SLP is a peer to peer based education program. Each fellow gets the opportunity to run a class taking the role as class CEO. The program team mentor and support us with entrepreneurial learning. Recently I ran the class focused on negotiation. This was a great learning experience for me (and I hope the other fellows). Here’s a quick overview of how it went.
It was quite interesting to look at negotiations from a perspective of daily life. People negotiate all the time: with their coworkers on how to proceed with work projects, with their friends and family on which restaurant to go to or how to spend a weekend. You could probably say that negotiation is a process of making a decision collectively. Let’s not even talk about politics and negotiations. Maybe we negotiate because we wouldn’t be able to reach any progress at all without negotiations. This is a vital way to think about the topic. Without negotiations, there would be no progress!
When running a class every SLP fellow presents recommended reading, and mine was Never Split the Difference by Chris Voss and Neurologic by Eliezer Sternberg. Both books focus on emotional and subconscious sides of decision making, which are often overlooked when talking about negotiations. Quite frequently we think about our negotiation counterparts from a logical and rational perspective without considering empathy and emotional implications. From multiple experiences shared in these books, we see how much is there under the surface of human reasoning.
A Negotiation Exercise
We started with a simple exercise, which was described in Chris Voss’s book, he calls it the Ultimatum Game. The gist is that you have to split £10 with your negotiation counterpart in a limited amount of time, otherwise both of you lose everything. While your counterpart starts with no money and seemingly has no leverage, if they refuse your proposed split amount, you lose the £10 you started with. According to Chris Voss, when multiple groups run this exercise, the distribution of resulting splits should be quite random, showing that perception of fairness is very subjective. Surprisingly enough, in our class it looked like the majority of splits were £5/£5. I wonder what outcome would be if the exercise is played with real money, it seems that counterpart motivation would change with different stakes.
From an organisational point of view, I learned that having a slide with a visual description of the exercise helps a lot, but I wasn’t sure if assigning only 2 minutes for the negotiation itself was enough. I definitely regret not having more time to discuss the exercise results with our fellows.
We had excellent guests attending the session: Johan Gericke, Regional Sales Manager at SmartTasking and Matthew Shenkman, Managing Director at TAP Advisors. Before the class, I’ve gathered questions for the panel from fellows and tried to arrange those in a way that’s both applicable to sales negotiations and investor/board negotiations. We touched upon different negotiation stories and tactics such as silent treatment, anchoring, background research etc.
A common question from the fellows seemed to be about silent treatment: what to do when you don’t get any email replies/callbacks from clients or investors after the first approach or even when it happens in the middle of a negotiation. Learning from the experience of our guests it looks like the best measure against this is doing extensive background research and having a good understanding of who has the decision making power. A lot of times it could be that the person you directly negotiate with relays this information to a different person, possibly on a different level in the org structure. Making sure that all (even unseen) participants are on the same page during a negotiation process is very important.
Another interesting point was that anchoring to a high valuation as a startup negotiating with an investor doesn’t work so well, especially at a seed stage. For most of the seed rounds, there is a certain band of valuations that are hard to exceed so it’s better to be prepared to see an offer from multiple investors first and proceed from there. Similarly, when negotiating with a client, it doesn’t look like anchoring to a high price helps a lot, but also be prepared for a client to anchor first at a low price.
With a little bit of time left we discussed hiring negotiations. It was interesting to reiterate that sales mostly work on commissions and you should definitely consider that when hiring for sales. Similarly, you can tie compensation to clearly defined KPIs for positions that have those, e.g. in marketing. It’s a completely different story with research and development where base salaries tend to be quite high with KPIs that are hard to measure. You should consider rewarding hires for these positions with a significant amount of equity. Also, consider long probation periods and long periods of equity vesting, given how important it is to have good early hires in a startup.
Breaking Out in Two Groups
After the first hour of the class, we separated into two tracks: one for investor/board negotiations, the other one for sales negotiations. Here the fellows could ask their own burning questions on these themes directly.
In the sales track, Johan highlighted the value of background research again and how you should learn who you’re negotiating with and who outside of your field of view can have an impact on the outcome of a negotiation. We had a look at different processes of selling to consumers and selling to either SMBs or big enterprises.
A gist from the investor track with Matthew was that we had a closer look at negotiating valuations at the early stage. From experience, it looks like most startups in the seed round have a value in the band of £1m-£2m while giving away 10-20% of equity to investors. While it’s good to have leverage with strong traction and paying customers, in a lot of cases, you should allow investors to start first with their valuations. It helps when investors see you negotiating with other investors, which is a leverage in itself.
In my opinion, I could have managed this part of the class much better by allocating a fixed amount to each fellow and moving some of the questions to the Q&A panel in the first half of the class.
We’ve learned a lot in just a few hours and it was a great experience. Negotiation is a foundation for a startup founder who has to do it constantly. Realising that working with investors, clients, and employees is not a zero-sum game gets a better outcome for everyone. For me personally, it was very important to learn how to organise this kind of event in a better way. Many thanks to our guests, fellows, Kajol and Waz at Deloitte and our program leads Steven and Wen, who helped to organise the class and mentor me, without you all this wouldn’t be possible!