Negotiation 101: How to Prep to Ensure the Best Possible Outcome
Negotiating successfully isn’t an easy thing to do, and the truth is it’s a skill that develops over many years and with extensive practice. Having been through over 50 startup investment negotiations and dozens of job offer negotiations, I have seen a few common mistakes that stem from having the wrong mindset. Here are the steps you can take so that you have the best possible chance of getting exactly what you’re looking for from your next negotiation , whether it’s a job offer or a VC term sheet for your startup.
Identifying and Trading Items of Value
Preparing in advance of a negotiation is critical for success, and so is maintaining the right mindset. Contrary to what Donald Trump or popular movies would have you think, the goal shouldn’t be getting the best of someone or shouting the loudest. Negotiation is about figuring out what each person wants, what each person can give, and aligning these to create the most value for both parties.
Start preparing for your next negotiation by conducting an inventory of what you have to offer. In the context of negotiating a job offer, consider your level of experience, ability to work flexible hours, existing skills that may allow you to wear extra hats, etc., so that you know exactly what you bring to the table. Think through this long and hard and don’t underestimate yourself — value is often lost within a negotiation when one party has things to offer that are not brought to the surface. In this example, perhaps it could be an employee’s ability to work overtime or an employer who provides remote work opportunities. Scouring the landscape for your own elements of value prior to the negotiation is well worth the effort.
You’ll also need to identify and place values on what items the other party might offer you, and it’s imperative to think beyond the most obvious (salary for a negotiation, pre-money valuation for a VC term sheet). There are many other things of value that can be traded within the context of a negotiation, and the best negotiators conduct a thorough exploration. It is often surprising or even counterintuitive to see how each party can value certain things so differently, and your goal is to ensure that each element of value lands with the party that values it more highly.
As a father of a three-year-old, I know that if I applied for an office job, the ability to shift my work day to start at 9:30am instead of 9:00am would be highly valued by my family and me. On the other hand, the cost of this time shift ascribed by my potential employer may be negligible because I put in the same number of hours and that is what they care about. It’s impossible to know the other party’s touch points without probing.
Another common example is a signing bonus as part of a job offer. The cash from this bonus would be meaningful to a new hire but surprisingly may not matter as much to the hiring manager. This might be because they have very different pools of budget for recurring salaries vs. one-time bonuses. You never know, so you must probe.
In the startup term sheet context, let’s say a VC’s last investment had a founder who quit within just 6 months but took a large equity position with them. As a result, this VC is currently very touchy about putting founder vesting schedules in place (4-year monthly vesting, 1-year cliff, double-trigger acceleration of some portion). An entrepreneur, on the other hand, may have no qualms about locking into this vesting arrangement but may really prize board control because a founder friend of theirs recently had issues due to bad board composition. Through methodical exploration, the VC and entrepreneur can suss out these asymmetries of value placed on founder vesting and board composition. They can then ensure that these items are traded to the party that values each more highly.
Taking the time to (1) inventory the different items of value that you and the other negotiating party bring to the table and (2) explore each other’s touch points will help you co-create a deal that meets everyone’s needs and results in the largest total value.
In addition to assessing how to most effectively create and distribute value, you should consider the following before your next negotiation:
- Research benchmarks: Pulling in relevant comparables from the industry or other negotiations can help to anchor an element of the negotiation in your favor. Switching the discourse from “I want” to “the industry says” can be a helpful pivot.
- Develop a script for probing: Work on creating a script comprised of well thought-out and open-ended questions to ask the other party during the negotiation can help you to probe for new elements and understand the way they value each element.
- Schedule a time and place: Negotiating face-to-face is critical. I find it invaluable to be able to see/hear and react to body language and facial expressions during negotiations.
With all of this preparation under your belt, you’ll put yourself in the best possible position to navigate a successful negotiation where both parties come out ahead.
Are you a founder in the smart hardware or machine learning sector? Let’s talk! Leave a comment or get in touch with Ubiquity Ventures.
Ubiquity Ventures — led by Sunil Nagaraj — is a seed-stage venture capital firm focusing on early-stage investments in software beyond the screen, primarily smart hardware and machine intelligence applications.