why negotiations matter, 3 stories, current principles, Jobs vs. Murdoch + stuff i read this week
est. reading time = 6 min
Today at a glance:
Context & what this isn’t about
Why negotiations matter
3 quick stories: 2 wins and a loss
Things I wish I knew earlier (now my evolving principles)
Email exchange between Jobs and Murdock to negotiate audibooks
Stuff I read this week online that you might enjoy (at the end)
Context & what this isn’t about
This isn’t about salary negotiations.
Some of the same principles apply, but job offer negotiations is its own beast. A lot is written on salary negotiations, specifically for tech jobs. Plus, I don’t like negotiating for myself out of principle.
This will be about negotiating for your team or for your business. I have a few failures (now lessons), but also worked through a number of wins.
Why negotiations matter?
Why does anything matter? Think it’s important to be thoughtful because a well-done deal can have immense impact (see below). Plus, we are often responsible for other people. And so there is 10x reason to think deeper and try harder.
Let me share an anecdote and a hypothetical.
An anecdote. In business school we had to bid for classes. A bid auction was set up to handle classes with oversubscribed professors. The crux of the system is that you had 3,000 points to bid for the entire year. A student would take 12-15 classes per year. Based on historical bid prices to get a seat in professor Medvec class you had to bid ~2.4K points. And many did. Professor Medvec had a wait-list of people who were willing to spend ~80% of their annual points budget on just her class.
A hypothetical. Imagine you are going on a 10 year trip to live/work abroad. You can only go back after 10 years are up. The entire trip will either be a 10/10 or a 7/10 based on one thing.
Can you solve a rubik’s cube in under 1 min?
And let’s assume that you can’t solve it at all right now. You have your whole life to handle. All of your other responsibilities, core tasks at work, family etc. Learning how to solve a rubik’s cube sounds like a pain in the ass, but you will do it because it has exponential return on the effort invested upfront. You get a 10/10 decade! Negotiation prep is the same.
3 quick stories: 2 wins and a loss
Win #1. Unblocked tens of millions of $ARR and got to ship work that would have otherwise gathered dust by negotiating a favorable policy. The main thing that worked here was spending a ton of time with the counter-party, helping them arrive at our vision AND spending a copious amount of time understanding their POV. Getting to know them on personal and biz level, unpacking their needs and their fears and then designing custom solutions for each of the needs and fears worked. This took time. It took flights and presentations, but we got there.
Win #2. Got a new revenue stream. An incremental ~5% of our P&L, but it was 100% pure profit. How? Because we persuaded someone to give us a kick-back. #1 thing that helped was being ready to walk away and putting a deadline on it. They knew we had an alternative and my threat was credible.
Loss #1. Made a deal where I had asymmetric information, pushed too hard, and extracted too much. Way too much. It felt like playing poker against an opponent with only their cards face up. And I abused this to get max result early. When we closed, I felt like I delivered a big win for the team. Round 1 crushed. But then in X quarters they canceled. The terms were bad from economics POV. They realized it. And the deal made them look bad internally. Nobody likes that. I ended up with $0 MRR, a failure for the team, and having to clean up a fall out. It would have been much smarter to extract less so that everyone feels good and a deal lasts years, not months. Play long-term games with long-term people.
People have different styles. As with leadership - think it is important to develop your own. It will come with battle scars.
The style that works for me is candid, upfront, and high empathy. I prefer to get to the crux of it quickly. There are many differences between a good and a bad negotiator, but I think that one of the main ones is that a good negotiator gets more deals done than the bad one. And I believe that speed and empathy help with getting stuff done. In most cases I do not believe in extracting max value, even if it is possible. Karma is a bitch and people do not like to look stupid.
My approach varies based on negotiation. There are instances where it’s 100% better to be methodical and to take a lot of time (win #1). There are also instances where speed is best.
Regardless of the stakes and the case - I believe in hyper thoughtful prep (see rubik’s cube). Gathering max amount of information. Mapping out all the scenarios on paper and thinking through every decision tree branch.
Things I wish I knew earlier (active WIP)
Lean heavy on your edge. If you don’t push your edge - who will? For example: if we bring unique tech, customers, distribution, X - we need to go big on X. State how X is critical and how the future isn’t bright if X is not in play.
Build BATNA (best alternative to negotiated action). Show them you have options. Then use it to get a much better offer. Building options is one of the best returns on time and the strongest lever we can have.
Ask. Ask clearly and simply for the things you want. We get zero if we don’t ask, right? This is especially true for things you need to re-negotiate. There can be items in play that we didn’t even know are on the table until we decide to put them on the table. Simple example are payment providers or large infra contracts.
Aim high. Important to be bold. Pay attention to how you de-anchor. Do not drop your anchor too much when giving concessions. Otherwise initial anchor can be perceived as artificial and you lose credibility
Listen. Really listen. Figure out the other sides needs, desires, and fears. Make a list and write down solutions for each. Separate the people and the emotions from the deal. Work on solutions for both (the man and the deal).
Do not be afraid to walk away. It’s great if you have options. Sometimes we don’t have an out and we need this. And yet, it might be okay to walk away. Maybe the other party is acting in bad faith? Maybe the terms are bad for your team or for you? There are always their competitors :)
Turn it into a multi-issue negotiation. People tend to get fixated on quantifiable things (ex. price, total salary). But a lot more can be in play than quant issues. And as you add more things, you can attach different weights to things (ex. express large interest in Y -> make a concession in Y → ask for concession in X) or construct a more interesting offer.
Get a bad cop. Manufacture one if it’s just you. People want a reason for why you are firm on issue Y and sometimes it’s just the way it is because of person X. We can do an entire post on structuring arguments, but one key things is that people are much more likely to acquiesce if you give them reason. Any reason. Bad cop will also help with relationships - the person running the business should stay on good terms after the deal is done. This is important. One trick I’ve used is letting the other side know that I need to check with the CEO if we can do this. But there is no CEO/CFO. It’s just me.
Good news. Our CEO approved, but we need ABCD from you.
If we don’t get this done, the CFO will force me to do shut this down. You are now too expensive given the value we bring. I have until our budget review in 3 days to give an update or we go all-in with player B.
Use Bayesian thinking and decision trees. I would map out every branch and play out all scenarios. Negotiation prep is ~80% of the result.
Direct email exchange between Jobs and Murdoch to negotiate audiobooks
#1 thing that stands out to me is how Jobs paints the future. His first response isn’t a counter-offer (often a mistake). Jobs spends energy reframing the world in which they are negotiating in a way that makes sense for Apple. Once we agree on what the world is - the terms will follow.
Jobs presses his advantages (distribution, alternatives, credit cards on file). He lays out price equilibrium for book prices and consumer preferences in a way that is not up for debate. It just is. The future can either be bright for Murdoch or he can miss out on a lot. Which will it be?
Stuff I read this week online that you might enjoy
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