Entrepreneurs: Learn How to Negotiate

As an entrepreneur, entrepreneurs have to negotiate. It is part of your job, and CEOs have to negotiate. It is part of their job. I don't think a lot of people get into understanding that. I certainly didn't. I had no idea just how much I have to negotiate. I mean you have to negotiate with every vendor. You have to negotiate--if you are going to run your business well, you are going to be very aggressive with some of your vendors, you know, not unfair, but you are going to be aggressive. You need to understand how to do that. You are going to be negotiating every employee offer. Every time you hire somebody. Especially when you are a young company, you need to negotiate that. Like you said anytime you do a financing, you are going to negotiate. So, negotiating skills are really important, and I don't think a lot of people have them. It is not something that we have a culture of here in America. I think you go overseas and you look at the Middle East, and you go to like downtown market in the Middle East, you will see something interesting. You will see that consumers will negotiate with vendors on the street for every single item, and they kind of--it is culturally normal. They kind of have fun with it actually. They toss remarks back and forth like, Oh, I can't believe you want me to pay that much. It is built into their culture. I think for Americans it is not. I think Americans feel somehow wrong asking for more or asking in the case of financing or asking for a lower price with a vendor. I think that as a result, they end up just kind of taking a lot of the deals that come their way. So, my first piece of advice for people that are negotiating a deal is understand that you are working with somebody who is a professional at this. You are probably not. The financing you probably do once every one to three years maybe. You only do it once in your existence, but you can't screw it up. You got to do it right. I think the only way to do it right is to be very sure of your position, be very sure of the strength of your company. Realize that they are interested in you because you have an exciting company, because you have something that is worth investing in. They are not the only ones that are going to be interested. I've never done a deal where there hasn't been more than one person involved. I've never ever told the parties who's involved--you always want to put up as much of a wall between the parties as possible. I think a lot of people fall for the trap, and they all ask, they always ask, So, who else are you talking to? You will just have to say, I am not going to tell you. You have to be very comfortable defining your boundaries with VCs or with people that are going to finance you. You have to say, Listen, I am not going to take that price and here is why. With Microsoft I had been offered a price, and I said, No. The reason I said no, my primary argument at the time, well, I had two actually. One was that the public markets were offering a higher price for the type of traffic we were seeing. I used a comparable, and it is typical in real estate, for example, to use comps. Microsoft made the argument eloquently that this is Microsoft stock. You know, this stuff is worth real money not that paper stock that you are seeing thrown around with these dot coms. Microsoft it is like gold. You can mint it. I said, Well, I appreciate that, but still you have to understand the other opportunities I have in front of me. Also, I had another suitor involved. I actually went out and got them and that was America Online, because I knew that they were looking at the space. I use them in the negotiation as another interested party. So, what that does when you have multiple parties involved and whether it is another VC and you have two VCs, they don't know who each other is. You definitely don't tell them who each other is. What that does is that makes--it does two things. It makes you really sure of yourself in negotiation, because you know you can totally screw it up with this one guy, and you still got another person that is willing to do the deal, and that confidence is so important when you are doing a deal. Number two, it is really a mind trip for them, because if you don't tell them who it is, they will assume the worst always, always assume the worst. When I was doing the VC deals, they were always assuming it was their arch nemesis that this other VC always got that deal from them, which worked in my advantage, because I got every single term that I wanted. You always have to have another party at the table. To a point I think it is almost the more the merrier, because it provides you more backup in case something does go wrong, number one. Number two, it makes you really confident, really sure of your position. I was lucky in the financing with Live Ops to have seven firms come in. We were so confident in raising our money, and I was able to just say, No, and tell them exactly how the provisions were going to be. For example, one of the things every VC wants is the founders to invest their stock, because if one of them leaves, they take all of the stock with them right after the financing. I was able to negotiate that away. My lawyers were just blown away by the terms that we got. They hadn't seen terms like that since the late '90s, and it was possible, because we were so sure of our company, we were so sure of ourselves, and we also happened to be in the fortunate position we could actually completely walk away from all of them, and still operate the company. That's not always the case, of course.