Theme: Cooperation

ON NEGOTIATION : LESSONS LEARNED FROM A LIFETIME OF DEALS

ADVICE:

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1) Have something of value to trade. (Surprising that this should need be said. But it does.)

2) Do exhaustive research before hand. Try to figure out how to make the other side successful in ways that it does not cost you cash.

3) Be brutally honest at all times. DO NOT BE CUNNING. Be smart. Be Moral. Education tends to make men cunning, but wisdom makes them moral.

4) Try very hard to understand the other side, and show that you understand them, and that you agree with them. If you find through this process that they are unethical, then walk. (I do that a lot.)

5) Work creatively and hard to solve their problems for them. See if they reciprocate, or if they try to take advantage of it. If the former, thank them. If the latter, document it and keep a nice little collection of their sins for use later.

6) Find out who the decision makers are and what their price points are. That is the ONLY EMPIRICAL value of any purchase. I can’t tell you how laughable most M&A books are. The value of any company is the amount it will take to get the decision makers to flip.

7) Make very few promises. Hold every one of them. No matter what. Let the environment and their own fantasies mislead them. But never mislead them with your words. This actually puts you in extraordinary control of the situation.

8 ) Always maintain walkaway power. This is your only real control.

9) You must sleep in the bed you make. Do not soil it. Maintain personal relations. And do not make a deal that they other side can’t live with if you have to live with them. Trust matters.

10) Maintain the moral high ground. Get others to do the dirty work. Let the lawyers fuck it up. They always do. But it won’t be your fault. Build trust by coming in and being reasonable, saving the day.

11) Leave a deal-killer issue open until the last minute that they don’t care about but the BELIEVE that you do. If they play nickel and dime games, accuse them of being unethical over the single point and withdraw. Wait until they offer sufficient rewards to bring you back to the table.

12) It is OK to have a reputation for being smart and ruthless, but you cannot have one for being a scumbag and a liar. (Unless you are an investment banker. Selling money does not require trust or virtue. You can be as big a scumbag as you want. Most are. Sorry. It’s true. )

13) Never negotiate for what you really want. Never let them understand what you really want. It makes you vulnerable. I actually retreat very quickly. The purpose of this strategy is actually to avoid being manipulated by ‘cunning fools’, and focusing on mutually beneficial value creation. I cant count on the other side for that, so I just force the issue.

14) Be very wary of stupid people no matter how profitable it might be. Stupid and cunning, versus moral and wise. Pick the latter. Good people tend to do good things and bad people don’t. Shitty people build shitty companies unless they have phenomenal amounts of money to erase the moral stench.

15) The corporation and the shareholder thing is a total lie. Management owns the business, and shareholders are just high risk debtors. Anyone who tells you otherwise is lying to you.

16) Lawyers have this incredible desire to feel they add value. By and large they don’t. Make sure they do the minimum possible, and that they write in plain language that can be understood by all parties. Make them draw a map of all the documents and what they mean. And summarize the key points. Realistically if you can’t lay it out in plain language by typing it in a text file, then the deal won’t hold up anyway.

17) Avoid democracy. I write my own shareholders agreements. And I structure them as a dictatorship. And I do it on purpose. And if people don’t like it they can do something else. Democracy is a stupid damned idea no matter what the form of governance. Both private and public boards I have been on fall into the category of members who provide ‘money raising value’ otherwise they’re entirely dead weight. Your board should be owners and investors that you get approval from for taking capital risks. Otherwise they’re too ignorant to make decisions about anything material.

18) You aren’t important. Everyone else is. The deal isn’t important. The quality of the deal is. The investment in the deal isn’t important. The consequences of the deal are. I find it pretty easy to maintain objectivity. Most people can’t. your ego doesn’t matter. Celebrate if and only if you made a quality deal with positive consequences.

19) Build a LOT OF RELATIONSHIPS at ALL LEVELS as SOON AS YOU CAN. This removes all the freaking stress of a merger or acquisition. I usually try to get a couple people from every role in the business from the bottom to the top to go visit and have a party with the other side right away.

20) Never buy anyone more than 20% of your size. It’s like ‘diversity’ in politics. Sounds good to idiots. But really, its a freaking disaster. You cannot assimilate someone that you are not at least 5x the size of, and do it successfully in one year. Most of the time it takes three years. Most of the time the anticipated gains in efficiency are lost by the three year assimilation period.

(eh… I wanted twenty and I got there. 🙂 )

TACTICS

My favorite negotiating Tactics:

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1) Most unreasonable man. (Kissinger)

2) Pursue A, and discount or ignore B when it’s B that you really want. (Distraction)

3) Hint at money then lose interest, and let them come to you. (Seed of Greed)

4) Plant a seed. Wait for ‘their bad day’. (Seed of Savior)

5) Leak information at three degrees of separation. (Inception)

6) Get them to spend the money in their heads. After that you have loss aversion on your side and they will lose every time.

THE GOOD, THE BAD AND CONTEXT

Now you’ve got to remember that I’ve built a lot of my career using little or no cash to buy small and distressed businesses, rolling them up, bringing in operations, talent and sales, and then selling the business. So I’ve actually bought a couple of hundred companies. (Really.) Although most are in the sub 10M range and no more than the 25M range. If they get bigger than that they have lots of useless management overhead that you can’t do much with.

BAD STUFF: I did a deal in my twenties where I bought a business at an incredible rate, invested less than 1/4M in it and turned it into a cash machine. The owner got about 1/4M for the business, and we were making that in net about every quarter. He died after six months. And He died of sadness. I might be an Aspie but that f__king bothered me, and it still does – although I really didn’t know better at the time. I was, maybe 24 or 25 years old. A decent person doesn’t want that kind of shit in his head. And I care a lot about it. If you don’t care, then, honestly, I hope someone does the same to you some day because the world is better off without you. Really.

UNCOMFORTABLE STUFF: I did a deal in the past ten years where I misjudged the ability of the owner and that person really wasn’t able to make a go of it as part of our organization. And would have been fine keeping the small business. That person didn’t make anywhere near the net he should have. I view this as my mistake because I should know better.

FRUSTRATING STUFF: I did a deal, a big one, about 40M changing hands and like six law firms, and I trusted the investor, and the guy fucked me, fucked the company I bought, and fucked Microsoft. I never give up control any more. Ever.

OK STUFF: I did a deal where guys make a couple of million each, but could have made more. The reason was that they did damage on the way out. I don’t feel bad about them.

GOOD STUFF: It’s pretty easy to turn around weak companies actually. The issue is usually that the management consumes too much of the revenue and underinvests in sales. We invest in sales. The other is that unless you’re a certain size you can’t hire top talent. We fixe that most of the time. But the fact is that people still blame me for rescuing their business even if it didn’t end up rosy for them. Those people I think are silly. Fact is that most small business are small because that is the limit of the capacity of the owner’s ability.

FUNNY: I think that most people assume I play the “Most unreasonable man” card a little too frequently. But it tends to cut through the bullshit and force real issues out onto the table. I have absolutely no problem with hostile argument. ‘Cause I’m an aspie and I generally don’t feel anything other than frustration with the other side’s illogical or deceptive arguments. So over time, I probably have used it too much.