A reflection on “Winning Angels: The 7 Fundamentals of early stage investing” by: David Amis and Howard Stevenson
Negotiating is not for the faint at heart. You truly have to be able to have a poker face, know your worth, understand the terms and know when to walk away.
Amis and Stevenson describe two types of people: those that negotiate and those that do not.
Chapter 37: Those that do not negotiate.
The #2 reason really hit home: “They are concerned about the efficacy of a relationship based on trust that starts with a fight for money and/or control.” That is major! Negotiation should be considered a fight. However, some people have a way of turning it into just that.
Chapter 38: Those that do negotiate.
The #3 approach is probably the safest for most people: “Get someone else to negotiate (essentially a negotiating strategy used by a non-negotiator”. This goes back to my last reflection on structure. Having a seasoned, component attorney will work wonders.
I have had my fail share of negotiation and it is tiring. I’ve negotiated the terms of a learning management system, media projects, salaries, etc. The most draining negotiation was for a house that I purchased. After several rounds I walked away. Much less for the reason of efficacy or the concern of a strained relationship (which was irrelevant in this case), but more on about the unreasonable back and forth on the terms. I ended up looking up the status of the house and it did eventually sell… after being on the market for 5 months and many reductions in price.
There is an art to hold out for the terms that you want, but there is also an art to walking away.
Elaina,
I agree with you. You have to be willing to fight for good terms, but you have to be smart and able to come into a negotiation ready to conceed some things too!
I had a similar situation with a house deal. After giving earnest money and everything the seller would not budge off of offering price even after inspection revealed a ton of things that needed to be fixed including foundation. That alone would be 10 grand! I ended up walking away and the house sold for about 30K less than offering price about 6 months later. They would have made more if they accepted my offer! Their loss!
Jake,
When I was in the 1st grade my teach wrote a note on my report card in cursive. She called me stubborn. I wasn’t 100% sure what that word meant, but something in my gut told me that it wasn’t great. I thought about that note often when I would face different decisions in life. Stubborn is something that I had to convert into assertiveness. The underlying quality with assertion (for me) was the stubborn nature that I was reprimanded for as a child. However, I have learned to walk away, very well!
As for the house deal you had to walk away from…yikes! I know exactly what you mean about the annoyance of the deal you described.
Thanks for your feedback!
Elaina
Elaina,
I’m pretty sure that I would fall into the “don’t negotiate” side, if I were an Angel Investor. That’s a little odd for me to say because I negotiate deals in my current line of work. Not negotiating if I were an angel investor, I believe is because I don’t think it’s important (it’s very important in my current work). It could also be because I don’t understand the structure of their negotiations. I’m pretty sure that it’s mostly because it’s not that important. Winning the negotiation when the business fails still makes the investor a loser. I’d be more interested in helping to ensure the business succeeds.
Tripp!
I love your response! “Winning the negotiation when the business fails still makes the investor a loser.” <---- bingo! That is an excellent point. I didn't really think that far, but I certainly agree with that. I will keep that thought in my back pocket forever. Thanks so much for your insight! Elaina
Elaina,
You’re spot on with the negotiation, it is not for everyone. I still remember my first negotiation for a simple contract. It was nerve-racking but it only got better from there. Even though I am comfortable negotiating service agreements and multi-year contracts, I am not sure I would be comfortable negotiating terms for a start-up project worth millions of dollars. Sooner or later, we will need to get out of our comfort zone and get comfortable speaking in large bills :). After all, we did choose to study Entrepreneurship.
Best regards,
-Semir
Semir,
Totally! There is no way that the sight of $1M can scare me forever. Having that much money or a company worth that much comes with a lot of responsibility, but I am up for the challenge. Negotiating is fun for some people. I don’t hate it, but it’s not at the top of my to do list. Thanks for the encouragement and stopping by!
Elaina
I think when you say “Negotiation should be considered a fight.” you mean it should not, right? If so, I totally agree. I can also relate to the negotiating on a house. We also had to walk away and the house sat for another 3 months and sold for $20,000 less than what we were offering. The investors really do hold the power, and walking away should never be discounted. There will be many more (hopefully better) opportunities if we hone our sourcing strategies.
Jacob,
Thanks for catching that typo! I will make that correction. The investors certainly hold the power, even when the company that they are considering is great. If they have great intuition, they may be able to see potential even further beyond what the entrepreneur sees. Now that’s even more power!
Elaina