I did go back to the technical champion and he asked me to go back to the procurement person else they would “build it in house”.
This time the procurement person was even more inflexible and suggested a 15% discount on top of our negotiated price. I stuck to the price and focused on the other terms, only to find that the entire deal was up for renegotiation. Every term and clause was up in the air.
My intention to be a “hard negotiator” lost us 6 weeks of payment and cost us 8% discount on prices.
After the deal, the procurement person (a much older and smart individual) gave me a tip on the “Japanese way of negotiating”. He said, first admit that you have little negotiating leverage (this is totally opposite to what most entrepreneurs in the valley will tell you) and then have them work with to give you want they want and you have the ability to give them what they want. Then mention to them that here are the 3-4 things they need and ask them for the 3-4 things they need from the deal. Then it becomes more of a convincing opportunity as to why you need those 3-4 things as opposed to a confrontational hard negotiation.
Its a different technique (and there are several I admit) that works very well for the party that does not have much leverage in a negotiation.