Standard Operating Procedure
The character Winston Wolf from the movie “Pulp Fiction” is a totem to me and many of my clients. If you can get past his criminal associations, he epitomizes the brutal efficiency of entrepreneur ethos with his straight talking, get stuff done and take no prisoners attitude. “If I’m curt, it’s because time is a factor; I think fast, I talk fast, and I need you guys to act fast if you wanna get out of this” is but one of his many memorable quotes which captures this spirit.
In general, quickly solving problems is critical for success among entrepreneurs. Standard operating procedure is to identify the efficient frontier of information gathering after which point decisions are swiftly made and executed. As counsel to many start-ups, I've seen many versions of this in action, and have spent many late nights and early mornings in service of this way of life.
There are, however, numerous instances where this approach does not work. In important negotiations such as raising venture capital and selling a company, an alternate mode of behavior is required. Raising money or selling your company is not a fire that quickly needs to be put out so you can move on to tomorrow’s emergency, it’s a decision that will have huge implications on the direction of the company and future of the founder. It’s worth taking the time to do it thoughtfully and deliberately to ensure you get an outcome you can live with for a long time.
To quote from Foghat’s classic rock masterpiece, there are many times where the “slow ride” is critical to success. Entrepreneurs need to be aware of this more gradual mindset in particular because it runs counter to the typical behavior of executives and engineers that is otherwise rewarded. Why is such a sudden gear shift warranted?
Slow ride, take it easy.
First, it is critical to develop a good alternative to the first choice deal you are negotiating, also known as the BATNA. For the alternative to be useful, however, it must be developed enough so that it is in fact a viable alternative to the first choice deal. For example, if you have one term sheet from a venture capital firm but have no other proposals from the other firms with whom you are talking, you really don’t have a viable alternative transaction. Your BATNA is walking away and hoping you can get another term sheet and therefore you are effectively choosing between a bird in the hand and the hope of finding two in the bush. This is not an ideal negotiating position. Far better to slow down the first firm before you get your term sheet so that you can get a second term sheet from one of the trailing firms (or at least know that you will not be getting any additional term sheets in the near term).
When I give this advice, most entrepreneurs are somewhat aghast. “Certainly it will blow up my deal with the first firm if I try to slow them down.” Not in my experience. You most certainly should never say “gee, I’d like to have the follow up meeting, but I’m busy developing some alternatives so how about next week,” but simply stopping your speed-and-efficiency-at-all-costs Mr. Wolf-like behavior will magically slow things down. Most of the time the other party won’t even notice. In our self-centered world we might see this as a dramatic tell, but consider the other party. Imagine a corporate development executive at a large company. She probably has 3-4 active deals on her plate along with another 20 in the pipeline. If she sends you an email at 4:30pm asking for a meeting and you respond at 10:30 am the next day suggesting a meeting three days later, that will seem totally normal to her, whereas to you it might seem like an inordinate delay.
Too eager beaver
Another reason to slow things down is that your speed in responsiveness is also a strong signal about how interested you are in doing the deal. In M&A every potential seller gets advised that they need to play it somewhat coy with the buyer. Some version of “we’re not planning on selling the company, but we are willing to listen to a reasonable offer” is a common refrain (though this is worthy of its own blog post). Well, as my Mom always says “actions speak louder than words.” So if you mouth these standard phrases, but then return every call or text in a millisecond and make yourself available to appear at far flung meetings at the drop of the hat, consider the message that this sends.
Remember that with respect to big ticket items like venture capital financing and M&A, the other actors are the repeat players in the game. They see the behavior of a wide range of people, including those who truly are not interested in doing a deal. Believe me, those people don’t return phone calls promptly if at all.
A related but slightly different tactic is not returning a person’s call for a period of time. This is a particularly useful device to employ if you are in the later stages of striking a deal where rapid communication has become the norm. So long as you are quickly returning every call/text/email, your negotiation counter-party will believe she has the deal and will hold strong on concessions. Once that cadence suddenly slows, a parade of horribles goes through her head: “is he getting cold feet?” “was I too aggressive?” and even “has another party swooped in and stolen my deal?” Concessions invariably follow to break the logjam and get to a signed term sheet ASAP.
Don’t mail yourself a time bomb
Letting the other party know that you have a time pressure in a negotiation is one of the worst mistakes you can make. Successful executives and engineers thrive on the “we need to get this done by x date/time” mentality, but there is nothing a good negotiator likes to hear more than “we need to get this done by x date/time.” What that tells a seasoned negotiator is that as long as she waits until right before x date/time occurs, you will concede on all of your points to meet the (potentially arbitrary) deadline. Deadlines are useful forcing functions, but be very careful of letting your counterparty know that you must get something done as that is information that can be exploited. Note that this is different than saying “I will only negotiate with YOU until x date/time,” which is an advanced negotiation technique that can be useful if deployed correctly.
Notwithstanding his murderous associations, Mr. Wolf is a useful role model for entrepreneurs to follow…most of the time. In negotiations, however, particularly big ticket negotiations like M&A and venture financing, another role model is often more useful to achieving your best outcome. [Note: Video is super long but you’ll get the drift quickly.]