168 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
brinksmanship convinces the other party they have no choice but to accept
the offer and there is no acceptable alternative to the proposed agreement.
17
Bogey: Negotiators use the bogey tactic to pretend that an issue of little
or no importance to him or her is actually very important, and then use
that ruse to get concessions.
18
Then, later in the negotiation, the issue can
be traded for a major concession of actual importance. The problem with
the bogey is that it is deliberately deceptive and not effective for long-term
relationships. It erodes trust for future negotiations and leaves the party
using the bogey with a dishonest reputation.
Chicken: Also known as playing chicken. Negotiators propose extreme
measures, often bluffs, to force the other party to chicken out and give them
what they want. This tactic can be dangerous when parties are unwilling to
back down and go through with the extreme measure. This dangerous tactic
can easily degenerate into an impasse, stalemate, or deadlock.
Defense in Depth: Also known as phantom negotiator. Several layers
of decision-making authority are used to allow further concessions each
time the agreement goes through a higher level of authority. In other words,
each time the offer goes to a decision maker, that decision maker asks to
add another concession in order to close the deal. For this reason, it is
recommended that you negotiate with your counterpart’s decision maker.
Deadlines: Give the other party a deadline forcing them to make a decision.
This method uses time to apply pressure to the other party. Deadlines given can
be actual or articial. Deadlines work well when buying a car or in real estate
transactions, but are very treacherous in a business negotiation setting.
Flinch: Flinching is showing a strong negative physical reaction to
a proposal. Common examples of inching are gasping for air or a vis-
ible expression of surprise or shock. The inch can be done consciously
or unconsciously. The inch signals to the opposite party that you think
the offer or proposal is absurd in hopes the other party will lower their
aspirations. Seeing a physical reaction (body language) is more believable
than hearing someone saying, “I’m shocked.”
Good Guy/Bad Guy: Also known as good cop/bad cop. The good guy/
bad guy approach is typically used in team negotiations where one member
of the team makes extreme or unreasonable demands, and the other offers
a more rational approach. This tactic is named after a police interroga-
tion technique often portrayed in the media. The “good guy” will appear
more reasonable and understanding and, therefore, easier to work with. In
essence, it is using the law of relativity to attract cooperation. The good guy
Power Negotiations ◾ 169
will appear more agreeable relative to the bad guy. This tactic is easy to spot
because of its frequent use in Hollywood movies.
Highball/Lowball: Depending on whether selling or buying, sellers or
buyers use a ridiculously high or ridiculously low opening offer that will never
be achieved. The theory is that the extreme offer will cause the other party to
reevaluate his or her own opening offer and move close to the resistance point
(as far as you are willing to go to reach an agreement). Another advantage is
that the person giving the extreme demand appears more exible as he or she
makes concessions toward a more reasonable outcome. A danger of this tactic is
that the opposite party may think negotiating is a waste of time.
The Nibble: Nibbling is asking for proportionally small concessions
that have not been discussed previously just before closing the deal. This
method takes advantage of the other party’s desire to close by adding “just
one more thing.”
Snow Job: The “snow job” consists of giving an opponent so much
information (a blizzard) that he or she gets bogged down in trivia.
19
Negotiators overwhelm the other party with so much information that he or
she has difculty determining which facts are important and which facts are
diversions. Negotiators may also use technical language or jargon to mask a
simple answer to a question asked by a non-expert.
8.7 Laws of Power Negotiation
“Power is 20% given and 80% taken.”
From the startup founder/entrepreneur perspective, their negotiation coun-
terpart is always larger, more aloof, and capable of putting them in bank-
ruptcy. In addition, the negotiating partners, be they customers, angels,
venture capitalists, private equity, etc., know that fact very well and usually
exploit it to their advantage.
A power negotiator can be dened as an actor with the situational abil-
ity to dominate and control the outcome of a negotiation. The high power
negotiator can unilaterally satisfy the needs, desires, and aspirations of the
other party. Thus, the founder/entrepreneur must be capable of claiming and
creating future value to their counterpart.
The guru of power negotiating is Roger Dawson.
20
He emphasizes
that in extended negotiations you will frequently encounter impasses,
170 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
stalemates, and deadlocks. What is the difference among these? Table8.1
claries the differences.
In an impasse, you may recommend temporarily bypassing the offend-
ing issue, and reach agreement on other less contentious issues. An impasse
is not always caused by world-ending issues or great matters of microeco-
nomic uncertainty, but in many cases are the result of personality clashes or
an inability to make a decision. An impasse usually requires an icebreaker to
re-start negotiations.
You may decide to make the rst move in breaking an impasse by chang-
ing emphasis from a competitive to cooperative, problem-solving mode by
involving engineers with engineers, operations managers with operations
managers, lawyers with lawyers, etc.
In a stalemate, you may want to change the dynamics of the negotiation
by altering one or more of the issues, and volunteering methods of mutual
risk sharing. Negotiation stalemates can be broken by two broad strate-
gies:
21
(1) clarifying needs, interests, and issues, and (2) using a credible and
achievable deadline.
Deadlocks are infrequent, but may require a third-party mediator. Roger
Dawson also recommends attempting to resolve minor issues rst, and then
moving up the ladder toward the most controversial issues. Deadlock may
not mean “dead”; it may mean one more stage of the bargaining process.
If the parties are convinced they both have something to gain, they will
continue to negotiate.
8.7.1 The Chicken or Egg Cycle
“Time is the shortest distance between two points.”
Investors, buyers, and strategic partners know that entrepreneurs are under
crushing time-related pressures to raise money, sell their products, or reach
Table8.1 The three “situations” likely to be encountered during negotiations
Impasse Stalemate Deadlock
In complete disagreement
on one issue, and it
threatens to derail the
negotiations.
Negotiations continue,
but parties incapable of
making progress.
Issues so intractable
that there is no point in
continuing
negotiations.
Power Negotiations ◾ 171
a suitable agreement. Time is the entrepreneur’s most implacable enemy.
Remember that the party under the greatest time pressure will lose.
The other party frequently uses time as a pressure tactic, as depicted in
Figure8.10.
8.7.2 The Negotiating Table
“You are where you sit.”
One of the most overlooked aspects of negotiation is the negotiating
physical environment. Negotiations occur at the investor facilities. As in
baseball, investors have the home turf advantage. They have the advantage
of deciding on the location of the meeting room, the relative elevation of the
participants, visual aids setting, access to les and archives, and importantly
conference table conguration and seating arrangements.
The table conguration and seating arrangements convey important clues
to the attitude of your negotiation counterparts. Win/lose attitudes of your
negotiation counterpart are transmitted by their selected table conguration.
Does their table arrangement promote trust or power? Before starting the
meeting, ask yourself the following questions:
◾ Were you asked to seat at one end of the table conveying an aura of
authority?
◾ Is the table large enough to seat all participants?
e Chicken or Egg Cycle
Time works against the entrepreneur
What they are
“willing” to pay,
and when
1. Need more
information
2. Busy closing
other deals
3. Bad business
climate
Burn
rate
Figure 8.10 The chicken or the egg—Is time being used against you as a negotiating
weapon?
172 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
◾ What is the distance between negotiators?
◾ Can you be heard and seen easily by all participants?
◾ Did all your negotiating partners arrive on time?
◾ Was your counterpart “decision maker” present from the start of the
meeting?
◾ Did your counterparts read your proposal?
8.7.3 How Is Your Meeting Progressing?
As the meeting progresses, how can you tell how much progress (if any)
you are making? The answer is pay attention to the body language of your
counterparts. Do they look interested or bored? Do they ask pertinent
questions or are they skeptical? Are they looking at you in the eye or
are they looking down or away from you? Are they sitting upright or
slumping?
Figure8.11 depicts the body language between the entrepreneurs (sitting
on the right side of the table), and their negotiating counterparts. In this
imaginary meeting, things are not going well for the entrepreneurs. If you
are unlucky enough to suffer a meeting like this, move on. You are unlikely
to reach an agreement anytime soon.
is
is
bad
Horrible
Subliminal and Unconscious Messages
(aka body language)
Hopeful
Counterparts Entrepreneurs
Skeptical
More data
Figure 8.11 Subliminal—What body language are you “seeing” from your negotiating
counterparts?
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