Author Henry James understood the impact a ghost could have on a story. He also recognized that two ghosts haunting two children was even more effective than a single ghost and a single child, as his character Douglas notes in the 1898 novella, The Turn Of The Screw:

“I quite agree – in regard to Griffin’s ghost, or whatever it was–that its appearing first to the little boy, at so tender an age, adds a particular touch. But it’s not the first occurrence of its charming kind that I know to have involved a child. If the child gives the effect another turn of the screw, what do you say to two children – ?” “We say, of course,” somebody exclaimed, “that they give two turns!” (italics from original text)

James understood that the introduction of each ghost and child effectively “turned the screw” – to a point. However, just as a carpenter understands that over-tightening a screw can cause it to break; James realized that too many “turns” of his metaphorical screw would render his ghosts ineffective as literary devices. Turning the screw just enough is an art in carpentry, literature and negotiation.

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Question: What is the optimal negotiation strategy?

Answer: It depends. Just as the optimal sales, competitive and management strategies will depend on an evolving array of circumstances, so do negotiation strategies.

For instance, if you are buying a house, you probably do not care how “good” the Bro Foe seller feels at the end of the negotiation. Your objective is to minimize the purchase price of the house. As it is unlikely you will have any interest in establishing a long-term relationship with the seller, you can afford to utilize an aggressive, hard-nosed negotiation style. You can walk away in a huff, get red in the face, raise your voice and leverage your extensive high school thespian training, if you so desire.

However, if you are negotiating the lease of a house with your future landlord, your approach will likely be much more subdued, as your objective is not simply to achieve the lowest price. You must also consider the landlord’s integrity, communication style and desire to maintain the property in its current condition. Unlike buying a home, negotiating a lease is not simply a transaction. Rather, it is the basis upon which your rapport with your landlord will be based. A solid foundation, comprising trust and mutual respect, will facilitate a long-term, mutually beneficial relationship.

When you negotiate your compensation at a startup, you are leasing a home, not buying one. As such, employ a negotiating style that considers both the near-term gains of a lucrative employment agreement and the rewards derived from a long-term relationship based on mutual trust and respect.

As with any negotiation, firmly define the least attractive deal you are willing to accept before you being your discussions. If you are unable to attain such terms, your decision is easy. However, avoid turning the screw too tightly by asking for unreasonable concessions.

Power Tool

At one startup, I attempted to hire a very qualified attorney for a business development position. He seemed to have the right personality, enthusiasm and business experience. However, as we negotiated his employment agreement, he displayed a disappointing inability to put down his screwdriver. In fact, the poor judgment he displayed in finalizing his employment agreement caused me to withdraw our employment offer. I was concerned that his desire to use a power screwdriver with me did not bode well for his ability to establish Bro relationships with potential BDC (Big Dumb Company) partners.

Cash Out

One way to avoid breaking the screw is to avoid overreaching when negotiating your base salary. When pursuing a position at a startup, seek a team you can trust to reward you for your future accomplishments incrementally increase the overall value of the adVenture. In such an environment, your overall compensation, including your base salary, will increase in concert with the expanding scope of your responsibilities.

At one of my first adVentures, I expended no effort negotiating my initial cash compensation. That is correct, no effort. When the Founder asked me what I wanted to be paid, I told him, “Whatever you think is fair.” He was shocked and stammered before proposing a salary. I accepted his modest offer on the spot, despite the fact that it was a fraction of what I could have earned at a BDC. Instead of focusing on my salary, I used my negotiating capital to increase the size of my option grant.

I was cavalier about my salary for two reasons. As described in Joining An AdVenture, I was fortunate that my spouse had a secure, stable job. In addition, I knew the startup could not possibly pay me a comparable, “market” salary. The Founder had never even heard of Wharton, my alma mater, let alone did he realize that recent Ivy League MBA graduates were making well over $100,000 at the time of our discussion.

After two months of making a substantial impact on the company, the Founder unexpectedly notified me that the Board approved his request to double my initial equity grant and to substantially increase my cash compensation. Even though I was still paid far less than my Wharton classmates, it was rewarding to know that I was working with a team that was committed to appropriately compensating each member for his or her contributions. When the company achieved a successful exit, the return on my options significantly exceeded the cash compensation I would have been paid had I taken a position with a BDC.

I am not advocating that everyone follow this unorthodox path. In fact, a reasonable degree of salary negotiation is usually prudent. However, my experience serves to illustrate that if you join a team that you trust to appropriately reward you for your future contributions – you can avoid breaking the screw when negotiating your compensation and still be fairly rewarded for your efforts.

How Do I Negotiate My Option Grant?

As noted in What The Heck Are My Startup Stock Options Worth?!, the number of options you are granted is meaningless if you do not know the company’s Total Capitalization. To properly position your option negotiations, refer to your option grant in terms of a percentage of the company’s Total Capitalization, rather than as a whole number. For instance, you should ask for an equity grant, “equal to 1% of total capitalization,” rather than a specific number of shares.

If you are joining an organization as a Manager, Director or Vice President, consider negotiating your option grant based on your boss’s grant. For instance, you might ask your prospective boss for an option grant that is fifty percent of the grant they received when they were hired. The message you send with such a request is, “I am sure that you negotiated a fair option grant for yourself and thus I am comfortable receiving a fraction of what you were granted.”

I have used this approach to good effect on several occasions.

Balancing Act

When making job offers, I often allowed prospective employees to select between a range of options and base salaries, as shown in the chart below.

Sample Compensation Plans to be selected by a prospective employee

Offering employees a choice of more or less cash and stock served as an effective Blondin Test. Those who selected the highest salary and fewest options often proved to be ATM Operators, while those that maximized their options generally were Bank Robbers.

This approach was well-received by most prospective employees, as it empowered them to select the compensation plan which best fit their financial needs and risk profile. It was also an effective means of reducing compensation negotiations. By presenting an employee with a variety of “choices,” between which I was indifferent, I was usually able to bind our negotiations within a narrow range of acceptable alternatives.

If you can financially afford to accept the additional risk, consider negotiating a base salary that is lower than what is offered to you, in exchange for additional options.

Ask Not

When negotiating almost anything, it usually does not hurt to “ask.” However, there are certain provisions that you should never request when joining a startup. Not only is it highly unlikely you will be granted such concessions, asking for them may break the screw, especially if you are applying for a relatively junior position (i.e., below Vice President). The lower the level of your prospective position, the less flexibility the company will have to negotiate “special terms.”

Anti-dilution – An anti-dilution provision is one in which the holder is protected from the dilutive impact of future equity grants. NO EMPLOYEE should ever be granted such a provision, as it is healthy for all equity holders to be equally impacted by future dilution. It is very uncommon for any party, including investors, to be given this protection. When one party has a preference in this regard, they are prone to favor decisions that are not in the best interest of the unprotected equity holders. Such misalignment of interests can often result in highly contentious and destructive conflicts.

Accelerated Vesting – This provision initiates automatic vesting of all or part of an employee’s option grant, usually upon the occurrence of a specific event, such as an acquisition. Only a handful of the most senior executives at a typical adVenture should benefit from this provision.

If your employer widely grants this provision, it risks making the company less attractive to a potential acquirer, as accelerated vesting could reduce the employees’ incentive to remain with the acquiring company after an acquisition is consummated.

When accelerated vesting is granted to a few senior employees, it should be predicated upon a “dual trigger,” two events that must both occur before automatic vesting takes place. In addition to an acquisition, the second trigger is termination without cause. It is fair to accelerate the vesting of options of senior executives that are fired without cause after an acquisition, as they likely created much of the adVenture’s value. A dual-trigger provision also takes away an unscrupulous acquirer’s incentive to fire such executives as a means of recapturing their unvested options.

Severance – You should not expect your startup to pay you anything in the event that your position is terminated, with or without cause. Startups are risky endeavors and you should not attempt to mitigate your risk by contractually binding the company in this manner. If you are doing a great job and you are terminated without cause, it will likely be due to the company’s financial failure, in which case the company will not have the financial wherewithal to pay any severance. In limited circumstances, top executives are granted severance clauses to entice them to join an adVenture. However, in all such cases, severance should only be paid when an employee is terminated without cause.

Extra Vacation – I was always surprised and unimpressed when potential employees attempted to negotiate additional vacation time. At most startups, it is a challenge to use the minimum vacation you are granted. Employees who asked for additional vacation communicated their lack of understanding of the time commitment associated with a startup.

When negotiating your employment agreement, keep in mind that consistent personnel policies are of paramount importance. When a company makes exceptions to company-wide policies, such as vacation accrual, it places itself at risk for a lawsuit. In some jurisdictions, employment law requires that every employee of a “like class” (often loosely defined by the courts) be treated equally in all regards. Thus, an exception made for one employee could become grounds for legal action. As such, avoid requests that would require the company to make an exception to its standard personnel policies.

Ask

Performance-Based Bonus – It may be difficult to negotiate the specific terms of your performance bonus at the time you join a startup. However, include in your Offer Letter a provision that binds your employer to “negotiate in good faith with respect to establishing a performance bonus within forty-five days” of your start date. If you do not document this term in writing, it is possible that the bonus may never be properly defined. Most courts consider Offer Letters to be legally binding agreements. As such, if your Offer Letter includes a performance bonus that is not subsequently defined, the company is effectively bound to pay you the entire bonus, irrespective of your actual performance. Even so, you should always strive to minimize any such ambiguities by clearly defining all the relevant parameters of your bonus.

Ideally, a portion of your bonus should be based on personal, quantifiable goals, such as sales, lines of bug-free code written, business development deals closed, or whatever tasks are applicable to your position. The other half of your bonus should be predicated upon the company’s overall accomplishments. In this way, you can still earn a portion of your bonus if you succeed, even if the company does not reach all of its goals. In addition, this compensation scheme aligns your interests to those of the organization. Persuading your employer to grant you a performance bonus may make it financially viable for you to accept a lower base salary and thus garner a larger stock option grant, as previously discussed.

You Are Not Entitled – Do not aggressively negotiate your title. Such actions might be interpreted as a sign that you are an ATM Operator, as opposed to a Bank Robber.

Rather than vying for a specific title, you should focus on clearly defining the scope of your responsibilities and determining whether or not you are joining an organization which will allow you to add value in a variety of creative ways. Titles are more germane at a BDC, as a means of defining the scope of each employee’s role. As discussed in What Do Bill Gates And Karch Kiraly Have In Common?, the roles and responsibilities within a startup are fluid, which significantly diminishes the relevancy of employment titles.

On a personal note, I never granted a new hire a title that was more senior than any position they previously held. This occasionally became an issue when I recruited former BDC employees. At times, prospective employees who were former Managers or Directors at large companies felt they should be a Vice President at our startup.

Wrong.

Senior employees at large companies have the benefit of a legion of support staff and financial resources to assist them. Thus, the skills required to be successful in such an environment are different than those required of a Vice President at a startup. As such, I insisted new employees accept the same title they held in the past and earn any advanced titles once they proved their ability to perform at our startup.

Accrued Vesting – As noted in Entrepreneurial Entreviewing, I often assigned potential hires a small consulting project while they were wrapping up their duties at their current place of employment. As a prospective employee, this can also be to your benefit, as it can give you an opportunity to “test drive” your future boss, peers, and potentially even your future subordinates. When accepting positions at a couple of startups, I have taken advantage of this chance to “try before you buy,” as a means of reducing my risk.

Although you should not ask to be financially compensated for such consulting work, it is appropriate to ask that your options begin vesting on the date you begin consulting. At one of my adVentures, I consulted for over three months, and thus entered the company on day one with options that were in their fourth month of vesting.

Equity Investment – It is entirely appropriate to request the option to invest in a current or future funding round. If the executive team is smart, they will encourage such investments, as it will serve to further align your commitment with the company’s long-term financial performance.

Turning The Screw

Negotiating your employment package is a delicate operation. You must be firm and strident in order to maximize your near- and long-term compensation. However, unlike a one-time negotiation in which you will not have a lasting relationship with the other party, you must balance a “tough” negotiating style with a reasonable degree of flexibility.

If you play too hard-to-get, the startup may move on. Most entrepreneurs do not have the time or patience to chase down and drag an employee into their adVenture. As such, being too coy and twice clever may be to your detriment.

Underkill

The word “overkill” was derived during the 1950s as a means of describing the potential impact of nuclear weapons. It is defined as “any effort that seems to go farther than would be necessary to achieve its goal.”

Henry James created a masterful classic of gothic suspense with the judicious use of two ghosts and two children. By avoiding an overkill approach that risks “breaking the screw,” James deftly keeps his readers frightened and engaged. A similar underkill strategy will help you craft a startup employment package that will reward you in both the near- and the long-term.

— Get hands-on advice from your Uncle Saul, Subscribe Today. —

Copyright © 2007-9 by J. Meredith Publishing. All rights reserved.

Unfortunately, non-fictional entrepreneurs cannot draw upon the Force. However, there are Jedi mind tricks that really do work – words, techniques and patterns of behavior that cause people to act in a highly predictable manner. Just like the Storm Troopers, victims of these mind tricks are usually unaware of the degree to which they have been manipulated.

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Many of the persuasion techniques which proved effective within primitive tribes have become ingrained modern societal norms. To understand why these techniques are so effective, one must explore the work of ethnologists who analyze and compare human cultures. Although these scientists are unconcerned with devising effective sales strategies, their hard work has become the basis for a number of highly effective sales and marketing techniques. Many veteran salespeople utilize these techniques without understanding why they work. However, understanding the underlying tribal forces which trigger automatic responses is especially valuable to entrepreneurs, as effective persuasion skills are crucial to an entrepreneur’s success.

Over the years, I have been asked to recommend a “good book on sales.” As I made clear in Why Most Business Books Suck, I have a low opinion of business books. However, I recently discovered a highly effective book that was not written for the purpose of educating salespeople. Robert Cialdini’s Influence – Science and Practice, was written as a textbook to be used in undergraduate communications classes. It is a nice compliment to The Art of Woo, which also addresses methods of persuasion, as further discussed in To Woo Or To War.

Due to this focus, there are aspects of Influence that some business readers will likely find somewhat superfluous, such as the “Study Questions” at the end of each chapter. Cialdini also tends to support each of his suppositions with two or three more studies than seem necessary. However, given his intended academic audience, this approach is understandable. To address these issues, Cialdini’s Publishers repackaged Influence with a slightly different title, while excising the academic aspect of the original text (Influence: The Psychology of Persuasion).

Even with these minor faults, I found Influence to be a rewarding and enlightening read. Although I encourage everyone to read the entire book, I extracted a few of the key points below, annotating them with suggestions as to how they might be applied to your startup. I only cover the first five chapters of Influence in this article, as they are the most relevant to startups. If you care to read a summarized version of Influence in Cialdini’s own words, download the Harvard Business Review article, Harnessing The Science Of Persuasion.

Because The World Is Round – It Turns Me On

“Because” is a very powerful word. It falls within the category of “judgmental heuristics” or mental shortcuts that generally served tribal humans (as well as their modern brethren) well. Such powerful words can be exploited by those attempting to persuade us. A number of judgmental heuristics are used to persuade consumers, such as “expensive = high quality,” “popular = good” and “expert = valued, unbiased opinion.”

Cialdini cites research that shows that the inclusion of “because” in a request greatly enhances compliance, even when the reason given for the request is nonsensical. Persuadees, the people who are the target of the persuasion, prefer to know the reason for their actions. Thus, persuadees are more comfortable conforming to a request if they are first told “why” they should do so. For instance, in one study, a woman attempted to cut to the front of a long line at a library copier by saying, “Excuse me, I have five pages, may I use the Xerox machine?” This request was granted 60% of the time. However, when the request was augmented with the word “because,” the compliance rate escalated to 93%, even though no real reason was given. In such cases, the request was modified to, “Excuse me, I have five pages. May I use the Xerox machine because I have to make some copies?” Even though the “reason” was not informational, the word “because” triggered a much higher rate of persuasion.

The same phenomenon is evident in the enhanced panhandling techniques described in Personal Pitch. Donors are much more apt to assist an entrepreneur when they understand why their assistance is being solicited.

Lesson: When attempting to persuade, include the word “because” as a means of explaining why your request should be satisfied. “Because = valid reason to comply”

Perceptual Contrasts – “That One Looks A Lot Better”

Scientists have repeatedly proven that subjects assign extreme attributes to an item when it is preceded by a contrasting item. For instance, if you are asked to estimate the weight of a light object after holding a heavy one, you will tend to underestimate the weight of the light object. This principal has been effectively applied for thousands of years in primitive markets all over the world. Ancient rug merchants, potters and similar craftsmen would routinely show buyers several mediocre items before pulling out the more expensive (remember, “expensive = high quality”) item that they hoped to sell.

Contemporary real estate agents are trained to first show would-be buyers less appealing homes before taking them to a home that closely matches the buyer’s criteria. In this way, the “appropriate” home appears even more suitable, in contrast to the sub-optimal homes they just viewed. If you know anyone who has ever worked at an electronics store, ask them about the games the retail chains play with the various television displays. Amazingly, the TVs they are most motivated to sell look “much better” than the TVs surrounding them.

One of my favorite anecdotes in Influence brilliantly illustrates the power of contrasts. Cialdini cites Leo Rosten’s example of Sid and Harry Drubreck, who ran a tailoring shop in the 1930s. They developed a clever shtick to incentivize customers to accept their preferred price, while making the customers believe they were getting a bargain.

While Sid was helping a new customer, he would repeatedly ask the customer to repeat things in order to make it clear that his hearing was “impaired.” When the customer asked the price of a particular suit, Sid would call to Harry, who was working in the back room. Harry would shout an inflated reply, such as “forty-five dollars.” Sid would pretend to hear a lower amount, such as “twenty-five dollars,” which he would then repeat to the customer. Thinking they were getting a great deal, most customers quickly paid for the suit and exited the store, in the hopes that the “mistake” would not be caught before they could escape with their bargain. Although I do not agree with the Drubreck brother’s ethics, it does make for a great illustration of the power of contrasts (and human greed).

Lesson: Before making your “ultimate” request, precede it with one or more contrasts to enhance its appeal.

Reciprocity – Heads I Win, Tails You Lose

In tribal societies, the concept of quid pro quo was paramount. If every individual had to fend for itself at all times, the tribe’s overall chance of survival would be precarious. In addition, if a subset of the tribe were forced to consistently provide for the wellbeing of everyone, without reciprocity, the tribe’s ability to exist would be significantly compromised.

In order to ensure that assistance would be forthcoming in a time of need, tribal members fostered and rewarded quid pro quo behavior. This virtuous circle of “paybacks” created a strong societal bound and ensured the tribe’s collective survival.

This tribal instinct still permeates modern society, as evidenced by the Starbucks, “pay it forward” phenomenon, which began when a man at a Starbucks drive-through was harassed by the car behind him, for taking his time placing his order. Rather than becoming angry, he paid for the coffee of the person who honked at him. This random act of kindness between two strangers resulted in a chain reaction in which dozens of coffee buyers paid for the orders of total strangers just because someone else had paid for their coffee. The “pay it forward cheer chain” (as dubbed by the media) continued for nearly an entire day. This incident was subsequently repeated with similar results at several geographically disparate Starbucks across the U.S. The indebtedness associated with a gift, even an unsolicited one from a stranger, is a powerful reflex that can be readily exploited to encourage persuadees to act in a desired fashion.

Companies attempt to exploit the concept of reciprocity with declarations such as “Our gift to you.” Non-profits often include an unwanted and often nearly worthless “gift” in their solicitations, such as address labels, holiday cards or pocket calendars. Why? Because it works. As Cialdini points out, 35% of such solicitations that include a gift result in a donation, compared to a donation rate of 18% arising from solicitations that do not include a gift.

Ever wondered why some restaurant waitstaff include a mint or candy with your check? They know from experience that the inclusion of this small “gift” results in larger tips.

Lesson: As noted in Personal Pitch, entrepreneurs need Donors. When reaching out to Donors, consider what you can “gift” them in order to invoke the Reciprocity Principle. For instance, you might send them a link to an article that they might find of interest or introduce them to someone they may want to meet. Even if your “gift” is small (think address labels), the likelihood that they will reciprocate in some manner is relatively high, especially if you have effectively developed a healthy rapport with the Donor before invoking the Reciprocity Principle.

Commitment and Consistency – I Am A Man Of My Word

In a tribal community, clear communication of each member’s commitment to a collective action was of vital importance. Equivocation is not something most tribes could indulge in. Once fundamental survival decisions were made, such as when to migrate or where to camp for the winter, there was little time to debate and second-guess the decision.

Cialdini does an excellent job of explaining how the Chinese “brainwashed” U.S. soldiers captured during the Korean War. Rather than deploying sophisticated cadre of psychological weapons, the Chinese simply encouraged the U.S. soldiers to write down their thoughts and sign them. The soldiers were initially rewarded for stating minor criticisms of the U.S. (e.g., “I agree that no country is perfect”), which eventually escalated to damning indictments of the U.S., its policies and capitalism in general. The secret of the Chinese approach was to incrementally increase the level of commitment associated with each statement. The tribal desire to act consistently with written, signed affirmations did the rest.

Such techniques are also used by marketers to strengthen consumers’ brand commitments. Crowd-sourced ads, such as the Converse “Gallery,” are similar to the contest of a bygone era when marketers would ask consumers to write a short essay describing why they “love product XYZ,” The purpose behind such crowd-sourced ads and essay contests is to enhance the persuadees’ brand loyalty. “Hey, I just spent ten hours creating a video that proclaims that this product is great, of course I am going to continue buying it.”

Once commitment is established, most people strive to act consistently with their commitment, even when such actions are not in their best interest. Cialdini references a study which showed that people overwhelmingly agreed to install a large, unattractive sign in their front yard which read “Drive Safely” after they had previously responded to a phone survey asking them if they felt “safe driving was an important issue.” Even when such subjects were not reminded of the survey, which took place two weeks before the request to install the sign, they still accepted the eyesore sign at a much higher rate than subjects who were not first asked to verbalize their “commitment” to safe driving.

It is important for entrepreneurs to understand the various levels of commitment, in order to secure it from customers, employees and Donors.

Levels of Commitment

Presumptive

If the commitment is not explicit, it is much easier for the persuadee to act inconsistently. Your presumption that a customer agreed to something is usually not adequate commitment to trigger a desire for the customer to appear consistent.

Non-verbal

Head nods and other forms on non-verbal communication are more powerful than presumptive commitment. However, because such non-verbal actions are open to interpretation, it is relatively easy for the persuadee to act inconsistently.

Spoken

A verbal response confirming the persuadee’s commitment is significantly more effective at establishing commitment than a non-verbal or presumptive exchange. Cialdini cites a restaurant that asked people calling to request a reservation to, “Please call us if you have a change of plans.” This presumptive approach resulted in 30% of the persuadees not notifying the restaurant of their intent to cancel their reservation. By simply turning the statement into the following question, “Will you call us if you have a change of plans?” and waiting for the persuadee to reply, decreased the unnotified cancellation rate to 10%.

Written

Salesmen have long known that requiring customers to fill out a portion of the sales agreement greatly reduces the degree of buyer’s remorse following a sale. As the Chinese prison guards understood, the very act of completing the name, address and other trivial aspects of a sales contract solidifies the buyer’s commitment to the purchase.

Signed

I often asked Big Dumb Company (BDC) partners to sign “non-binding” term sheets. Since they were not legally binding, I was usually successful, even when such documents included terms that were not advantageous to the BDC. I often referred to these non-binding terms when a partner attempted to deviate from them and I was seldom reminded that the term sheet was not binding. Although I was not always successful, more often than not, our final binding agreement was usually highly aligned with the non-binding terms.

Do not underestimate the power of such “social contracts.” The fact that you “reach agreement” and validate it with your respective signature is a powerful means of establishing commitment.

Signed, Public Commitment

Tribes understood the importance of public commitments. Across a variety of societies, weddings are ritualized, community affairs in which the bride and groom publicly pronounce their commitment to each other. In many western societies, the nuptials also include a Marriage License that is signed by the bride, groom and the presiding authority.

Press releases, as described more fully in Pulp Facts, and negotiating space in a partner’s tradeshow booth (see Best Of Show) are two ways to publicize a BDC’s commitment to your adVenture. Such public pronouncements will increase the likelihood the BDC will act consistently and attempt to foster an ongoing, mutually beneficial partnership.

As noted in Excludesivity, I seldom agreed to exclusive terms. However, in the few instances in which I did, I always required the BDC negotiator to “sell” me as to why exclusivity would be good for my company. This inevitably led to the Bro Foe indicating that her company could generate tremendous revenue for my company.

I would take copious notes during such discussions and then email the forecasted sales figures to my BDC counterpart, asking them to “confirm in a return email that these figures properly capture the spirit of our conversation.” I purposely did not ask them to “commit” to the numbers. However, the simple act of replying to such an email served the purpose of closing the social contract regarding the proposed sales figures.

After I received the confirming email, I would later ask my Bro Foe to propose a minimum sales threshold, as a means of offsetting the opportunity costs associated with exclusivity. The sales figures that they had previously communicated while trying to sell me on the value of exclusivity served as the basis for our exclusivity threshold. The social contract established in the prior email exchange made it difficult for them to act inconsistently by proposing lower sales figures.

Lesson: Obtain written, signed commitments, even when they are not legally binding, as a means of ensuring the persuadee’s consistency. If possible, publicize such commitment to further strengthen the degree to which the persuadee will act consistently with the initial agreement.

Social Norming – 50,000,0000 Fans Cannot Be Wrong, Can They?

This is the most difficult persuasion technique for startups to utilize. At its outset, your adVenture will have minimal customers and partners that you rely upon for third-party validation. However, if you properly manage your Messengers, your company will appear much larger than reality.

Tribal members look to the actions of others for validation of their decisions. The reaction of the other members of the tribe is another form of mental shorthand. In the business, this heuristic translates to “popular = good.” Authors are described as “best-selling,” musicians as “hit-makers” and products as “award-winning.”  We want to know that other members of the tribe have validated a purchase we are contemplating.

Ironically, as shown in the accompanying photo, the cover of Influence includes the marketing burst, “Over One Million Copies Sold.”

Lesson: Leverage third-party validation from customers, partners and industry experts to elicit social norming signals that will drive additional Stakeholders into your sphere of influence, thereby increasing your gravitas, as described more fully in Old Gray Advice.

Liking – Me Like, Me Buy

We buy from people we like and we like people we perceive to be similar to ourselves. Just like a tribe was naturally suspicious of anyone whose appearance was “different,” modern humans also value familiarity. Unlike the tribe’s focus on appearance, in contemporary society, such similarities include a variety of characteristics, including opinions, background, socioeconomic standing and interests. As noted in Bro Factor, every successful salesperson knows that they will discover some level of commonality with a prospect if they ask the right questions and actively Listen.

Cialdini cites a number of studies that support the “Liking” principle. For instance, in one study conducted in the early 1970s, experimenters dressed as “hippies” and “straights” and asked for money for a phone call. When the experimenter was dressed similar to the persuadee, money was given over 67% of the time. When the experimenter was dressed differently from the persuadee, less than 50% of the requests were granted.

Although the principle of Liking is real, be careful of the manner in which you attempt to leverage its power. In the early 1980s my wife and I, who are both Caucasian, entered a furniture store in the Washington, DC, area. The store was located in a predominantly African American neighborhood, so we thought nothing of the fact that nearly all of the salespeople were black. We struck up an engaging conversation with one of these salespersons, which was abruptly interrupted by one of the few white salespersons was available. We thought this was odd, but we assumed that the African American salesperson probably had another prospect they wanted to speak with. We thought it was even stranger when our first salesperson approached a few other idle salespeople and starting a casual conversation.

We did not buy anything on our initial trip to the furniture store. However, we returned a couple weeks later with a firm idea of what we wanted to purchase. To our dismay, the same series of events took place. We initially spoke with an African American salesperson and asked him a few questions. We then told him we knew what we wanted and we were ready to place our order (this was pre-Ikea, when you ordered furniture and waited weeks for it to be delivered). Rather than take our order, he handed us off to another white salesperson. The African American salesmen then went over and introduced himself to an African American couple who were clearly browsing and had no rapport with the salesperson.

At this point, it was clear that the store’s policy was to match white people with white people and (presumably) black people with black people. My wife and I found this blatantly racist approach offensive and we departed without making a purchase. Someone within the furniture corporation (which has long since gone out of business) was clearly an advocate of the Liking principal. However, the transparent, heavy-handed manner in which they attempted to implement this approach backfired. Twenty-five years later, I still recall how offended we were with the assumption that we would be more likely to purchase something from a white person.

Lesson: Establish commonality with the persuadee in order to enhance your likeability. Make them feel you are part of the same tribe.

Force Fit

According to Obi Wan Kenobi, “The Force is what gives a Jedi his power.” A similar power is granted to those who understand the why behind the tribal ties that bind. Knowing why something works provides insights as to when to deploy that tactic. If you appreciate the underlying principles of persuasion techniques, you will also fall victim to them less often, as you will more readily recognize them, irrespective of the form in which you encounter them. As Robert Walker notes in his excellent book, Buying In, 61% of the respondents to one statistically valid survey indicated that their knowledge of persuasion was “above average.” Clearly, a significant portion of these individuals are deluding themselves regarding their knowledge of persuasion.

Just as Obi Wan was able to convince the Storm Troopers to let him pass, your use of tribal persuasion techniques will allow you to effectively align customers’, partners’, employees’ and other Stakeholders’ competing interests with those of your adVenture. May the Force be with you and your adVenture.

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Copyright © 2007-9 by J. Meredith Publishing. All rights reserved.

As with most business dilemmas, there is no dogmatic response that can be uniformly applied to every situation. Each threatening instance must be evaluated in light of your resources, the criticality of the threat and the probability that you could: survive a fight, escape by flight, or establish an ally by flirting.

Fortunately, there are two excellent books that address the yin and the yang of this fundamental issue: Sun Zi’s The Art of War and G. Richard Shell and Mario Moussa’s The Art of Woo.

  The Art of War (War) and The Art of Woo (Woo) do not attempt to instruct entrepreneurs as to which business situations merit battle and which are better addressed diplomatically. However, each book does provide effective strategies for each approach, once you decide whether to fight, flee or flirt. When read in tandem, these works are particularly informative, as they highlight that, just as good management and effective negotiating skills are highly situational, so is the decision of how to best respond when threatened.

The Art of War Redux

War was written during the 6th century BC by Sun Zi (also spelled “Tzu”), a legendary general and philosopher. Like many effective tools, War has been over-applied to too many disparate business issues. Its most ardent champions notwithstanding, War is no panacea. Even so, despite its overexposure at most business schools and within Big Dumb Companies (BDCs), War does offer entrepreneurs a number of effective negotiation, corporate strategy and leadership lessons.

At the risk of oversimplifying Mr. Zi’s overall message, a few of the book’s most entrepreneurially relevant points include:

Victory Without Battle – “Those who render others’ armies helpless without fighting are the best of all.”

As described in Competing From The Fringe, there is no reason to alert a BDC that you are at war with them. The more subtle and humble your engagement, the longer it will take for the BDC to react. If executed properly, the war will be won before the BDC fires a shot in your direction.

Deception and Concealment – “A good merchant hides his treasures and appears to have nothing.”

As discussed in Corporate Creed, entrepreneurs are well served to always conduct themselves in a forthright and honest manner. The one exception is with respect to your interactions with competitors – retain your honesty but drop your forthrightness. Just as a quarterback attempts to thwart the opposing team with a fake handoff before throwing a pass, you should keep your competitors guessing about your future plans and true intentions.

Flee To Fight Another Day – “If your enemy has superior strength, evade him.” Ensure your survival by directly engaging your enemy only when victory is assured. If you have any doubts about your ability to win a battle, you should,“… prevent the enemy from engaging … (you by) throwing something odd and unaccountable in his way.”

This could be in the form of a new go-to-market strategy, an alliance with a large partner or some other strategic move, which might divert your enemy’s attention and prevent him or her from attacking you head-on.

There is no excuse to not read War, as it is brief, easily digested and available for free at Gutenburg.org. Unfortunately for Zi’s heirs, War fell out of copyright protection over 2,500 years ago.

Woo Is Me

Woo was written as an explicit contrast to the venerable War. Over the course of the book, the authors describe six distinct channels of persuasion and five persuasion styles. Each persuasion style is portrayed by recounting the exploits of a successful tactician of the style.

The authors also discuss two additional factors that characterize an individual’s persuasion style: (i) the “volume” or aggressiveness by which ideas are put forth, and (ii) their proclivity to be self-oriented or service-oriented toward others.

Rather than just passively reading about these various styles, the Woo authors also give you the opportunity to determine your persuasion style, by completing a series of straightforward surveys.

I found the survey results enlightening. As you can see from the following schematic, my non-scientific, inherently self-serving survey responses placed me between “Driver” and “Promoter” status. Before I began the survey, I had assumed I would be solidly classified as a “Driver,” a decisive style that is well-suited to the startup world – just ask Andy Grove.

I challenge you to also take the Woo survey and see where you reside on the continuum of persuasion styles.

Compare And Contrast

Surprisingly, a number of similarities become evident when War and Woo are compared, including the following lessons applicable to entrepreneurs:

1. Know yourself, your audience/enemy and your terrain
2. Evaluate relationships before engaging with friends or foes
3. Align soldiers’/colleagues’ interests with your own
4. Wield the authority ceded to you
5. Secure your commitments
6. Win without fighting

Despite the books’ common messages, they also offer the reader strikingly different advice with respect to several key points, as shown in the following table.

Life During Wartime

Can Woo and War strategies simultaneously coexist? Certainly. Trade Associations are routinely comprised of ardent competitors who combine forces to thwart a common, external threat, such as adverse legislation, onerous regulations or a market incursion from an emerging technology.

A more dramatic example of Woo and War cohabiting occurred during the trench warfare of World War I. The Allies, led by the United States, had far more soldiers, equipment and other lethal resources than their German enemy. As such, the Allies’ War strategy was simple – engage the enemy daily and slowly win by attrition. This was a sound strategy for the Allied Generals, but a lousy one for the foot soldiers vested with its execution.

Rather than engage in daily pitched battles, the Allied soldiers and their German counterparts developed a Woo strategy that ensured their mutual survival. The first concession on the road to Woo was the agreement that neither side fire at the other during breakfast. This unofficial ceasefire was later expanded to include all meals and then further extended to whenever mail was delivered.

The next step in the soldiers’ collective Woo strategy was the demarcation of “no fire zones.” These safety zones allowed the soldiers to leave their trenches without fear of being fired upon. This Woo strategy was so effective that full-fledged cooperation broke out and fighting ground to a halt.

A British staff officer, after touring the trenches, remarked that he was:

“… astonished to observe German soldiers walking about within rifle range behind their own line. Our men appeared to take no notice; such things should not be allowed. These people evidently did not know there was a war on. Both sides apparently believed in the policy of “live and let live.” (Dugdale 1932, p. 94)

Once the Allied Generals became aware of the unofficial ceasefire, they changed the rules of engagement and required that artifacts, such as guns, ammunition and other equipment be periodically shipped to headquarters as evidence of the Allied troops’ daily encounters with the enemy.

Rather than thwarting the Woo accord, this edict simply provoked the German soldiers to deposit broken guns, used artillery shells and other debris on the battlefield nightly so they could be dutifully picked up by the Allied soldiers the following day, as a means of satisfying the Allied General’s edict.

Eventually, the Generals realized that the only effective way to overcome the incongruity between the Army’s overall goal of winning the war and the soldiers’ goal of preserving their lives was to periodically rotate career Officers among the ground troops to avoid the Officers from becoming too aligned with any particular group of soldiers. This approach eliminated the tendency for the Offices to go native and sympathize with the foot soldiers’ goals, rather than those of the overall organization.

In this instance, War and Woo strategies were at odds. Neither strategy could ultimately be effective without the elimination the other. Unfortunately for the ground troops, Zi’s tactics won the day.

War Woop

“Ohhh. Great warrior. Wars not make one great.”

–Yoda, Jedi Master

If you are unable to win by deploying a Woo strategy and you have the resources and bandwidth to win a sustained battle, then War might make sense. However, in most cases, startups do not have the wherewithal to execute a business plan while simultaneously fighting a protracted battle. As such, only deploy a War strategy as a last resort.

One venture that I helped foster from inception through its initial public offering allowed the heat of battle to adversely impact its judgement. Frustrated by its primary competitor’s market success, the company decided to sue its larger, more financially sound, competitor for patent infringement.

Although I had moved onto my next adVenture at the time the company declared war on its chief rival, I can appreciate why management reacted so irrationally. After years of being the market leader and defining a new industry, it was frustrating to see a clever, fast follower erode the company’s leadership position.

However, even though it might be satisfying in the short-term to rush into battle, deciding between Woo and War also involves evaluating the long-term consequences. Although viscerally pleasing, it was unreasonable for my former colleagues to declare War when a strategy of Woo would have been far more effective. Fortunately, cooler heads eventually prevailed and the company was able to broker a sale to its larger rivals despite the bad blood that arose from its declaration of War. Even so, the legal battle had significantly defocused my former company and cost it millions in legal fees, which caused the resulting sale to be far less advantageous than it might otherwise have been.

As noted in Roping In The Legal Eagles, it is almost never a sound strategy for a startup to attempt to sue its way to victory. Courts should be viewed as a battleground in which to make a final stand, not a venue for launching a pre-emptive strike.

Take These Broken Wings And Learn To Fly

You must continually evaluate the fundamental fight, flight or flirt dilemma as you grow your nascent organization into a thriving, self-sustaining entity. If, after reading War and Woo, you are still unable to determine whether to fight or flirt, consider fleeing into the comforting arms of a BDC where your wage-slave status will preclude you from ever again contemplating such elemental survival conundrums.

This article was inspired by and portions were drawn from a presentation created by two of my more talented graduate students, Lonya Breitel and Nick Cunningham.  

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Copyright © 2008 by J. Meredith Publishing. All rights reserved.

As a startup, your most meaningful agreements will likely be struck with BDCs. You will no doubt craft agreements with companies of similar or even smaller size compared to your own, but the risk associated with such agreements will be tempered by the fact that you will negotiate such agreements as a relative peer. As such, your greatest risk and greatest opportunity will arise from the deals you cut with larger entities.

Fortunately, it is possible to craft lucrative deals with BDCs that do not limit your adVenture’s ability to charter its own destiny. Just as Batman must avoid Poison Ivy’s kiss of death, so too must entrepreneurs avoid the Kiss of Death provisions which BDCs often attempt to include in their agreements.

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Kiss of Death Provisions

The allure to of a company-changing deal with a BDC is strong. Big companies make a number of seductive promises, including access to large markets, significant financial resources and vital public validation of your solution (see Pulp Facts). However, fight the urge to close such enticing deals on the BDC’s terms. Stand your ground and negotiate a fair agreement, even if it takes longer and forces you to expend more energy than you would prefer.

To this end, never agree to any of the following Kiss of Death Provisions when negotiating with a BDC, no matter how lucrative the potential relationship:

• Allow the Other Side to Draft the Agreement
• Deploy a Free Pilot
• Cut a Multi-year Agreement
• Lock Down the Escape Hatches
• Give up Branding
• Relinquish Press Release Capabilities
• Approve Unilateral Provisions
• Accept Unlimited Liability
• Forgo Change of Control or Agree to a ROFO or ROFR
• Serve up World-wide Distribution
• Relinquish Joint Intellectual Property Rights
• Execute an Ambiguous Statement of Work
• Agree to Bundling Without a Minimum Price
• Grant Most Favored Nations Status
• Issue Unmitigated Exclusivity

Do Not Allow the Other Side to Draft the Agreement

As discussed in The Bro Factor, you can greatly enhance the effectiveness of your negotiations by establishing a strong rapport with the folks on the other side of the table. If you do your job well, the BDC negotiators will consider you to be a “Bro” – a colleague with whom they have a strong, personal relationship. However, despite your attempts to ingratiate yourself and gain their trust and respect, never forget that your Bros are also your Bro Foes.

Insist on creating the initial draft of the Agreement in order to gain the following important advantages:

• Control the tempo of the discussions – if you rely on the other side’s lawyers to create the agreement, the deal may lose momentum as it sits in the lawyer’s In-box

• Establish fair, bilateral covenants –  agreements from large companies generally come with numerous unilateral covenants that can cost you valuable negotiation currency to unwind

• Ensure the spirit and integrity of the business terms are not hijacked. A BDC lawyer who is not closely involved in the negotiations may, inadvertently or otherwise, craft an agreement that modifies some of the negotiated deal points.

• Shade minor aspects of the deal in your favor, such as: payment terms (i.e., 30-days vs. 45-days), percentage of irregularities which dictate who pays for an audit (i.e., 3% vs. 7%) the manner and venue in which disputes will be resolved (i.e., arbitration vs. litigation), etc.

As you draft the agreement, include specific examples, especially when numeric formulas and calculations are involved. For instance, if you are describing the terms of a licensing fee, add one or more real-world examples which utilize real numbers. This ensures that everyone understands the key formulas, and thereby avoids a common point of contention in deals that go awry.

Do Not Deploy a Free Pilot

If you allow your prospective partner or customer to milk the cow for free, why would they ever pay for it? As noted in Frugal Is As Frugal Does, after cash, your most valuable asset is time. You cannot afford the opportunity cost of a deal that does not generate revenue. Thus, if your adVenture must expend resources in conjunction with a Pilot, insist on being compensated for the use of such resources.

• If your Bro Foe does not have skin in the game, it is highly likely that your Pilot will become derailed and overtaken by other priorities. The best way to ensure that your potential partner has sufficient incentive to guarantee the Pilot’s success is to require them to invest cash upfront. Ideally, this cash should find its way into your pocket in the form of a Pilot Implementation Fee.

• Forcing the other side to pay a meaningful upfront fee requires them to determine the merit of a potential relationship with your firm at the outset – before you invest either your time or money. If you enter into a development or trial partnership for free, you are allowing the BDC to forestall its ultimate determination of the value of the partnership.

• If necessary, apply a portion of the Pilot Fee toward the ultimate license / purchase price. Clearly communicate that you are not attempting to get rich on the Pilot Fee. On the contrary, you are simply assigning a cost to your time in order to mitigate your downside risk and to ensure that both parties properly evaluate the economic viability of the deal upfront.

• Insisting to be compensated for your time will also help elicit the necessary respect from the BDC. Convey that your company is in demand and that you do not have to give away your time or technology in order to entice BCDs to partner with you. As noted in Private Means Private, in order to ensure a healthy partnership, avoid becoming the BDC’s Corporate Beyotch.

Oh, but you scoff. I have negotiated deals with numerous high-profile BDCs that included significant Pilot fees. In one instance, we were paid $50,000 and the Pilot was never implemented due to the fact that the BDC was acquired after the Pilot Agreement was finalized.

Do Not Cut a Multi-year Agreement

In the life of your adVenture, a year is an eternity. You cannot afford to limit your future prospects by entering into a multi-year deal. BDCs generally prefer multi-year agreements because long-term deals reduce the BDC’s uncertainty and thus lower its risk. Conversely, long-term deals reduce your flexibility and potentially increase your opportunity costs.

Some BDCs may attempt to force you to agree to an evergreen termination provision. Such covenants require written notice of termination within a specified period of time prior to the end of the term in order for a party to terminate the agreement. If such written notice is not made, the agreement is automatically extended, usually for an additional year.

Never agree to such a provision. BDCs can afford to hire large staffs to adequately track all of the evergreen provisions in their contracts. You will not have that luxury. The chances of your company missing a termination deadline are high, which could result in your adVenture being locked into a disadvantageous deal for an additional year.

Rather than agreeing to an evergreen provision, suggest that both parties mutually agree upon additional one-year increments in writing, at the end of each term. If the other party insists on an evergreen term, negotiate a reasonably conscribed no cause termination clause. This will significantly reduce the risk associated with inadvertently rolling into an additional year, as you can simply exercise the “out” clause and terminate the agreement.

Do Not Lock Down the Escape Hatches

Agreements are obviously intended to bind both parties. However, avoid writing contracts that may contractually hold the other party to an economically infeasible deal. If the relationship is not advantageous for the other party, there are many legal ways a BDC can undercut and effectively terminate the deal.

As noted in Roping in the Legal Eagles, successful entrepreneurs are generally not litigious. Even if you are a mean cuss, your startup will likely not have the financial resources to hold a BDC to disadvantageous deal terms. Thus, you gain nothing by crafting an agreement that contractually forces the other party to work with you, irrespective of the financial outcome of the relationship.

Ideally, either party should be free to terminate the agreement, after a reasonable notice period. By allowing either party to walk away, you force both parties to continually strive to maintain a mutually beneficial relationship.

One exception to this easy-out philosophy is with respect to recouping any substantial investments you make on behalf of the partnership. Irrespective of the easy-out clause, ensure that your costs are reimbursed in the event of early termination by the BDC. Such reimbursement might be in the form of a walk-away fee to be paid by the party who terminates the relationship. If the walk-away fee is unreasonably large, it is possible that the BDC will breach the agreement and refuse to pay the fee. As such, keep any such fees reasonable.

Do Not Give up Branding

BDCs will often ask you to “private label” or “white label” your technology.  This generally involves the BDC selling your technology in a form that allows them to market it under their brand. Do not allow your adVenture’s technology to be buried in the bowels of another company’s product, without obtaining proper recognition. For instance, in its early days, Google syndicated its search capabilities to third-party sites, including Yahoo and AOL. In each instance, it was noted that the search was “Powered By Google” – even though most people at the time were not aware of Google’s brand. This brand exposure helped Google establish “www.google.com” as a leading destination site.

As described in PR Passion, your adVenture should maximize any and all third-party points of validation. Thus, demand “Powered By” branding status to ensure that end-users will be exposed to your brand and alerted to the fact that your technology is a significant component of the BDC’s solution. Such validation will help you establish future business development and customer relationships.

Your pitch will be far more compelling to prospective customers and business partners when you have physical evidence of your partnership with a BDC. In many partnership discussions, I was able to direct a potential partner to an existing partner’s website and show them our “Powered By” branding status. This approach was very effective. If I had been forced to say, “I know you cannot see it, but our technology is the engine behind Company XYZ’s product,” my ability to establish new partnerships would have been hampered.

To control the specific amount of brand exposure you will derive from “Powered By” relationships, create graphical examples of how your “Powered By” status will be communicated on the partner’s site, products, brochures, point-of-sale displays, etc. You should also specify the minimum font size in each medium your brand will be displayed. In order to ensure that these specifications are honored, include the “Powered By” samples in an exhibit to the partnership agreement.

I never lost a deal by remaining steadfast on this issue, although some BDCs blustered considerably. If your Bro Foe believes that your technology represents a compelling value to their customers, they will grant you “Powered By” branding status.

Do Not Relinquish Press Release Capabilities

Every BDC has been burned at one time or another by a jackball entrepreneur who publicly misrepresented the nature and scope of his or her relationship with the BDC. Such misrepresentations embarrass the BDC executives and confuse the market.

Due to their aversion to being publicly embarrassed, most BDC partners attempt to preclude you from issuing any unilateral press releases. Some will even try to keep you from issuing any public statements related to your relationship. With this in mind, in your initial draft of the agreement, request the right to issue a unilateral press release, as long as it is first reviewed and approved by the partner. If the BDC has a chance to review and approve the language in advance, it is difficult for them to make a reasonable argument that you should be precluded from issuing such a release. A unilateral press release is less threatening to the partner, as it is solely issued by your firm and not publicly sanctioned by the BDC. As such, it will not be viewed by the market as an explicit validation of your technology. It also likely it will not receive wide media coverage, even by the financial and industry analysts who follow the BDC, thereby further reducing the BDC’s risk. See Thrill The Messenger for tips regarding how to maximize the impact of Partner press releases.

In some cases, the credibility generated by your association with a BDC is the most valuable aspect of the relationship. This is especially true in instances when the BDC grinds you down on the financial terms. In such instances, the level of public relations autonomy you negotiate can dictate the ultimate value derived from the relationship.

To maximize the value of such financially neutral partnerships, make it clear at the outset that you expect to have reasonable autonomy with regard to your press releases. If you wait too long to communicate the importance of obtaining public validation, you may negotiate a deal with marginally acceptable financial terms and be unable to leverage your association with the BDC.

I have been successful in obtaining some level of public relations exposure in the large majority of my BDC partnerships. However, despite the limited risk poised by a unilateral press release, some BDCs will not budge on this issue. If you find yourself dealing with such an organization, omit all references to press releases in the agreement. As every entrepreneur knows, it is easier to beg for forgiveness than it is to ask permission.

Do Not Approve Unilateral Provisions

What is good for the goose is good for the gander. Often, a BDC will attempt to force your startup to accept language that is not quid pro quo. This is almost never a reasonable request. For instance, the BDC may ask you to indemnify everyone under the sun on their side (e.g., employees, officers, shareholders, etc.) for every eventuality, while they will refuse to offer you indemnification for anything other than fraud or gross negligence. Such a concession essentially offers you nothing, as common law protects you against such illegal acts.

If there is not a valid business reason for granting one-sided terms, reject the language on the grounds that it is patently unfair. It is healthy for both parties to maintain symmetry in as many of the business terms as possible, as it reduces potential confusion and establishes a collaborative tone to the relationship. As noted previously, if you allow the BDC to prepare the initial draft of the agreement, it will likely be fraught with one-sided language that you will be forced to negotiate and thus needlessly spend your negotiation capital on just to get you back to a reasonable starting position. If the BDC demands the inclusion of one-sided terms, either reject them out-of-hand or accept them in bi-lateral form. What is goose is good for the gander.  If you accept unilateral terms, you risk becoming a Corporate Beyotch.

Do Not Accept Unlimited Liability

Another common unilateral provision is one in which a BDC proposes to limit the scope of its damages with a de facto cap while leaving your liability open-ended. This request arises from the BDC’s desire to mitigate the risk that you will request compensation associated with lost profits if the deal falls apart. This a valid concern because the courts often side with the smaller company when damages result from a failed relationship. Thus, most BDCs attempt to explicitly preclude any such open-ended damages.

Your goal is to maximize your upside – their goal is to minimize their downside. With this knowledge, you can craft a deal that allows both parties to attain their respective goals. You can do this in the Indemnification Section of the agreement by placing a de facto cap on the amount of expenses paid by both parties in the event damages arise.

Trade this concession for a reasonable cap related to your damages. Do not accept language that limits damages to “total fees paid by the BDC during the term of the agreement.” If a deal unravels before substantial fees are generated, you may end up in the disadvantageous position of being unable to recoup your opportunity costs.

As such, opt for a provision that specifies a cap equal to, “(i) the greater of $__________ (a de facto minimum amount which covers your costs) or, (ii) the total fees paid by the BDC.”

Do Not Forgo Change of Control or Agree to a ROFO or FOFR

Your adVenture’s future is less certain that the future of the typical BDC, especially with respect to the timing and nature of your adVenture’s eventual exit. As such, craft your agreements to ensure your adVenture has maximum flexibility with regard to the scope and nature of future partnership and acquisition activities.

One tactic is to include a Change of Control provision into all your agreements. Although the text can vary, the spirit of such provisions is the same – either party can terminate the agreement without recourse (i.e., without being liable for damages or other ongoing costs) in the event that a majority of their assets are purchased, transferred or otherwise merged with a third party. Happily grant this provision on a bilateral basis, as the risk of the BDC being acquired is usually relatively low and seldom would such an acquisition result in an adverse impact to a startup.

Neither party should be forced to terminate the agreement upon a change of control. Change of Control provisions will enhance your company’s attractiveness to a potential suitor. Thus, this provision gives you, and the BDC which may eventually acquire you, the option to maintain those agreements which remain advantageous to you post-exit and terminate those which might be problematic (e.g., a relationship with one of the BDC’s competitors, markets the BDC does not want to pursue, etc.).

Another way to maintain flexibility with respect to your exit is to reject Right of First Refusal (ROFR) and Right of First Offer (ROFO) provisions. Such provisions require you to notify the BDC whenever you are approached by a potential acquirer. BDCs cherish such provisions because they enable the BDC to dramatically influence the nature, scope and timing of your exit. As discussed more fully in Corporate Venturing, such terms are most commonly tied to corporate investments, as opposed to those made by institutional investors. Rather than trying to water down a ROFR and ROFO, your response should be, “No thank you,” whenever these terms are proposed.

Do Not Serve up World-wide Distribution

Value-Added Resellers (VARs) will often seek to obtain the largest geographic territories possible. However, only grant distribution in areas in which the VARs have a proven footprint. As they expand their business, you can expand the scope of their territory.

In the early stages of your adVenture, it may be difficult to obtain tier-one distribution partners. Thus, you may initially be forced to establish relationships with smaller VARs with limited, regional coverage. This will prove problematic as your business grows, because it will be difficult later to sign up larger VARs, unless you are able to offer them uncontested, broad geographic coverage. As such, always reserve the right to terminate regional distribution agreements in the event that you subsequently enter into a pan-country distribution agreement.

Do Not Relinquish Joint Intellectual Property Rights

Intellectual Property (IP) provisions should ensure that both parties maintain the IP rights that they respectively own at the outset of the relationship. This is generally a straightforward and uncontested provision.

A more complicated negotiating point involves IP that is created in the course of the parties working together. Any such “joint IP” should be equally and severely co-owned and each party should retain the rights to utilize the joint IP in any fashion they deem appropriate. The BDC will generally agree to such a provision, even though there is typically little they can do with such incremental inventions in isolation, as they will likely be based upon your underlying IP.

Guard against being precluded from marketing and otherwise utilizing novel, joint IP developed during the course of carrying out the agreement. Craft terms which ensure you will not be obligated to the BDC with respect to the terms by which it can profit from jointly developed technology.

Once your development team begins working with the BDC, do not allow the BDC to unilaterally create any meaningful IP without your team’s involvement. If the BDC iterates on your technology and devises novel IP without your involvement, you risk your IP becoming subsumed by the BDC’s technological advances. Such unilateral development should be explicitly precluded in the agreement if you anticipate that this is a material risk.

Do Not Execute an Ambiguous Statement of Work

The Statement of Work defines the specific actions and responsibilities to be carried out by each party in the fulfillment of their responsibilities covered by the agreement. It should be codified as part of the definitive agreement in the form of an Exhibit.

In most cases, your tech team (not the BDC’s) will do most of the heavy lifting and will bring the majority of the technological value to the relationship. In order to optimally manage your limited resources, it is in your best interest to clearly specify the work to be performed, who will perform it and when each significant task is scheduled to be completed.

The Statement of Work should include a Non-Recurring Engineering (NRE) budget that estimates the resources required to complete each major milestone. If the NRE budget is exceeded and the reason for such overages are due to the actions or inactions of the BDC, the agreement should stipulate the scope of your compensation.

To ensure that the BDC judiciously uses your resources, assign a relatively high cost to your engineering personnel’s time. By establishing an NRE budget upfront, the BDC will know how many “free” NRE hours are included per the agreement and what it will cost them when they invariably ask you to expand the scope of the project.

You will generally be pleased to expand the scope of BDC partnerships. However, contractually ensure that any such expansions are at your sole discretion. If you allow the BDC to unilaterally expand the scope of your involvement, you have effectively abdicated control over your technological resources. A detailed NRE budget will help you avoid becoming the BDC’s adjunct engineering team.

If you do not assign a price tag to your engineering team’s time, an aggressive BDC could quickly consume all of your technical resources, precluding you from executing other technical initiatives. You cannot afford to consolidate your development efforts on a single relationship, no matter how lucrative it may appear at the outset. The risk and associated opportunity cost of a single relationship failing is too high and could potentially lead to the demise of your adVenture.

Do Not Agree to Bundling Without a Minimum Price

Bundling deals can be attractive, as your product and/or technology can potentially reach a large audience by piggybacking on the reputation and market share of the BDC’s established brand. To ensure that such bundling is financially worthwhile, negotiate a de facto minimum per unit price.

A BDC will often encourage you to accept a percentage of the price they charge the end-user for your technology. If you do not negotiate a minimum price, the BDC may prove that they are not so dumb after all and give your product away as a loss-leader to induce sales of their product(s).  Without a minimum price, you could be paid a percentage of nothing, or next to nothing, depending on the price the BDC charges its end-users. Since you cannot control your partner’s end-user pricing, you must specify the minimum amount that you will be paid (per unit, per month, whatever is most appropriate to the relationship).

Do Not Grant Most Favored Nations Status

Many BDCs relish this onerous provision. A Most-Favored Nations (MFN) clause essentially states that, “Mr. Little Company can never do a similar deal with anyone, under any circumstances that is better than the deal cut with the BDC.” Clearly, this is the sort of provision that a savvy entrepreneur will never fall prey.

The path of your adVenture is far too unpredictable to anticipate the nature and scope of every future opportunity. As such, your goal when negotiating a MFN clause is to maximize your flexibility and keep as many future options open as possible.

The MFN provision is a slippery slope and often a tripwire to a lawsuit. Do everything you can to avoid granting it. I have crafted hundreds of agreements and I have only agreed to this provision, in a highly-watered down form, in a handful of instances. Although it may require tenacity, you can generally negotiate this provision away, even if the BDC tells you, “We always get this provision.” My response to such BDC nonsense is, “Great. This sounds like an interesting challenge for us to devise a reasonable alternative because I love being different.”

One way to denude this provision is to wrap caveats around the term “similar” and to liberally use the word “substantially.” For instance, you might propose something to the effect of, “Startup X agrees to not enter into an agreement with substantially lower pricing based upon substantially similar volume commitments.”

Do Not Issue Unmitigated Exclusivity

Unmitigated exclusivity can be the death knell of a small company. It is often alluring, as it is generally granted in exchange for upfront cash and/or the promise of a significant, future relationship. However, if given the chance, the BDC may put your technology on the shelf, either as a competitive reaction to remove your technology from the market or, more commonly, because they become distracted and lose focus once they realize your technology cannot be deployed by their competitors.

See Excludesivity – for tips regarding how to negotiate this most heinous contractual provision.

Contractual Antidotes

Batman thwarted Poison Ivy’s deadly kiss by coating his lips with an antidote before taking her up on her seductive offer of romance. By effectively structuring your agreements, you too can enjoy a relationship with a BDC without suffering the potential deadly consequences.

— Get hands-on advice from your Uncle Saul, Subscribe Today. —

Copyright © 2008 by J. Meredith Publishing. All rights reserved.

A startup-oriented lawyer may not be able to convince a jury of a guilty man’s innocence, but they can guide your adVenture through the menacing legal shoals it will no doubt face. Working with startup lawyers also minimizes the risk of losing control of your adVenture, as they can help you avoid common fundraising and investor pitfalls. Such attorneys can also add tremendous value in your negotiations with Big Dumb Companies (BDCs), as they can ensure that you focus on the deal points that are of most significance to a small entity. As such, a startup-oriented lawyer is a critical member of your extended adVenture team.

Substance Over Form

As outlined in Beware the Consultant, be wary when selecting a professional services firm. Often, the Rainmaker with whom you initially establish a relationship will not be your primary point of contact once the Engagement Letter is signed. As such, you must be comfortable with all of the team members who will work on your engagement. In addition, there is often an inverse relationship between a firm’s size and the amount of attention that you will receive from experienced professionals. The larger the firm, the less “quality” attention you may receive.  Do not be swayed by the hundreds of other startups the firm represents. Remember – you are hiring a lawyer, not a law firm. Before you sign an Engagement Letter, obtain written assurance that your lawyer will directly attend to your matters and that you will not be shuffled off to become a training ground for the law firm’s junior associates.

Like most mature markets, the legal profession is highly segmented with respect to the services provided and markets served. Even so, the majority of firms focus on servicing well-established BDC’s. Fortunately, in most communities, there are usually a few firms that cater to the specialized needs of startups. As noted in Nature vs. Nurture, startup lawyers tend to congregate in entrepreneurial enclaves. As such, your likelihood of finding an experienced, top-shelf startup lawyer will be higher if you place your adVenture in a geographic region which enjoys a strong entrepreneurial ecosystem.

Some startup attorneys will accept a portion of their initial fees in the form of equity. This will allow you to defer a portion of your of up-front legal costs. In addition, such an arrangement will further cement your lawyer’s incentive to help you succeed. When you hit the inevitable bumps in the road, a lawyer who has an equity stake in your business is more likely to be flexible with respect to payment terms and more willing to give you quick, off-the-clock feedback and guidance. Ensure that your lawyer’s goal is to establish a relationship, not just a retainer. If you are charged for every nanosecond you spend with your lawyer, consider finding one who is willing to “invest” more aggressively in your success.

When managing your legal affairs, never lose sight of the fact that your lawyer works for you. It is surprising how often entrepreneurs forget this simple fact. Your lawyer is a trusted advisor, but in the end, you run your business, your lawyer does not.

In Search of an Oxymoron – The Ideal Lawyer

When assessing a potential lawyer, consider the following criteria:

Yes Man – Many lawyers think that their job is to say, “No.” You can only hope that your competitors are working with such lawyers. Search until you find a businessman in lawyer’s clothing who will respond to your inquiries with replies such as: “Yes, here’s how we can do that.” In other words, find a lawyer who will take the time to understand the issues underlying your business and advise you how to best accomplish your objectives while minimizing your legal exposure. Such a lawyer will help you look at all sides of each deal, as outlined in Agreements From The Fringe.

Independence – Be cautious of any lawyer recommended to you by one of your investors. The reference may be well-intentioned, but the lawyer’s allegiance may be divided between the investor and you. Such a lawyer will not go out of their way to screw you, but when crafting the investor documents and in future investor-related issues, your lawyer’s allegiance must be to your company. He or she must be willing to fight for your company and go toe-to-toe with your investors. A lawyer with a long-term interest in keeping one or more of your investors happy might sacrifice your company’s best interest at a critical juncture in order to remain in good standing with the investor.

Act Like A Three-Year-Old – Do not be afraid to frequently ask your lawyer, “Why?” Your lawyer should be willing to explain the legal issues that impact your operational decisions. Ideally, you will be fortunate enough to find a pseudo-professor who is willing to take the time to explain the issues at hand. I established such a relationship with a fantastic lawyer and he taught me a great deal over the 10 years we worked together. Even though you will, to some extent, pay for such training in the form of billable hours, understanding the why of the law will ultimately save you money, as you will eventually be able to answer many basic legal questions on your own. However, be respectful of your lawyer’s time and acknowledge the fact that they have multiple clients. In addition, believe it or not, a few startup lawyers actually have a life outside of their legal practices.

In order to get the most out of your discussions with your lawyer, take one or more Business Law classes. A basic understanding of common law precepts, contract law and business law is one of the most important academic foundations you can utilize in your startup. If taking part-time evening courses is not possible, seek out an online curriculum.

Money Is Time

No matter how entrepreneurial your lawyer is, he ultimately is in the business of trading his time for your money. Thus, the burden of maximizing the return on your legal dollars is squarely on your shoulders.

Drop Dead Deadlines – Your lawyer cannot read your mind. Thus, every time you submit a request to your lawyer, make it very clear when you really need a response – this will help your Legal Eagle to effectively manage his time and ensure that he meets your expectations. This is a courteous, professional way to manage your relationship and will also benefit you. If you do not cry “wolf” every time you request something, your lawyer will know when something really is urgent and they will do whatever is necessary to meet your deadline. Nothing is more frustrating for a lawyer than to work late into the night in response to an urgent request, only to have the client not act upon the response for several days.

Draft First – As the businessperson with the most intimate knowledge of a particular deal, you should draft as much of the “business-oriented text” of your contracts as possible. At the very least, you or the appropriate member of your team should document the primary deal points in bullet-point form. The more specifically you document the business terms, the fewer iterations will be required to finalize the agreement. Even a highly attentive, business-oriented lawyer cannot put himself in your shoes. They do not work at your company, so there is no way they will have your insights. Thus, the more work you do upfront to document the business issues, the less you will ultimately be charged and the more closely the agreement will reflect the spirit of your verbal negotiations.

There is no magic language which makes an agreement legally binding; in fact, in most cases, the simpler the text, the better. Many a binding contract has been written on the equivalent of the back of a napkin. Once you draft the straightforward text, sans the legal mumbo-jumbo, ask your lawyer to review the text to ensure your layman descriptions do not result in an unintended interpretation. As noted in Tom and Huck, plans and agreements written in plain language reduce confusion and benefit all parties. If you select the right lawyer, he will not load up your text with gratuitous legal jargon (leave that job to the BDC’s legal squad).

Bill Review – Believe it or not, lawyers and their staff are human (insert “gasp” here). They make mistakes. Just as you expect your accounting department to review your corporate credit card bill, you should always take the time to review your legal invoices. Your lawyer should provide you with detailed bills that describe each charge. Ensure that whomever has the closest working relationship with your lawyer reviews the bills for potential billing errors.

Sometimes You Do Get What You Pay For

Just as you would not ask your family physician to perform a coronary bypass, do not ask your corporate lawyer to help you write your patent application. Most corporate attorneys can give you general guidance with respect to securing your Intellectual Property (IP) rights, especially with respect to trademarks, copyrights and other non-patent-related items. However, you should seek a patent attorney when it is time to craft your patent application.

As noted in Frugal is as Frugal Does, entrepreneurs on The Fringe only spend their cash on items that add value to their adVentures. However, they also know when it makes sense to save money and when it is appropriate to pay a premium. The money you pay your IP lawyer should be judiciously spent, but you should not attempt to save money by working with someone without the appropriate experience in your technical domain. Familiarity with the relevant “prior art” is one of the most important considerations when crafting a patent. You do not want your IP lawyer to learn the prior art associated with your technology on your dime. Save money on your office furniture, not on your IP lawyer.

Appropriate patent “design” can allow you to later add related claims, yet still have the benefit of the initial filing date. It can also ensure that your patent is not too broad, which might make it indefensible, or too narrow, which might limit its applicability and thus its value.

In the eyes of a potential acquirer, your IP may be one of your most valuable assets.   You cannot rely on the IP lawyer to coax such vital information from you.  Similar to the process of creating a contract, you or the appropriate technical person on your team must first document the novel and unique technical aspects of your solution. In order to enhance its value and reduce the risk of someone easily circumventing your solution, you cannot abdicate responsibility by relying solely on an IP attorney to translate your technology into a patent application.

Your Lawyer is not a Doberman…

Do not be litigious – you cannot afford the loss of focus or the energy required to use the courts as a weapon. It is also unlikely that you will have the financial wherewithal to successfully wage legal battles. Some companies use lawsuits as an arrow in their competitive quiver. Rather than trying to tear down competitors by suing them into financial ruin, spend your time building value within your business.

… but They Make Great Guard Dogs

When you are sued and you are “in the right,” your lawyer may advise you to settle the case in order to put the lawsuit behind you and minimize your cash outflows. Do not do it. Repeat: do not act “rationally.” Even though it may cost you more money in the short-term to fight a fallacious lawsuit, when viewed from The Fringe, it is clear that such spending is a sound investment.

Spending your precious dollars to earn the reputation in the legal community as an irrational entrepreneur who will fight frivolous lawsuits, even when it is in your economic best interest to not do so, is money well spent. The last thing you want is to become an easy mark for unscrupulous lawyers who make a living filing extortionist lawsuits. There is a small army of smarmy lawyers who share “tips” regarding how to extract money from honest, hardworking entrepreneurs such as you. They also trade lists of “easy marks” – companies that roll over when faced with a frivolous suit.

Go Nuclear

During the Cold War, the Russians were fearful of President Nixon because of his heavy drinking and erratic behavior. His threats carried weight, as the Russians could never be sure of his stability or rationality. With one finger on “the button” and a bottle of Jack Daniels in the other hand, they were forced to keep their distance. It is difficult to imagine Brezhnev invading Afghanistan knowing that Nixon was wandering the halls of the White House late into the night in varying states of sobriety. Unfortunately for the Afghans, President Carter poised no such threat to the Russians.

When it comes to nuisance lawsuits, make it clear to the predatory legal community that you are Nixon and the bar is open. Demonstrate that you will act irrationally and outside of your own best financial interests to ensure that every lawsuit filed against you is lengthy and expensive for both sides. Clearly communicate that you have no intention of performing a quick ROI calculation and deciding to pay off the predatory lawyer to “make him go away.”

If you can successfully convey that the lawsuit will be an expensive effort for both parties and that you do not intend to fold, the predatory lawyer will see that the payoff is not there and they will move on to easier prey. Remember, even an unscrupulous lawyer’s time translates into money. If you make it clear that you plan to force them to spend as much time as possible on your case, then they will be more likely to move onto a company that will pay them off early in the process and thus net them a better return on their time.

The rash of spam lawsuits from a few years ago is a good example of how two-bit, loser lawyers who cannot make an honest buck go after companies who are trying to do the right thing. One of my adVentures was hit by several such lawsuits and we refused to pay any sort of settlement. Only one of these cases ever made it to court.

Here Comes The Judge

When we arrived at the courthouse, the judge required us to first meet with the smarmy lawyer and attempt to work out a “settlement.”  The lawyer was right out of central casting – he was as creepy a cretin as you can imagine. He initially tried to “settle” for a thousand dollars to “cover his travel costs.” He then asked for “a couple hundred dollars” and encouraged us not to bother taking the case to court so we could “get on with our day.” After a lot of fake smiles and attempts at launching an ingratiating conversation, he finally gave up when it became clear that we had no desire to pay him anything.

Once the case was brought in front of the judge, she levied the lowest possible fine she could impose: $80. She was very unhappy with the smarmy lawyer because her docket for the day was filled with his nickel-and-dime lawsuits. She berated him for bringing such petty lawsuits into her courtroom and told him that each case would be settled for the minimum fine. Sometimes justice actually does prevail.

Judas Suits

If Judas were around today, he would probably get a smarmy lawyer and sue Jesus, rather than turning him over to the Romans.

Treat nuisance lawsuits brought by disgruntled, former employees in the same manner as those filed by a predatory lawyer. If you settle, not only does there appear to be an admission of guilt, your largesse will also encourage future lawsuits. If you feel you treated the former employee fairly, invest the dollars to show the world that you will spend wildly to protect your principles – do not let your lawyer talk you into acting “prudent” and settling.

Most employee lawsuits are brought on a contingency basis, in which the lawyer attempting to perpetrate the extortion only gets paid if: (i) the former employee wins the case and is awarded monetary damages or, (ii) the company pays the former employee to make the case “go away.” Otherwise, the employee’s lawyer is not compensated for the time they put into orchestrating the shakedown. You can greatly reduce a contingency lawyer’s appetite for a particular case by making it clear to them that you are Nixon and they are Brezhnev.

You can also greatly reduce the risk of employee lawsuits with a few simple preventative steps:

• Employ consistent and disciplined hiring procedures, including background checks, backdoor references (i.e., speak with at least one person who knows the applicant but was not included among the applicant’s references)

• Require all employees to sign iron-clad invention assignment and confidentiality agreements

• Enforce the employment policies defined in your Employee Handbook and requiring all employees to sign a form acknowledging that they have read the Handbook and agree to abide by its policies during their tenure

• Document all personnel issues, including the specific steps an employee placed on probation must take in order to avoid termination and whether or not the employee abided by the terms of the probation

• Include two company employees in all personnel meetings with a problem employee and take contemporaneous notes during and immediately following the meeting

• Encourage terminated employees to sign a release which absolves your company of all liability before the termination process is completed

A good startup lawyer will help you establish such policies and agreements from the outset of your adVenture.

BDC Bark vs. Bite

The bark of a BDC lawyer is often much greater than their bite. The usual approach of the BDC lawyer is to initially deal with an entrepreneurial company in a highly aggressive and threatening manner, in the hopes that you will be intimidated and scared into following a particular course of action.

Hold your ground. As every entrepreneur on The Fringe is well aware, BDC’s are most concerned with limiting their liability. Although they may bark loudly, they know that the US courts lean toward the “small guy” and thus they will think long and hard before doing anything that may expose them as a corporate bully.

I once received a very aggressive letter from a Fortune 500 BDC who felt that our remote access product was being used improperly by certain users to circumvent the BDC’s licensing scheme. They demanded that we send them our entire customer list and that we issue a letter to all of our customers indicating that they were not to use our product in violation of the BDC’s licensing terms. The indicated that if we did not promptly comply with their request, they would seek an injunction that would shut down our company.

This ludicrous demand is akin to asking the phone company to send a letter to all its customers telling them not to use the telephone to make prank calls and that if it does not send such a letter, its ability to offer phone services will be discontinued. Just like the phone, our remote access product was simply a tool. Some people will use a tool for the greater good and others will use the same tool for a nefarious purpose. We certainly did not encourage or even make it very easy for users to violate third-party licenses. However, if some of our users did misuse our products, it clearly was not reasonable to threaten our viability with a blanket injunction.

I called the BDC’s lawyer and “nicely” made it clear to him that his letter was insulting and that there was no way we were going to send him a list of our customers, let alone issue a letter to our users asking them to use our product “legally.” I also suggested that if his BDC was so worried about users violating their licensing scheme they might consider revising their legacy, shrink-wrap license to reflect modern Internet usage. Although he was not happy that we did not kowtow to them, we never heard from him again.

In another instance, we received a very strident letter that indicated that one of our product’s URLs was causing “confusion” with a BDC’s URL. However, surprisingly, if we agreed to pay a significant amount of money, the BDC would overlook this “confusion.” Hmmmm … does anyone smell extortion in the air?

Once again, I promptly responded to the overly aggressive letter with a quick phone call telling them that we felt their assertion was ridiculous and we would welcome the chance to prove it to them in court. As with the BDC with the legacy licensing scheme, we never heard from them again. The key to our success in both instances was that we had the guts to speak with them voice-to-voice and communicate our willingness to fight their assertions in court. We did not allow the situation to escalate by sending warring letters back and forth. Get on the phone and let them hear the irrational resolve in your voice.

Capitan and Navigator

Your lawyer may be the most important member of your extended adVenture. The difference between a great lawyer and a good lawyer is startling and you will know it once you experience both.

Despite the importance of this relationship, your lawyer is not driving the bus. They will often sit shotgun, to act as your navigator and help you reach your destination. However, you are in the driver’s seat. It is up to you to fill the bus with the right people, ensure that the gas tank never runs dry, and keep the bus moving in the right direction.

To paraphrase the late, and not so great, Johnny Cochran, “If the lawyer don’t fit, then you better split.”

I rest my case.

— Get hands-on advice from your Uncle Saul, Subscribe Today. —

Copyright © 2008 by J. Meredith Publishing. All rights reserved.

As noted in Kiss Of Death, exclusivity can kill a small company. Unfortunately, many Big Dumb Companies (BDCs) believe that the only way they can effectively compete is to skew the market in their favor by precluding you from freely working with anyone you choose. Exclusivity excludes the BDC from competing in the free market while excluding the startup from taking full advantage of future customer, partner and market opportunities. Such deals are not exclusive, they are excludesive.

The only exclusivity you want associated with your startup is the kind described in Peace & War Corps – your employees should feel that being part of your adVenture is a privileged opportunity.

In most instances, you will be successful in establishing meaningful relationships with BDCs without agreeing to excludesive provisions. However, even the most skillful negotiator will occasionally be forced to agree to some level of excludesivity. Under such circumstances, you can minimize the degree to which such exclusions limit your adVenture’s future flexibility by applying one or more of the following suggestions.

Not in my Job Description

One way to avoid excludesivity is to simply state, “It is against our company policy to grant exclusivity…” or “my Board simply will not allow it.” True ATM Operators will relate to such arbitrary rules and respect that there are some things “you just cannot do.”

De Facto Competitor Avoidance

Excludesivity is usually an important issue when you are trying to strike an initial relationship within a particular market or product segment. Once you establish a non-exclusive partnership, you can reference it when other BDCs ask for excludesivity. An initial, non-excludesive deal will effectively take the issue off the table.

In fact, once you publicly announce your new partnership (and you will be free to do so because you applied the negotiation principles described in Kiss of Death), your initial partner’s competitors will be motivated to work with you. The extent to which rival BDCs will seek you out, in the hopes of striking a similar deal, will be predicated on the impact your initial BDC partnership has on the market. If you are excluded from establishing such additional BDC relationships, you will encourage direct competition, as the rebuffed BDCs will proactively establish similar partnerships with someone (often with anyone) as a means of countering what they view as a competitive threat. Thus, in order to avoid creating competitors, craft your first BDC deal without excluding other potential partners.

In a few instances, I was able to drive a non-excludesive deal to closure by making it clear to my future BDC partner that being the first to enter into a relationship with my company would grant them “de facto” exclusivity. Most startups cannot effectively implement multiple BDC partnerships in parallel. As such, make it clear to your potential partners that the first BDC to ink a deal will have your company’s sole focus through the development and implementation of the partnership. This will ensure the initial BDC a de facto lead on their competitors. It may also provide the BDC with an opportunity to influence your technological development and conform it more closely matches its technology roadmap.

Irrespective of any potential technological advantages, being the first partner guarantees the initial BDC a degree of exclusivity, as there will be a period of time in which their offering will be the only one in the market paired with your technology. Clearly, the duration of this de facto status is dependent on a variety of factors, but in some instances, simply being first might be a satisfactory alternative to formal excludesivity.

Trick Ear

I seldom acquiesced when it came to excludesivity. If my Bro Foe proposed excludesivity, I would joke and say, “I am sorry, that is my trick ear. It does not hear the ‘e’ word.” I would then make it clear, all joking aside, that excludesivity was simply not acceptable.

Even so, there a few instances in which my Bro Foe had an edict from his BDC brethren that he or she “had” to get exclusivity. In these rare instances, we negotiated deals in which my Bros could claim they had obtained “exclusivity” and my adVenture’s flexibility was not unduly compromised.

After I made it clear that excludesivity was not something we were prepared to do, I would suggest that we table the issue and negotiate the remainder of the deal points. In this way, I put my Bro Foe on alert early in our discussions that the overall deal must be highly advantageous in order for my company to accept any form of excludesivity.

Fortunately, when the other party insists on excludesivity, there are various antidotes that entrepreneurs can deploy to mitigate the negative impact of an excludesive relationship, including:

• Minimum Commitments – Force the BDC to cover your opportunity costs

• Limited Scope – Conscribe the exclusions as narrowly as possible

• The Short List – Clearly define the universe of who and what is excluded

Minimum Commitments

There are real and often significant opportunity costs associated with excludesivity. If you agree to unfettered excludesivity, you are essentially precluding your adVenture from working with every other company on the planet. The cost of such a decision is tremendous and you must be compensated for it.

In addition to the opportunity costs associated with unfettered excludesivity, there exists an additional and potentially more hazardous risk. Once the BDC realizes that none of their competitors can establish a partnership with your firm, it is under no pressure to devote the resources necessary to make your partnership successful.

If the BDC has no competitive incentive to market your solution, there is a real risk that it will put your technology “on the shelf” and move on to the next entrepreneur whose technology must be kept out of reach of the BDC’s competitors.

The best way to ensure that the BDC will remain focused on promoting your technology is to require it to commit to a minimum amount of revenue in order to retain excludesivity. However, do not attempt to structure the minimum commitments as financial obligations that must be paid to your firm irrespective of the BDC’s actual sales. Even if you are successful in negotiating such a potentially contentious arrangement, the likelihood that your adVenture will be paid if the deal is a dud is very low. Instead, use the sales commitments as a minimum threshold by which excludesivity remains in place. If the BDC fails to attain a particular threshold, your relationship continues, but in a non-excludesive fashion. This will incentivize the BDC to promote your solution, to the extent maintaining excludesivity is important to them.

As noted above, you should ideally negotiate all the other significant deal points before tackling excludesivity. Your Bro Foe may find that excludesivity is not as important as they had thought at the outset, due to the particular structure of the deal, the markets being pursued, etc.

Another advantage to waiting is that you can encourage the BDC to hype the ultimate size of their minimum commitment by asking, “If we were to agree to an excludesive arrangement, how many units do you think your company could sell in the first year?” In this context, your Bro Foe is inclined to communicate a very large number. Write this number down. It will come in handy if you later are forced to establish minimum commitments. Using your Bro Foe’s words against them is a powerful and effective negotiating technique. They key is to get them to commit to a large minimum figure outside the explicit discussion of minimum commitments.

Limited Scope

Excludesivity comes in a variety of flavors. You can constrain the degree to which a relationship is excludesive by including one or more of the following factors in the definition of excludesivity:

• Time – ideally less than one year. Be sure that you are not precluded from speaking with competitors during this time period. For instance, if your agreement calls for a year of excludesivity, you should be able to negotiate agreements with competitors during that year, with the understanding that you cannot enter the market with any new partners during the excludesive time period.

• Geography – there may be markets which you cannot effectively service in the near term. If this is the case, the impact of establishing a limited excludesive relationship in such secondary markets is less onerous.

• Market segments – like certain geographies, there may be groups of customers that are outside your primary target markets. If so, offering excludesivity with respect to such customers may have little impact on your business. However, beware, as this approach can be difficult to police, depending on the manner in which you are reaching these “excluded” market segments. If you anticipate that it may be difficult to effectively segregate the excluded market segments, attempt to denude the excludesivity via an alternative approach.

• Product lines / features – if you carry a line of products, consider limiting excludesivity to a particular product or even a product feature. I negotiated an agreement with a BDC that included exclusivity with respect to an insignificant feature in order to satisfy the BDC’s desire to “have some level of exclusivity.” We were precluded from offering this particular feature to other partners as long as the BDC met its minimum sales commitments. This approach also gave my Bro Foe an excludesivity alibi as he was able to tell his BDC Boss, “We got excludesivity,” without sharing the details.

• Distribution channels – in certain instances, you may be comfortable excluding your adVenture from secondary distribution channels. For instance, your primary distribution channel may be online sales, which you want to have the freedom to manage with no exclusions. However, retail distribution might be an area you are comfortable establishing an excludesive distribution agreement, given that target sales are reached.

Such limitations are helpful in making excludesivity more palatable. However, to ensure their effectiveness, define these limiting parameters in a manner consistent with the BDC’s ability to impact your business.

For instance, a digital imaging company in which I am an investor signed an excludesive deal with a BDC in which they carved out the endoscopic market. On the surface, this seems like a reasonable limitation. Unfortunately, the BDC has no presence in a number of endoscopic markets, including flexible endoscope procedures and laproscopic procedures. The startup is now effectively barred from establishing partnerships within these two very large markets, unless they renegotiate their deal with the BDC. Given that the BDC is holding all the negotiating cards, the startup will probably have to pay a significant price to free itself from these detrimental exclusions.

The Short List

Another way to limit the scope of your exclusions is to list a small number of companies with which you cannot enter into a similar deal. At first blush, the BDC will likely tell you that they compete “with everyone” However, every BDC has one or two nemeses which they consider to be their true competitors in a particular market or product line. Just because two companies compete at a macro level, such as Oracle and Siebel or Yahoo and Google, does not mean they are true competitors in every sub-market in which they are engaged.

Force the BDC to create a short list of these named competitors and include it as an exhibit to your partnership agreement. The list should be no more than two or three names, not a phone book of potential and fantastical competitors.

MFN Alert

As more fully discussed in Kiss of Death, Most Favored Nations (MFN) provisions are a disguised form of excludesivity. By precluding your firm from entering into subsequent agreements with “more favorable” terms than those entered into with a MFN BDC, you are significantly limiting your future negotiating flexibility. Fortunately, Kiss of Death includes a few simple tricks you can deploy in those rare instances when you are unable to keep this pernicious provision out of a partnership agreement.

Exclude the Handcuffs

It is simply not rational for an entrepreneur to limit his or her ability to follow the most lucrative path to success, especially at the outset of the adVenture. Startup years are like dog years; seven years at a BDC is equivalent to one year at a startup. This lively pace makes relationship prognostication nearly impossible. Deals that appear vital today often morph into inconsequential former relationships overnight. In contrast, relationships which seemed tangential at the outset can become company-changing partnerships as markets and competitive landscapes shift over time. By placing handcuffs on your startup, in the form of excludesive relationships, you are reducing the probability that you will maximize your adVenture’s value creation and thus potentially limiting the ultimate size of your adVenture’s Exit.

— Get hands-on advice from your Uncle Saul, Subscribe Today. —

Copyright © 2008 by J. Meredith Publishing. All rights reserved.

In some instances, seemingly random sounds take on questionable meaning when played backwards. In Led Zeppelin’s Stairway to Heaven, Robert Plant seems to say, “Oh here’s to sweet Satan. He’ll give those with him 666.” When the Beatles’ Revoultion 9 is played in reverse, there is a brief passage that sounds something like, “Turn me on dead man,” which heightened the “Paul is dead” rumors of the early 1970s. However, backmasking is often a deliberate process, in which artists send messages to their diehard fans who relish discovering and decoding the hidden communications.

It is usually arduous to discover and decipher audio backmasked messages. However, the process of decoding the hidden messages in your partner agreements is much simpler. You can perform such agreement forensics by looking for the clues outlined below. One such clue proved to be worth $20 million to one of my adVentures.

It’s Not What Was Said – It’s What Wasn’t

In The Bro Factor, we learned how to cultivate meaningful relationships with compatriots outside of our adVenture. Such relationships often significantly impact the effectiveness of your negotiations. However, despite your efforts to ingratiate yourself with your Bro, you must always keep in mind that he is also your negotiating Foe. In essence, the person on the other side of the table is your Bro Foe.

Often, the most important aspects of an agreement are not the actual words on paper, but rather the terms and conditions that your Bro Foe has deleted or otherwise modified from an earlier iteration of the agreement. If you can divine the original intent of a contract or otherwise identify what aspects have been modified or removed, you will be in a stronger negotiating position. If you have insights into specific contract terms that your Bro Foe has agreed to in the past, you can comfortably parley these known negotiation positions to your advantage.

A $20,000,000 Mistake

Backmasking mistakes can be expensive. Case in point: while reviewing a document which had been prepared by a Bro Foe, I was struck by a strange formatting issue. I tried to delete some text by backspacing and the cursor would not move backwards. This is generally a sign that the Track Changes feature of Microsoft Word is turned on. However, there were no changes displayed.

When I turned on the Original Showing Markup feature and I was shocked to see a number of changes that my Bro Foe had made before forwarding the document. The most interesting of these marked changes was a modification of the proposed purchase price. The price that was marked out was $20 million more than the “final,” unmarked price that was shown when the marked changes were not displayed. This alerted me to the real negotiating boundary that my Bro Foe was willing to accept.

It was apparent that my Bro Foe’s team had marked the changes to facilitate their internal discussions and at one point they considered offering a significantly higher purchase price. However, it was evident that they did not intend for me to see these internal changes. This was a major mistake that cost them a little over $20 million, as I was able to negotiate them to the top of the price range that I knew they had internally contemplated. This knowledge helped me remain resolute and eventually we achieved the price that we were seeking.

Note: Astute students on The Fringe will wonder why the first iteration of the agreement was drafted by the Big Dumb Company (“BDC”). Per Kiss of Death, entrepreneurs should do everything possible to draft the initial iteration of an agreement. Unfortunately, in the case of this very large deal, I was not able to secure first-drafting rights. However, the hidden message I discovered more than made up for the strategic gain I might have accrued by creating the agreement from scratch.

It’s Not What Was Said – It’s Who Said It

When Marked Changes are displayed, Microsoft Word also identifies the author of the changes, along with the date and time the changes were made. Such annotations are displayed when the cursor is rolled over a particular marked change. Each contributor’s edits are assigned a different color, which facilitates identifying who changed what. Such notations make perfect sense when editing an internal document, as it is clearly helpful to know which changes the CEO made versus those suggested by the Summer Intern. However, in the hands of your Bro Foe, such information represents a significant backmasking decoding opportunity.

BDCs often negotiate agreements by committee, involving a number of individuals from various departments. Knowing who suggests a particular edit gives you an appreciation for the likelihood that your Bro Foe will or will not agree to modify it. For instance, if a business term is modified by a lawyer, there is a chance you can persuade your Bro Foe to agree to a revision that is more equitable to you, as the change was not driven by a member of his operational team. In addition, comments proposed by an outside legal counsel are more likely to be overridden than those made by an in-house lawyer, as your Bro Foe may have a personal relationship with the in-house lawyer that he must respect.

If a change is directly attributable to your Bro Foe, the issue is likely of personal importance and he may be less likely to accept a revision of his proposed language. In contrast, if changes are made by one of your Bro Foe’s peers or subordinates, you can assume that you will have a better chance of negotiating less onerous terms, as you know your Bro Foe probably does not have a personal, vested interest in such changes.

If your Bro Foe’s boss (or anyone at the BDC who is in a more senior position than your Bro Foe) modifies the agreement, you can be assured that the likelihood of negotiating a change in such text is low and will probably cost you significantly in terms of what you will have to give up to get a change pushed through.

Document Properties

Another potential treasure trove of backmasked messages resides in the File Properties directory within Microsoft Word. This information will often provide you with important clues regarding a document’s genesis.
For instance, if you can see from the Title that the document was originally crafted to support a publicly announced licensing deal, you can research the deal and determine what terms were changed in the version of the agreement submitted to you. If the BDC agreed to certain terms once before, then you should strive to incorporate equal or better terms into your agreement.

You may also be able to determine the origin of the document by reviewing the Author and Company fields. If the agreement was originally drafted by an entity other than the BDC with whom you are negotiating, perform research regarding similar publicly announced deals and attempt to conform your agreement to the publicly disclosed terms.

You should also peruse the Statistics tab under Properties to determine when the document was created and the total time that has been spent editing the document. If the inception date is recent, then the agreement may be a one-off document without a legacy that you can interpret. However, if the date is in the distant past, you can be assured that the document represents the other party’s standard terms and conditions. Such long-standing, standard documents often contain codified language that may be difficult for your Bro Foe to modify. An agreement created specifically for your deal will have less history and thus your Bro Foe should have greater latitude with respect to modifying the text.

Always review the Properties section of agreements you create, as you can get an idea of the amount of time the other side spent reviewing the document. If they did not spend significant time on the agreement, it may signify that your deal is a relatively low priority. The lower the priority, the less effort the BDC will put into crafting the deal and the better chance you will have of negotiating advantageous terms.

If your Bro Foe’s team expends a meaningful amount of time editing and reviewing your agreement, there may be multiple parties involved in the negotiations. The more parties involved, the higher the priority the BDC is likely allocating to your deal and thus the more resistance you can expect when negotiating key deal points.

Formatting Irregularities

Sloppy formatting is often a roadmap highlighting where text was removed or added from or to a previously negotiated agreement. For instance, extra spaces between paragraphs often indicate that a provision was deleted. Even extra spaces between words can denote that text was removed, as in the sentence: “Vendor shall at all times agree to abide by all requests…” The extra space may lead you to discover that the word “reasonable” was removed before the word “requests.” Then again, it may simply be a typo. As with all backmasking clues, common sense and context rule the day. An extra space in an innocuous section may simply be a typo, whereas the same extra space in a key provision might represent a tell-tale sign that something significant was deleted.

Another indication of where changes have been made is the presence of non-consecutive section numbers (which denote a deleted section) and repeated section numbers (which denote an added section). Section headings are sometimes hard-coded, which leads to numbering irregularities when changes are made to preceding sections. Fortunately for backmasking-savvy negotiators, Microsoft Word does a pathetic job of automatically formatting numbered and lettered section headings, so such irregularities abound. In each instance of non-sequential section numbers, attempt to interpret what might have been added or deleted and assess whether it is worthwhile to attempt to negotiate the term back in or out of the agreement.

Covering Your Backmasked Tracks

In order to stymie your Bro Foe’s efforts to gain insights into your negotiating tactics, simply avoid all of the missteps outlined in this entry. A summary of the actions you can take to eliminate any inadvertent backmasked messages is as follows:

• Property Protection – When you create a document (you are going to write as many agreements as possible, remember?), always clean up the Properties section. Be sure the Title, Author and Company contain innocuous information.

• One Voice – Incorporate all changes from your internal constituents onto a single document. Although this process can be tedious, it allows you to filter out co-workers’ changes which you deem inappropriate, unattainable or incongruent with your overall negotiating goals. By consolidating all the changes made by your team, your Bro Foe will be unable to differentiate between the issues which are of particular importance to you and those suggested by a team member.

• Clean Sweep – When you delete or add text to an existing agreement, remove extra spaces and line breaks and ensure that all section numbers are consecutive. To ensure leaving no clues behind, from the Edit Menu, Select All, Copy and the Past the copied text into a brand new document.

If you properly cover your backmasking trail, your one-sided ability to decode backmasked messages will give you a tangible advantage over your Bro Foe. Although agreement forensics involves discipline and a bit of pedantic tedium, do not pass up this opportunity to gain valuable insights into the BDC’s negotiating tactics.

Clearly, there are limits to interpreting the meaning associated with hidden messages in agreements. If you do not apply a liberal dose of common sense, you may find yourself as chagrined as the Electric Light Orchestra fans who discovered a backmasked message on the Secret Messages CD which declared, “You’re playing me backwards. The music is reversible, but time is not, turn back! Turn back! Turn back!”

Please share your agreement forensics stories. Tell us how your sharp eye and diligence helped you to gain the upper hand in negotiations with your BDC Bro Foe.

— Get hands-on advice from your Uncle Saul, Subscribe Today. —

Copyright © 2008 by J. Meredith Publishing. All rights reserved.

Listen.
Do you want to know a secret?
Do you promise not to tell?
Closer.
Let me whisper in your ear.
Say the words you long to hear.
I can help you sell.

My apologies to John and Paul, but I am sure they will get over it.

The secret to effective Networking, Selling and Negotiating can be summarized in a single word. Listen.

“Seek first to understand, then seek to be understood”
Steven R. Covey

Sometimes there is a good reason clichés become clichés – they are worth repeating. Covey’s quote is one such truism. You will not maximize your effectiveness as a leader, negotiator or salesperson if you do not fully understand the frame of reference, biases and potential misinformation rattling around in the head of the other party with whom you are communicating.

The most direct way to determine what the other party is thinking is to listen. Simple. Easy. Obvious. Yet many entrepreneurs, with their bias toward action and strong willed, aggressive personalities, consistently do a poor job of listening.

Forget Give And Take

In Western culture, conversations are based upon both parties contributing to the dialog. Conversations are deemed to be good when each party has an equal amount of air time to express their thoughts. In amped, entrepreneurial discussions, both parties are often trying to out talk each other. This disastrous form of communication is often a function of two busy people trying to maximize the time required to persuade the other party.

Do not get me wrong. I am a big fan of persuading people. As discussed in “Your Personal Pitch”, you have to persuade a lot of otherwise bright Stakeholders to support your adVenture to help ensure its success. Cherish and cultivate this motivation. However, in certain circumstances, you can be more persuasive and ultimately save yourself time if you force yourself to follow the listening tactics outlined below.

The US legal system has long understood that the best decisions are made when the opposing parties are apprised of all the salient facts of a particular case. Thus, the discovery phase of legal proceedings has been institutionalized to ensure that the defense and the prosecution share key facts with each other. The listening tactics outlined below are akin to such a discovery process. Your goal is to ‘discover’ the true intent and basis of the other party’s positions, opinions and frame of reference before you share your thoughts.

Warning: deploying these tactics is not easy. Like most worthwhile skills, these tactics require patience and practice in order for you to master them.

Step 1: Focus

When was the last time someone really gave you their undivided attention? Can you even remember the last such conversation? Such discussions are so rare that it may be hard pressed to recall the last highly focused discussion in which you were involved.

How can you show the other party that you are totally focused on what they are saying? Consider how adults communicate with small children. When you remove the ingratiating and condescending elements from such communications, you are left with a solid foundation upon which to build a quality listening environment.

Even though it is a rarely utilized skill, listening is not rocket science. Simply grant moderate eye contact and be generous with non-verbal clues. Also, control the environment. Do not interrupt the discussion to take phone calls, do not allow people to tramp into your office, etc.

Consider conducting such focused discussions outside of your office to help minimize potential distractions. In addition, create an environment that mitigates the traditional superior / subordinate paradigm. For instance, an offsite meeting will allow you to sit across from the other party as a peer and not in the more traditional desk / office chair scenario.

Step2: Memorex

Rewind and repeat. After you have given the other party your focused attention, ensure that they understand that you understand. However, as you summarize, be careful to not interpret the other party’s message and do not assign value judgments to it (implicitly or otherwise). Your goal at this stage is simple – you want to be sure that you properly understand the content and intent of the other party’s words.

Step3: Give Me More, Give Me More

This is the step that only comes naturally to therapists and clergymen – certainly not to entrepreneurs. After you have confirmed that you properly understand the other party’s message, invite them to continue. Let them know that you are eager to hear more.

Traditional conversations do not work in this fashion. In most dialogues, one party states their opinion and then waits for the other party to comment, either in affirmation or a rebuttal. Your goal is to break this pattern and encourage the other party to share all of their thoughts, before you respond.

When they pause to think of more to say, remain silent. Fight the urge to jump in during their pauses and turn the discussion into the conventional Ping-Pong conversational pattern of: I talk, now you talk. I talk, now you talk… Short-circuiting this social moré is difficult, especially if you do not agree with the sentiments expressed by the other party. However, fight the urge to refute their statements and encourage them to continue.

Step4: Let the Well Run Dry

In the American South, it is called going on a jag, defined as “a period of over indulgence or a spree”. Jags come in all forms: crying jags, drinking jags, sleeping jags, screaming jag, etc. Your goal in this fourth step of the discovery process is to encourage the other party to go on a talking jag.

Overindulge the other party. Continue to fight the urge to counter what you are hearing. Before you react and interject your thoughts, it is key that you first fully understand the other party’s position in order to avoid any false assumptions. If the conversation addresses a contentious subject, the other party may initially hold back commenting on the most inflammatory issues. Your goal at this stage is to ensure that the other party verbally expresses every issue which they deem relevant.

Let the other party talk until it is clear that they have nothing meaningful left to say. One way to restrain yourself is to remember that at this stage the other party’s ideas are more important than your own. However, silence is not a complicit agreement. If you are concerned that your silence might be misconstrued, consider clarifying your silence with brief comments, such as, “This is very valuable information and it is helpful for me to fully understand your position.”

Step 5: Clarify Before You Crucify

OK, the well has run dry and the discovery process is almost over. The last step is to summarize and interpret what the other party has communicated to you. One way to do preface this is to say, “Here’s what I hear you saying… is this correct?”

You are now ready to share your thoughts in a meaningful and highly impactful manner. In addition, your insight and clarity into the other party’s thoughts will allow you to tailor your comments such that you will have a higher probability of reaching a mutually satisfying resolution. Hopefully, the discovery process has opened up one or more avenues of compromise that may not have been evident to you at the outset of the discussion. Even if you experienced no epiphanies during the discovery process, at least you will be assured that the decision you make or the negotiating approach that you employ is grounded in a firm understanding of the other party’s positions.

Bear in mind that these tactics are not appropriate for every discussion. Some conversations are best served with a quick, give and take dialog. However, discussions which might be contentious or situations in which you do not have a firm understanding of the other party’s position represent just two opportunities to utilize these listening tactics. In the right circumstances, these listening tactics will facilitate more efficient discussions with potentially more effective outcomes.

In addition to this simple five stage process, you can augment your listening capabilities by deploying the following techniques:

Avoid Talking Too Much

Duh. This truism seems almost too obvious too mention. Almost. No matter how talented you may think you are at multitasking, you cannot listen while you are talking. In fact, you cannot listen effectively even when your mouth is shut if your brain is busy crafting what you are going to say next. We have all struggled, at one time or another, to keep top-of-mind a retort, while we waited for the other party to take a breath. This approach ensures that we assuage our egos, but often at the expense of effectively processing the other party’s comments.

By making the concerted decision to not talk, you can give the other party the focus and attention that will result in optimum results. Remember, you have two ears and one mouth. If you can force yourself to talk half as much as you listen, your words will be more impactful and more thoughtful because they will be based upon a solid understanding of the other party’s frame of reference.

Use Your Words to Ask Questions

When you do speak, ask, do not tell. In other words, use your words to pose questions that will solicit additional information from the other party, rather than sharing your opinion.

Asking questions is an effective use of your words. However, avoid why questions. Questions that involve why often put the other party on the defensive. For instance, instead of saying, “Why do you believe that is true?” you can pose the same question in a less confrontational manner by asking something to the effect of, “I am curious as to what led you to that conclusion?” or “Help me understand what caused you to assume…”

Do Not Fear the Sounds of Silence

Silence is your friend when you are in listening mode. Let silences go unfilled until the other party has collected their thoughts. Silence also gives you a chance to process what the other party has said without the burden of you trying to simultaneously think of a reply to fill the silence. Rather than blurting out something to ease your discomfort, fill silences with smiles, head nods or nonverbal forms of encouragement.

One Phone Line Is Enough

In today’s world of continuous multitasking, it is not uncommon for someone to answer email, text chat and even take another call while they are speaking to you. In some circumstances, performing alternative tasks while you are on a call is appropriate. However, draw the line of multitasking at the use of call-waiting, especially in a professional environment.

My most important phone call is the one I am currently on, no matter with whom I am speaking. At one of my adVentures, we finally generated enough revenue to justify junking our previously owned, circa 1980 phone system that randomly terminated calls without notice while the parties were in mid-sentence.

When the new phones were distributed, I was given an Executive phone. I asked, “Other than costing three times the amount of the standard phone, what is the difference?” I was told that the Executive phone had two lines, which allowed the user to put a caller on hold and pick up another line if they received a more important incoming call. This was all I had to hear. I knew that I did not want the Executive phone, even though it looked really cool and had a lot more buttons than the standard version.

Never put someone on hold to take another call. Think of how you feel when you are in the midst of a conversation and the other party puts you on ‘hold’ to access call-waiting. Being interrupted in such a manner is rude, but it is downright insulting if the other party rejoins the call, only to tell you, “I have to take this other call!” Even during a casual conversation with a friend, this is a frustrating experience, as the underlying message is clear: ‘I have something more important to do than talk to you’. In a professional setting, such behavior is inexcusable and never appropriate.

Pssst…

The secret to networking, selling and negotiating is simple. All you have to do is listen and create an environment in which the other party is comfortable sharing all of their relevant thoughts with you before you verbalize your thoughts, opinions or positions. In all of your pivotal conversations, before you open your mouth, remember that: a truly wise person uses few words.

Along with Dr. Seuss’ “Green Eggs and Ham” and Marcia Brown’s “Stone Soup”, the seemingly innocuous board game “Monopoly” has played a pivotal role in the United States’ rise as an economic superpower.

Although Monopoly originated from a variety of sources and evolved regionally over several decades, it was brought to Parker Brothers in 1934 by Charles Darrow. A number of international versions were developed soon after its initial release, but America has consistently remained the bastion of Monopoly’s popularity. In contrast, the USSR and other communist nations foolishly banned Monopoly, thereby denying their citizens an inexpensive yet effective hands-on course in entrepreneurship.

As stated in its official rules, the object of Monopoly is to, “become the wealthiest player through buying, renting and selling property”. A more negative way of looking at this objective is to “drive all the other players into complete and utter bankruptcy”.

Why has Monopoly, which takes hours to play, moves at a relatively slow pace, is completely devoid of surround sound and offers players no opportunity to blow up aliens or other combatants in high definition, remained so popular over the past 70-years? Part of the reason for its enduring legacy in America, and its emergence as a popular pastime in burgeoning free-market economies around the world, is because it acts as a proving ground for budding entrepreneurs to hone their business savvy, negotiation tactics, and communication abilities – all of which are highly compensated skills in capitalistic societies.

Given that over 750 million people have played the game, I will assume that most of you are familiar with the basic rules. If you are not, you may have already blown your chance at becoming a successful entrepreneur on The Fringe, as your future competitors gained hundreds of hours of hands on experience while you played with your GameBoy.

Hands on Learning
Numerous entrepreneurial lessons and skills are developed as you drive your friends and family into the Monopoly poorhouse, including the following:

Lady Luck – Just like in the ‘real world’, luck plays a significant role in the outcome of Monopoly, as two dice dictate each player’s movements. Luck intervenes with the first roll of the dice, which determines the order of play. The players who go first have a much higher probability of landing on an available property during their initial trips around the board.When starting a company, luck plays a bigger role than successful entrepreneurs care to admit, and a smaller role than unsuccessful entrepreneurs like to claim.

Cutthroat Negotiating with a Smile – There is only one winner in Monopoly; ties are non-existent. This winner take all style of gameplay engenders a manic, hypercompetitiveness among the players. Although luck plays a considerable role in the game’s ultimate outcome, you can significantly enhance your chances of winning by strategically cutting deals with your opponents. Monopoly is a ‘social’ game, which requires you to establish a rapport with the other players if you are to be a successful dealmaker. Often, the best deals are the ones in which you form an alliance with another player, to the detriment of all the other players on the board. For instance, you might sell a property to another player that grants them a monopoly, but include in the deal that you can land on any of the properties that comprise the newly formed monopoly rent-free for the duration of the game. Such a deal ensures that your opponents will pay a higher price whenever they land on any of the properties which make up the monopoly, while you simultaneously increase your cash position by selling the lynchpin property at a premium.Even though the game is cutthroat by design, most people consistently play the game with the same basic group of family and friends. As such, successful players realize that a ‘bad deal’ they cut in one game will carry over to future games, and may limit the other players’ willingness to negotiate. This is also very ‘real world’. You can try to screw everyone once, but that is generally an expensive and inefficient business model. You are far better off establishing solid relationships based on mutual gain and trust, rather than cutting a one-sided deal which results in a short-term ‘win’.

Vigilance – You cannot take your eyes off the board when playing Monopoly, as you risk a player landing on one of your properties without paying the appropriate rent. This same dogged vigilance is required in your adVenture. You need to focus on constantly delivering value to your customers and ensure that you are paid for all of the value that you deliver.

Cash Flow – Entrepreneurs on The Fringe know that properly managing their cash is one of their primary objectives, especially during an adVenture’s early phases. Monopoly is a great training ground to develop cash management skills. It also exposes young capitalists to a number of other financial concepts, including: mortgages, interest, counting currency, dealing with a bank, etc.

Government Intervention – As every successful entrepreneur knows, the government prefers to punish you for your success, rather than ‘thanking you’ for risking it all and creating numerous jobs for your fellow citizens. Monopoly is no different. In addition to the Luxury Tax board space, there are also Chance cards that require you to pay a percentage of your net worth in taxes.

Location Matters – In a very real-world sense, the location of your properties is of critical importance. Some properties have a higher rental charge and some have a higher probability of opponents landing on them, due to the distribution of potential outcomes from the rolls of the dice. In addition, there are several Chance cards that direct a player to “Go To” a particular property, as well as cards that require a player to “Go Back Three Spaces”. Each of these factors impact the probability that certain properties will be visited more than others. As noted in “Nurture or Nature”, the location you chose for your adVenture (as well as any retail or satellite office locations) will have a huge impact on your probability of success.

Tenacity, Persistence & Endurance – One of the most important lessons to be derived from Monopoly is that in business, the spoils often go to those who remain at the table the longest. The game usually takes hours to complete, and in many cases it becomes a battle of wills to see which players have the requisite stamina to see the game through to its conclusion. Thus, as is true with your adVenture, doing whatever you can to ‘stay in the game’ will go a long way toward your ultimate victory. If you quit before the game is over, you can be assured that you will never have the chance to ‘win’.

Passing Go – With a few exceptions, every time a player passes “Go” on the Monopoly board, they are given $200 by the bank. Often, these funds are all that sustain a player and allow them to remain in the game. In business, you want to get $200 for passing “Go” as well. One way to do this is to structure a portion of your sales in the form of evergreen annuities, annual maintenance payments, quarterly license fees, or monthly subscriptions. The specific form that such payments will take varies depending on the specifics of your business model. However, the key is to smooth the ‘lumpiness’ of your cash inflows by structuring all, or a portion of your revenue to be recurring.Recurring revenue provides you with far greater predictability, which will ease your cash management responsibilities. Such annuity revenue allows you to ‘stand on the shoulders of each prior month’, and thus grow your overall revenue in a predictable and linear fashion. For instance, if you establish subscription revenue of $10,000 per month, you enter each new month with at least $10,000 of revenue, less any revenue lost due to customers that terminate your service. Investors and acquirers also grant recurring revenue a higher premium, because it reduces the business’s overall risk profile.

Jail – Like it or not, entrepreneurs have a social and a legal contract with their customers, employees, investors and other stakeholders. Just like in Monopoly, if this contract is broken, the entrepreneur can be thrown in jail. The Jail board space serves as a reminder to budding entrepreneurs that ruthless competition is OK, as long as it is kept within the acceptable bounds of fair play.

America’s Not-So Secret Weapon
Monopoly is now sold in over 80 countries, and has been translated into over 26 languages. Even citizens of the former Soviet states are now avid Monopoly fans. There are, no doubt, thousands of lively games of Monopoly being played all over the globe, even as you read these words.

Monopoly is training a global force of entrepreneurs who will internalize the skills which the game embodies and ultimately the rewards as well. Some of these entrepreneurs will join The Fringe and create thousands of jobs, and billions of dollars in wealth.

“Thank you”, Mr. Charles Darrow or should I say, “Без перевода”…

Without realizing it, Dr. Seuss drafted the salesman’s manifesto in the form of “Green Eggs and Ham”. If you have an average salesperson’s intellect, like myself, you will find the book especially appealing, as it only utilizes 50-distinct words, 48-of which are only one syllable.

The Plot
Our protagonist, Sam, is an androgynous creature, which fits well with his / her asexual name. This depiction makes Sam’s appeal universal. Man or woman, the tactics deployed by Sam are applicable to any sales situation and can be put to use by any salesperson, irrespective of their gender. For sake of grammatical convenience, I will refer to Sam as a man in the remainder of this entry.

The story begins with the unwitting, future customer relaxing and reading the paper. Sam-I-Am enters stage right, riding a Seussian creature and holding a sign which reads, “Sam-I-Am”.

This is Sam’s cold call. The last thing on the Prospect’s mind is buying something from Sam or anyone else for that matter. However, Sam is fearless. He introduces himself to his Prospect wearing a large, sincere smile.

Why is Sam smiling? Is it because he is trying to ‘trick’ the customer? Is he already counting his future commission? Is his smile a cynical attempt to disarm the Prospect and ingratiate himself?

No, the answer is D: None of the above.

Sam is smiling because he knows that he has something the Prospect will love and eventually thank him for bringing to his attention. He is so confident in his green eggs and ham ‘product’, that he cannot do anything but smile.

The customer’s initial reaction is rather predictable. He is irritated at being interrupted by an unsolicited salesperson, just like you would be if you received a telemarketing call during dinner. Thus, without knowing who Sam is or what he is selling, the Prospect lashes out and tells Sam that he, “does not like him”. Right from the start, Sam is forced to endure the most painful of all forms of rejection, a personal attack.

However, Sam remains undeterred. He continues smiling and deploys a rudimentary sales technique. Instead of acknowledging the personal repudiation, he poses a simple question in a form which cannot be answered with “no”. He asks the Prospect if he would like the product “here or there”, pointing to two spots on the ground and smiling his winning smile.

As the book continues, the studious reader will note Sam’s subtle but powerful use of body language. When reprimanded by the Prospect, he is appropriately conciliatory, looking up at the Prospect with puppy dog eyes and a sorrowful look of disappointment. However, when posing a question, he turns on his smile and raises his eyebrows, forcing the Prospect to fill the silence with a reply.

Despite being a children’s book, it makes for painful reading, as Sam is repeatedly rejected, at times in a vicious manner. However (Spoiler Warning…) Sam’s persistence finally wears the Prospect down, at which point he makes a deal with Sam.

In exchange for demoing the product, he asks that Sam to agree to leave him alone after the demo. Sam smiles but never explicitly acknowledges this ‘deal’, thereby giving himself the option of continuing his sales tactics, irrespective of the Prospect’s reaction to the demo.

Fortunately, Sam does not have to continue ‘selling’ once the demo is completed. After trying the product, the Prospect grins broadly, puts his arm around Sam and tells him, “Thank you. Thank you. Sam-I-Am.”

Sam-I-Am Lessons Learned
There are a number of practical sales lessons that we can draw from this opus, including the following:

• Persistence – As every sales textbooks will tell you, there is no substitute for persistence. Sam exemplifies this truism. Until the moment the Prospect finally demos the product, it appears that Sam has no chance of success. However, Sam never loses hope, and never gives up.

• Research – Sam’s persistence is not born of ignorance. His knowing smile indicates that he is highly confident that his product is ‘right’ for the Prospect and that it is his ‘duty’ to ensure that the Prospect experiences the product’s value first-hand. This perspective is crucial to a salesperson’s ultimate success. You must have enough confidence in your product to push through baseless objections and ensure that your Prospect experiences your product, and thereby judges it on its merits. An effective way to bolster your confidence is to research and fully understand the degree of fit between your product and the Prospect’s needs. The reason Sam can handle the litany of rejections is because he is confident that his product is a good fit for the Prospect, due to his thorough research.

• No Drama – Sam also realizes that the Prospect’s reaction is not based on knowledge – his blanket rejection is a coping mechanism that many people utilize to deal with the competing demands on their time. Sam does not get caught up in the Prospect’s emotions. Instead, he remains focused on encouraging the Prospect to demo his product, as Sam knows that the product will deliver real value to the Prospect and that the Prospect will ultimately “thank him” for introducing him to the product, once he validates the value proposition firsthand.

• Affability – Sam remains affable throughout the entire sales process. Even when the prospect personally attacks him, and is downright rude, Sam realizes that the ultimate payoff (his commission and the Prospect’s satisfaction with the product) make dealing with the short-term discomforts bearable.

• Listen and Adapt – Sam listens to his Prospect’s objections and adjusts his tactics to best suit an evolving situation. He probes to better understand his Prospect’s needs with questions like, “would like the product, in a box, with a fox, on a train, in the rain, with a mouse, etc”. In each instance, Sam actively listens to his Prospect’s responses, and attempts to satisfy all of his needs by creating third-party bundles that offer his Prospect holistic solutions. Effective salespeople attempt to satisfy all their prospects’ needs, even those needs which extend beyond what his product can fulfill on its own. Such value-added selling elevates the salesperson’s role to that of a consultive partner.

• Manage Expectations – Sam does not tout his product’s features, nor does he oversell his product. Instead, he focuses on the objective at hand, which is to get his Prospect to demo the product. By avoiding puffery and overselling, Sam is able to reach his goal of performing a demo while still setting low expectations. By properly managing the Prospect’s expectations, Sam has lowered the bar with respect to the impact his product must make to grab the Prospect’s attention. This ‘expectation management’ significantly contributes to the Prospect’s eventual positive user experience. By the time the Prospect finally tries the product, he fully expects to be disappointed. Thus, he is delighted when he realizes that the product delivers value to him, despite his misgivings.

• Humility – Sam remains humble and committed to his Prospect’s satisfaction throughout the sales cycle, even after the Prospect becomes a Customer and admits that he loves the product.Once the sale is completed, it would be tempting for Sam to say, “I told you so”. However, he realizes that he is forming a long-term relationship with his Customer, which must be based on mutual respect. Any insinuation of “I told you so” could engender animosity that would undercut the good rapport that Sam has worked so hard to establish.

Throw out Porter, Moore and Christensen and make room for Dr. Seuss. After all, “Green Eggs and Ham” helped the US win the Cold War – it might prove to be an equally effective ‘secret weapon’ for you as well.

Your Turn
This list only scratches the surface of the lessons that can be drawn from “Green Eggs and Ham”. What other “Lessons” that can be drawn from this master work? I look forward to reading your thoughts.