Business Startup Negotiation Lessons
Notes on Negotiation: Written by Marty Latz, Latz Negotiation Institute
About 15 years ago I started a negotiation software company and began a series of some of my most professionally challenging negotiations. Failing at any of them could have marked the death knell of the company. Here are three lessons I learned from those start-up negotiations. Anyone negotiating deals, especially complex ones, can learn from them.
1. Maintain a Laser-like Focus on Your Long-Term Goals
Starting any company requires managing multiple negotiations, including getting funding from financial partners like banks or investors, building a talented team, managing your legal counsel’s negotiations on your behalf, forming strategic partnerships with vendors, and the list goes on. Each significant effort requires a strategic negotiation plan, but the overall effort also requires a master negotiation plan. The common element driving all these negotiations should be your long-term goals - and you should be explicit about them. Bottom line: write down your long-term goals in your master plan and keep them front-and-center as you juggle all the disparate interests involved. It’s easy to lose sight of these goals as you get into the negotiation weeds. Don’t.
2. Design and Wage a Carefully Structured Negotiation Campaign
Harvard Business School Professor James K. Sebenius in a recent Harvard Negotiation newsletter has helpfully identified several specific challenges associated with these types of negotiations, including:
Identify key parties: what internal and external parties will be involved, and which can play effective roles in the various negotiations.
For example, I hired an expert consultant who had been successfully involved in many previous start-ups. His involvement provided critical credibility to the entire effort. He also invested his own funds in the first financing round, providing indispensable external support when I sought others to invest (an example of my Third Golden Rule: Employ “Fair” Objective Criteria).
Identify and assess any interdependence among various fronts: are the various parties completely independent or can you organize them into manageable groups with shared interests and how - if at all - do they positively or negatively impact each other?
I was surprised at the interdependence and interconnectedness of all my start-up negotiations. My investors wanted to know about the team I would hire. But I needed the financing to pay the team. Most of the initial funds would be spent developing the software. But I didn’t want to hire a vendor until I had the team in place to manage it. One investor even brought his own preferred vendor to the table which I ultimately had to reject in a very sensitive negotiation.
Prepare to negotiate among these fronts: how do you prepare for, orchestrate and sequence all these negotiations to accomplish your long-term goals?
All these negotiations and parties needed to be strategically evaluated and then negotiated sequentially or simultaneously. Managing this for each one plus for all of them collectively is not easy. But it’s critical.
3. Your Relationships and Ethics Impact Every Negotiation
Every single start-up negotiation in which I engaged had a subsequent negotiation with the same party, some that occurred years later. Almost all our initial investors also invested in later rounds, with different terms. Our initial team also stayed together for years, but their compensation changed. We also negotiated numerous change orders with our software vendor. Here’s the deal: account for your likely future relationships in all your startup negotiations. Our ethics also permeated every negotiation. It should. I had a possible investor willing to put up 20% of our second round. But we rejected his money after learning he had a sleazy business reputation and a consent agreement with the SEC that prohibited him from certain activities due to previous securities fraud-related activity. Next month I will detail my lessons learned when I sold that software company about five years ago. One more note for those interested - here’s a LINK to sign up for a FREE one-hour web class I am presenting on salary negotiations on July 22. If you are looking for a raise or a new job, don’t miss this free opportunity to get some expert-based negotiation tips and tactics. Latz’s Lesson: Start-up and other complex multiple negotiations require extra strategic planning that includes a laser-like focus on long-term goals, managing a negotiation campaign, and an especial focus on relationships and ethics.
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Marty Latz is the founder of Latz Negotiation Institute, a national negotiation training and consulting company, and ExpertNegotiator, a Web-based software company that helps managers and negotiators more effectively negotiate and implement best practices based on the experts' proven research. He is also the author of Gain the Edge! Negotiating to Get What You Want (St. Martin’s Press 2004). He can be reached at 480-951-3222 or Latz@ExpertNegotiator.com
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