Negotiating Tactics for Entrepreneurs

Shortly after co-founding Clickability, Inc. in 1999 with three other Stanford University graduates, I was thrust into discussions with a venture capitalist – and another investment firm’s contact who had been an investment banker – that would mean the difference between us moving, or not moving, out of the proverbial (and literal) garage.

by John Girard
Clickability, Inc. entreworld.org

While in the throes of those talks, we were also across the table and over the phone lines with a large prospective customer whose commitment to use our first Web publishing software package (that we deliver as a service rather than sell as a product) would put us into a vastly different league.

Then, in the fall of 2001, we were hit with a lawsuit after a partnership went bad, and for the better part of the next several months, I was engaged in the grinding back-and-forth that enabled us to settle, and, indeed, save our company.

What was the common thread for these situations? Successful negotiation.

What It’s All About

Negotiation, in short, is what it’s all about, in business in general, but even more so for the entrepreneur. One misstep in the deal-making life of an early company could make it go rapidly under, or merely stagnate and eventually die. Put more positively, even for the "average" entrepreneur who doesn’t warm to wheeling and dealing, it is the only means to move a young company forward. It is the fledgling company’s lifeblood.

At Clickability, where I’ve learned negotiating tactics that I believe could be helpful to others, my first lesson was delivered as a study in contrasts. That lesson, which holds that a negotiator must always assess the stakes and the participants, came initially to me in the form of our lead venture capitalist, who was a straightforward as he was honest.

I had assessed his character by the first of some ten meetings that led to an offer that we would have taken on the spot. This individual didn’t want to posture or play games. He simply wanted to learn enough about our company to become confident enough to invest.

Contrast that with another investing group participating in the round. Our contact was a former investment banker, who considered our deal a zero-sum game, in which her firm would lose a point for every one we scored. It was partly a matter of perspective. Unlike the lead VC who understood that he would win if our company did well in the future – that it wasn’t the initial terms that were of paramount importance – the former banker lived and thought in the here and now. A few points off the terms in her firm’s favor, she believed, would amount to the better deal.

In the also contrasting case of the large prospective customer, personalities were central, and posturing became the order of the day. At our first of two in-person meetings (which followed three telephone conversations), a junior partner, in an effort to intimidate us, stepped up from the table and began scrawling on a white board what he said were the five reasons we should pay them to become our customer!

Know Thyself

This brings me to the second tactic for smart negotiating: that whatever your assessment of the stakes and the participants, you must always commit to a strategy before discussions begin.

In the matter of the obdurate investment banker, we knew that we had a critical asset in the lead VC who wanted to invest in our company. We also understood that in negotiating, all parties are looking for leverage.

So our strategy was to lay the facts on the table and impose a deadline. We said to the banker, "Look, the money is committed. We need the paperwork by such and such a date, and we want your money to be wired by this date thereafter." In short, we were saying that we would move ahead regardless – and that if her firm were to participate in the deal, she had better agree. The strategy worked: we secured a total of $8 million in the first round and another $2.2 million in a subsequent placement.

Now cut to the junior partner at the white board during the customer negotiations. In this case, we had already discussed among ourselves that there was a point on the negotiating spectrum between leniency and rigidity beyond which we wouldn’t go – namely, that we wouldn’t give away our service without some real upside, even to secure a relationship that would significantly boost our credibility in the market.

And so, as the junior partner delved into his first reason, I stopped him and said, "Do you want me to disagree now and tell you why you are wrong, or would you rather wait until you put down all five?" In other words, I was saying we wouldn’t be pushed around. A few people in the room laughed. And that became a turning point.

Wiggle Room and Smart Closures

The next negotiating tactic is to always leave yourself an exit. Put another way, never paint yourself into a corner. In the customer talks, we quickly ascertained that whenever we reached a tentative agreement, the lead member would say that he had to check with a superior, whom we weren’t allowed to meet. Inevitably, that phantom individual would impose conditions that would be brought back to us in the form of a counterproposal more favorable to the customer.

Two can play the same game, we figured. Thus, though I knew our board would sign off on any terms to which we agreed, I adopted a phantom board member from whom we would need to secure final approval. If we were boxed into a corner, our phantom director would be our way out, because it would be the director and not us taking issue.

Allowing yourself an out shouldn’t be confused with unnecessarily bending on your terms. In negotiating with a customer who doesn’t want to pay your price, for example, don’t come down – or you will be regarded as always willing to move on that critical boundary. Instead, as we did with this customer, figure out a way to take out some of the features you’ve offered while sticking to your price.

My final negotiating tactic is my favorite, for it comes at a time when it’s make-or-break and tempers are at a fever pitch. It is this: always let the other side close. Nothing speaks to the opponent’s interest more strongly than that party’s willingness to come back to the table late in the discussions.

Remember the twittering after my comment to the junior partner at that meeting with our big prospective customer? Convinced that we had offered everything and were ready to close – and equally ready to walk if we were refused – we decided to go back to our headquarters in San Francisco and do nothing. A week or so later, we received a call from the customer, suggesting a second in-person meeting – this time in San Francisco – where we quickly reached a final agreement.

Beyond Tactics

Negotiating isn’t only about employing skillful tactics. It is also about maintaining a balance within yourself, a lesson that I learned during the months of haggling with a former partner who sued our company. Unlike our dealings with the venture capitalist, investment banker or customer, the lawsuit could have crushed our company, and so the stakes were make or break. Indeed, something I had spent three years building was clearly at risk.

Even more importantly, as I prepared to face the issue, I discovered that I was so attached to Clickability – and to the outcome of the lawsuit for our company – that I myself was at risk. If Clickability were to go down, I would be going down with it.

After several heart-to-heart talks with advisors, I emerged with an understanding that I needed to find a balance. I needed to allow my enthusiasm for the company to continue even as I detached myself from the outcome of the lawsuit.

This balance between passion and detachment ultimately – and paradoxically – enabled me to engage as a more skillful negotiator. The same may be true for you. Thus, as you consider the art of negotiation, work on developing your balance and hone those necessary deal-making tactics, and you will be sure to move your company forward.

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