Tag Archives: negotiation

My Event Notes from “Dealmaker” at the Churchill Club

Our Open Forum Panelists were:

Panelists

Dominic Carosa – CEO, Dominet Digital
Kath Murphy
– Principal Consultant, Scotwork
Richard Llewellyn – Executive Director, Howitt  & Co.

Moderator

Brendan Lewis – Managing Director Flinders Pacific & Chair of the Churchill Club

Negotiation Basics

Like almost everything in life, 90% of the job is in the preparation and 10% in the execution.  Even if you close a deal, you are guaranteed to be leaving money on the table if you don’t do your homework.

Learn to be both strategic,  understanding what your big picture is, and opportunistic, taking advantage of what pop’s up.

Determine what is fair and reasonable for you and them, then ask for a percentage more, leaving a bit on the table to negotiate with.

Its hard to negotiate for yourself, by yourself as you are emotionally attached and full of biases (whether you realise it or not).  This makes you much less commercially astute.

Negotiation is like selling, get a series of yes’s.  Start with small agreements, then work your way up to big agreements.

There is no such thing as a merger of equals.  Everyone is different and has slightly different agendas.  Its appears to work out best when there is only one MD at the end of a merger process.

Understanding what questions you will be asked should always be part of your preparation.

Understanding the other Party

We were given two ears and one mouth.  Spend your time listening and make less, better targeted offers.  Its easy to look like a goose, so don’t hesitate to ask people to explain if you are unsure about their position.

Emotions are important, you must understand how the other party feels about the vision for the deal, themselves and their people.

Quite regularly the motivation for the sale of a business isn’t money.  All to often its things like being tired or burnt out, getting a divorce or wishing to retire but not having a viable heir.  Remember that money is generally only one of the the items on the table.

You need to seek to understand the party to a negotiation.  Failure due to a lack of information “Why didn’t you tell us this earlier” happens often.

Good probing  questions to understand the the other party’s goals and what they are flexible with (eg price) include:

  • If we went down this path, would you be interested?
  • Under what circumstances would you be flexible?

Also, listen for descriptors such as “in the order of” and “at least”.
Asses the type of person you are negotiating with.  Do you like them?  Are they prepared to listen?  Are they confident (good) or arrogant (bad).  Remember that what normally starts with laughter, ends with tears.

Deciding what you want from the Deal

Be creative and have a wish list before the negotiation.  Remember that you always need stuff that you are prepared to trade.

When there is no precedent, ask for everything on your wish list.

Be determined and patient, because sometimes deals take years.

Be strategic, but opportunistic as well.  Eg Freeonline was given the opportunity to shut down the business, but give the investors a 40% return, so took it.

Need to understand clearly what you need as compared to what you want.  Your wants can be watered down, but not your needs.

Dealing with a large party

When dealing with a large organisation, you need to first figure out what the whole deal could look like, then figure out how to test the waters.  Do a small deal first and see how that plays out, before you investing your time and resources into something much bigger.

Don’t get over excited by doing a big deal, because stakeholders with the larger party can leave and the passion dies.  This happens all the time so be very sceptical of large deals.

When you do a deal with big guys, if there is no guarantee on income levels, there is no motivation for them to focus on you.

The best advice is normally to sell and move on to your next venture.  Its unlikely you can find a satisfying role in a large organisation that you have sold your business to.

Dealing with a difficult party

How do you deal with an Unreasonable Condition – Match it with an unreasonable demand of your own to diffuse the situation  eg The Liberty Bell was cracked when delivered – 150 years later the local council demanded the warranty was honoured and the bell was repaired for free.  The manufacturer then politely asked for it be returned in its original packaging, as per the warranty.

How do you deal with Shifting Sands – people that backtrack and reopen solved issues.  Have negotiations rich with variables, so there is no agreement until the end.  The last issue should be price, so that re-opening any issue will affect price.  You can also reserve the right to reopen and agreed issue, to get past the roadblock.

How do you force decisions? – Propose solutions and ask for a response.  Also, don’t be afraid to ask hard questions like “how do we speed this up”.

Dealing with an easy party

Negotiation is different from persuasion, both parties are required to be “negotiating” to get to a deal.  You need to consider

Rules of thumb.

  1. How good a result can you get without tarnishing your reputation.
  2. Its foolish to think you would never meet these people again, consider this before burning them.
  3. Remember that credibility and reputation are the only things you take with you.

Dealing with Potential Investors

Everyone talks about Smart Money and Dumb Money, but every investor thinks they are offering smart money.  Smart Money is Money that comes with mentoring, experietse, synergies and opportunities.  In truth its wrth 2->3 times dumb money.  A good example is the story of Cosmetics Entrpeneur Poppy King.  Poppy was offered a ebtter financial deal from an investor with no strings attached, than from an inverstor with a large amount of industry experience that they would bring to the table.  She chose the money without strngs attached and had closed down within 18 months.

Investors may also seek their own “smarts” to go with the deal, seeking out further investors with the right skills or attributes to add value to the venture.

Your Negotiating Team

SME’s can’t negotiate anything decent on thrir own.  Large corporates have a team to support them.  It is ridiculous to think that you can do better by yourself.  Both old and young entreprenurs normally have a panel of mentors they can call on.

Should you get a professional to negotiate for you?  Yes.  Professional Negotiators will also determine your position much more accurately that you ever can, and pressure test your assertions.

Having to go back to your stakeholders is a useful technique as it gives you breathing space.  Deferred authority is important “especially when a decision is demanded  “I want a decision now”.  Dom always makes it clear he will need to take the deal to his advisors to confirm (even when his advisors where just his sister and their accountant).

Its good to have a housekeeper on your team who records and summarises.  It takes pressure off you and gives you breathing space to think.  It also allows you to watch body language when difficult questions are being asked.

Your ideal team should include:

  • The Negotiator
  • A Summariser – who confirms understandings and records them.
  • An Observer – who just listens and watches reactions, for later discussion.
  • Specialists as required.

Bring lawyers in after you have come to a Heads of Agreement.  The lawyers should draft the agreement to reflect the HOW.  They should not drive the negotiations.  Too many snouts in the trough drives the price up.

Only allow two iterations of back and forth between Lawyers on the paperwork,  then meet with the other party to resolved.  Lawyers hate this as they don’t get to bill as much.

International Negotiations

Other cultures can be very difficult to negotiate with but negotiating still follows the same sequence.  You cannot ignore the cultural differences and should always have cultural assistance on your team to understand the other side’s thinking and values.

There is also a dramatic difference between the commercial environments in Australia and the US, but not particularly Melbourne and Sydney.

In the US

  • The market is much, much bigger.
  • Investors are more generous.
  • They are only interested in global solutions.
  • You are expected to negotiate much, much quicker.

Australia is a terrible place to raise private equity.  Richard indicated that Private Equity investments as a percentage of GDP was:
Australia = 0.6%
USA = 2.8%
Israel = 4.5%

– end of document –

How to monetise anything – part IV

monetisation workflowLast post I continued the discussion on “How do I monetise anything” with a look at the value in a situation. This, the final post in the series, looks at identifying the Packaging that your monetisation should take.

Packaging

When I say packaging, I mean how things are packaged up, or what’s in the bundle and how is it presented. We all like to consume value in particular ways that are specific to our demographics. For instance in Melbourne if you were charged extra for your coffee when sitting in the nice seats, you would be outraged, but in Paris its the norm. However if you charged a separate fee for sitting outside, Parisians would equally be outraged because that’s not how they expect their coffee drinking experience to be packaged up.

The way value should be packaged, may not be immediately obvious either. The value may be hidden deep inside a different situation that is palatable to the consumer. For instance you sell value add network services, inside the telecommunications contract, inside the “free” mobile phone you give away.

In many situation there is also an expectation for some services to be provided free (eg a speech you make) and some services will be paid for (eg the food supplies). The perception is generally that if the situation involves you doing what you do to make a living, you should be paid, but if you are doing a favour or some marketing, you should do it for free. Working with that situation may mean you need to get a fee from the service providers or you need to represent that this is how you make an income.

Some suggested packaging questions and ideas around a Community event

  • Is public speaking considered to be you job, or an “add on”?
  • Can you be paid directly?
  • Can you be paid in kind?
  • Can you sell your book / community membership / videos / posters / donations etc at the event?
  • Can you market or represent a third party who sees value in the event?
  • Could you be paid for your inconvenience (a bottle of scotch for your travel time)?
  • Could you be covering the cost of the A/V people and be making a margin on that?

Some suggested packaging questions and ideas around the Wikinomics group

  • Can you negotiate a cut from the venue you hold your meetings in?
  • Can you sell the products that your group is acquiring?
  • Can you create content in the format your group wants to acquire (eg reports, or write a book)?
  • Can you market or represent a third party who sees value in the group?
  • Can you sell a traditional product or service with the Wikinomics principals embedded in it?

Some suggested packaging questions and ideas around the Great Network

  • Can you create products or services your network wants to acquire?
  • Can you market or represent a third party who sees value in your nework?
  • Can you sell access to your network in a format that’s palatable such as private dinners?

Almost every attribute of a situation has value, the questions you need to ask are:

  1. What costs do I need to incur to access that value?
  2. What are my risks?
  3. What ROI can I achieve?
  4. Is this monetisation aligned with my tangible and intangible goals?

Monetisation is easy in traditional areas such as selling goods from bricks and mortar and really difficult in innovative areas where there are no obvious or routine solutions. In fact my suspicion is that this is one of the main reasons why:

  • Gen Y is more focussed on being entrepreneurial around technology enabled social ventures than money making ventures.
  • Competition is incredibly fierce amongst traditional business models.
  • Web 2.0 offerings have difficulty getting revenue full stop.

Hopefully by thinking about the attributes, the value and the packaging, I’ve given you a framework to think about how to monetise an idea or a situation you find yourself in.

How to Monetise anything – part III

monetisation workflowLast post I continued the discussion on “How do I monetise anything” with a look at the attributes of the situation. This post I would like to have a look at identifying the value in the situation.

Value

The second step in the process is to identify the value that the attributes of the situation offer, and to whom. Value can be traditional Goods &Services or Revenue, it could be knowledge, or it could be something much more intangible such as a “sense of community”. Value may also be derived by someone not party to the situation. For instance a television audience is of direct value to the advertisers, not the station itself.

Some Suggested questions around a Community event

  • What drives the audience to attend, is it the networking, the sense of community, your content, the entertainment, the food and drink?
  • Where is money changing hands around the situation?
  • What other needs does the audience have that they are prepared to pay for?
  • Who can satisfy these needs?

Some Suggested questions the Wikinomics group

  • What drives the community to be involved, is it the thirst for knowledge, the sense of community or the search for a business opportunity?
  • Where is money changing hands around the situation, is it for services or is it for the coffee and books you consume?
  • What other needs does the group have that they are prepared to pay for?

Some Suggested questions around the Great Network

  • What does your network directly spend money on?
  • Where does your network influence the spending of money?
  • Which parts of your “great network” actually have value?
  • Can you satisfy their needs, or is it someone else you need to represent?

Almost every attribute of a situation has value, the question you need to ask is what costs do I need to incur to be able to access that value and is it aligned with credibility and goals?

Next post I want to have a look at the final competent of monetising anything which is packaging.

How to monetise anything – part II

monetisation workflowLast post I looked at the question “how do I monetise this” and suggested framework for monetising, as per the below. This post I want to look at identifying the attributes of a situation you want to monetise.

Identifying the Attributes

    The first thing you want to do in any situation you want to monetise, is identify all the attributes, not just the most prominent or immediate. Sometimes it can be quite hard to identify all the attributes, so as an approach its worthwhile looking as the inputs, the outputs, the activities around a situation and its outside influences or controls, then ask yourself “who, what, where, why, when, how”. As you look at each item, also ask yourself “so what?” the answers may surprise you.

Consider our examples drawn from the questions raised in the initial post.

Suggested questions around a Community event

  • What is the demographic of attendees and the quantity or people, what do these people do, what do they spend money on, who is in their network, what are they passionate about?
  • Where is the location that you are speaking at, does the location need services. How will you get to the location?
  • What is the content of your presentation, are their particular messages that you will push, are their specific solutions that people can purchase, are their calls to action?
  • Will others access your content that are not at the event, where abouts and in what format will they access it?

Suggested questions the Wikinomics group

  • Who is involved in the discussions around Wikinomics, what is their demographic, how often do they meet, where do they meet, do they spend money whilst there?
  • What are their stay awake at night issues?
  • How do people learn about Wikinomics initially and then ongoing? How do they consume content around Wikinomics?
  • How does one build skills in applying Wikinomics concepts?
  • Who else is interested in Wikinomics, why does it interest them and what problems do they need to solve?

Suggested questions around the Great Network

  • What are the demographics of the people in your great network?
  • What power and assets do these people have?
  • What worries these people, what frustrates them, what do they aspire to, what does their future look like?
  • What do they do with their time, how do they spend their money, what are they saving for?
  • How often do you “touch” these people and by what method?
  • How often do these people “:touch you” why do they think of you and what do they think of you?

Once you get started, its not that hard to start recognising all the attributes of a situation

Next post I will have a look at identifying value.

How to monetise anything – part I

I drink a lot of coffee. Unless I have decided to be completely anti-social I normally meet someone for coffee twice day. Its part of my investment in networking. First meetings tend to be more wide ranging as we get to know each other, and downstream meetings are normally focussed on a specific problem. But because of the volume of “first” meetings I attend, I have noticed a number of generic business issues. Here’s some snippets indicating one of the issues that I regularly hear.

“I keep on getting asked to speak at small community events, but how do I make money from this?”

“I am part of a group fascinated by Wikinomics, which we feel has enormous value, but nobody wants to pay for it”

“I have a great network, but how do I monetise it?”

The question of “how do I monetise this?” is a difficult one. Its normally because you find yourself in a situation where there isn’t a reference point close enough for how to make money. Certainly the green grocer doesn’t ask the question about his fruit and veg, but he does when he notices something unexpected such as people regularly using his shop to shelter from the wind or rain whilst waiting for the morning tram.

But “how do I monetise this?” is a question that pops up in my coffee meetings again and again, because of the type of people I meet. So as is my way, I thought for a while about what the question really was, I did some research and came up empty, I mulled it over for a couple of weeks, drew some circles on a page and searched for a universal framework to approach the problem. I have come up with what I think are solid thoughts, but because of the size of this article, I have split it into three parts.

The problem of how to monetising something you have or are doing, is not dissimilar to negotiation or being an entrepreneur. In fact its a bit of a melding of the two. It also has a simple workflow, but of course the devil is in the detail. There are just three steps:monetisation workflow

1. Identify all the attributes
of the situation,

2. Identify where the
value is,

3. Identifying the
appropriate packaging.

Next post I will drill down on identifying the attributes of a situation.

People in 3D

Once a month I have a “boys night out at the movies” with a group of other guys.  We normally have a quick drink, see a movie (I’m voting for Lesbian Vampire Killers next) then a quick discussion afterwards.

As the amateur film critic, I have developed a pattern of thought in where I ask myself “Are the characters in 3D?”.  By this I mean – not only do I understand a character’s choices, but I  understand why they are making those choices.  I don’t want the best mate character to just be goofy,  I want to appreciate the timeline that got him to the point where he is now the goofy side kick.

Why am I writing all this down?  Well I’ve been thinking about the endless discussion I tend to be involved in around innovation.  Continue reading People in 3D