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Founders: These 3 negotiating tactics will get you more for less

Founders: These 3 negotiating tactics will get you more for less

I once asked Howard Hartenbaum, General Partner at August Capital and StartX Advisor, what the valuation of our company should be for our next round of funding. His answer: “It’s entirely up to your salesmanship.”

That statement stuck with me. The worth of our company, measured in millions of dollars, wasn’t about our revenue, our amazing team, or revolutionary product. It was about how well I could sell our value.

Truth is, if you want to succeed as a founder you will always be selling.

  • Selling future employees to join your tiny company.
  • Selling customers on your product and price.
  • Selling investors on your ever evolving story and vision.

Every day someone needs to be sold, and it’s the founder’s responsibility to do a damn good job of it.

Like it or not, all selling is negotiation. Selling an idea for free is quite easy. But as soon as money gets involved, that’s negotiation.

Below are three surefire tricks to help you close deals time and time again.

The Trade

Most of us associate negotiation with money. Salary, product cost, investment amount, the list goes on. When it comes time to negotiate, both parties spin their wheels trying to raise or lower the amount of money in their favor. Generally, the person with the most influence comes out on top.

This is great if you’re Mark Cuban, for example, but if you’re an early founder, chances are you very rarely have the advantage.

This is why the trade is crucial.

The concept is quite simple. Trade things you care about for things you don’t. This is how “win-win” deals are done.

A typical customer negotiation focuses on price. But as a founder, you should take a step back and consider other factors:

  1.   Price
  2.   Contract length
  3.   Minimum # of licenses
  4.   Development time
  5.   Launch date
  6.   Contract signature date
  7.   Training
  8.   Testimonial/case studies
  9.   Payment terms
  10.   Renewal terms

Once you’ve listed out the factors, prioritize and rank these based on your current company needs. Then it’s time to start trading. Any trade in which a higher priority item is secured is a win.

Let’s look at a hypothetical example: Company “Widgets and Things.” It wants to land a top tier customer, “Big Co.” Problem is, Big Co doesn’t want to pay full price for the product. After all, they are Big Co and they never pay full price.

Widgets and Things could try to sell Big Co on why it deserves full price, but it’s tried that a few times to no avail. As they say, “time kills deals,” and if this doesn’t cross the finish line soon it may fizzle out entirely. This is where the trade comes in.

The imaginary conversation might go something like this:

Big Co: We just can’t justify the cost of the product at this point. We have a limited software spend right now, but we do like the product.

Widgets and Things: Loud and clear. We can lower the price by $100, down to $899 per month, but we’ll need to note in the contract that Big Co agrees to be used in a case study demonstrating our success. To sweeten the deal, I’ll also waive the integration fee of $3,000, but I need a signature by this week to justify this to my board. Let me know if you can make this happen and I’ll spin things up on my end ASAP.

I’ve underlined the trades in the conversation above. Widgets and Things is trading two things Big Co really cares about, price and integration fees, in exchange for a case study and a signature date.

End result? Early company Widgets and Things closes its biggest deal in a timely manner along with a case study it can use to win new business.

The best part of it all? Widgets and Things never planned on getting paid that integration fee in the first place. It was its “throwaway.”

The Throwaway

The throwaway is a condition small enough that would otherwise go unnoticed but when noted will almost certainly earn a reaction from the other party.

In the above example, the integration fee was put into the contract even though the company knew it would likely be removed. Why add a term or condition you will likely strike? Because the perceived value is that a customer’s business is important enough for you to compromise and make a sacrifice in order to give them the best deal possible.

I accidentally learned this strategy at my first company, when one of our customer contracts had a clause left in from a previous deal. The customer I was working with was not pleased when they noticed, but thought I was extremely generous for removing it and giving them special treatment.

A word of caution: Don’t ruin a perfectly smooth negotiation by adding unnecessary obstacles.  This powerful technique is best used sparingly and saved for customers that are negotiating hard before contract stage.

Silence

Silence is one of the most powerful tools in the founder’s negotiation toolbox.

Being comfortable with long, deafeningly awkward silence in the middle of a tough negotiation is one of the best skills a founder can have.

With your back against the wall not knowing what to say, it’s best to say nothing.

My favorite question to ask in this scenario is, “Okay I hear your concerns about A and B. If you were in my shoes and you had to factor in X, Y and Z, what would you do to make this deal work for both sides?” And then I sit back and shut my mouth.

At best, clients will get uncomfortable in the silence and start negotiating against themselves. At the very least they will start to reveal their priorities, which you can then leverage in the trade.

Perhaps the most important rule of all, however, is to remember not to take anything personally. Negotiating doesn’t always have to be stressful. In my experience, the best deals have ended with laughs, smiles, and sometimes a celebratory beer or two.

So get out there, work those deals and remember to have some fun along the way.

Michia Rohrssen is the former Head of Growth at VentureBeat and current founder of Prodigy. In his spare time he writes startup advice at B2BFounder.com and mentors at Alchemist Accelerator

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