Wednesday, July 6, 2011

The best way to prepare for a major negotiation

All entrepreneurs need to be good negotiators.  Few are.  Why?  Because they usually have little experience at negotiating major matters and have no training in negotiation.  Negotiation skill is not intuitive, it is learned.  I teach Negotiation in the Rollins MBA program and hammer into my students that the key to successful negotiation is preparation.  Although there are many aspects to preparation, the one that is most important, yet usually missing, is to develop a good alternative to whatever you are about to negotiate.  That is, if you are preparing to raise capital from angel investors, know what angel investors want and the terms to expect.  But, more importantly, court more than one angel or angel group at a time so you can turn down an unacceptable deal .  The strongest way to negotiate is to let it be known that you have an alternative deal that may be better than the deal the other side is trying to negotiate with you.  Otherwise, you are negotiating from weakness and the other side will spot that weakness immediately.  OK.  Why doesn't everyone do this?  Because it is very difficult to develop the relationships necessary to have an angel or angel group take an interest in making an investment into your company.  If you follow my advice, you have to develop at least two of these relationships in parallel and manage the process so that you have at least two potential investors or groups of investors with whom you will negotiate at the same time.  But, you say, don't all investors or investor groups ask who else is considering an investment in your company and insist that you tell them their names?  Yes, this is a common practice by investors, but you have to have the courage to say you won't disclose this information.  An investor who walks away solely because you won't tell the investor the name of the investor's competition is an investor who will probably demand unacceptable terms anyway.

So, the best preparation for a heavy duty negotiation is to lay the groundwork to have an acceptable alternative to the deal you are about to negotiate.  This takes planning and time.

1 comment:

  1. Very good post Bill. Thanks for sharing. Your comments remind me of the dating scene. If you are courting a girl and the girl knows other girls are interested you have a much stronger position. Often times when you "need" something it runs from you, but if you are desired more opportunities come. Success, or the perception of success attracts more opportunities.

    I'll keep this in mind when talking to investors and strategic partners.

    Thanks again for taking the time to meet with me and talk about my venture GroupTable. I found your insight to be very helpful.

    All the best,

    David Brim