The Art of Negotiation

Eric Klein, a partner in the Los Angeles office of ShawPittman LLP, and instructor for the upcoming Larta University workshop, Successful Negotiation #1, discusses the art of the deal. more information on workshop >

From the perspective of a small start-up technology company, what would you say are probably the most common mistakes made during the negotiation process?

Eric Klein: One of the most common mistakes that first companies face in the negotiation process is they're negotiating uphill, particularly against a company with much better leverage. In that type of situation, they need to have a very clear plan as to how to remedy or balance a situation as best as possible. And that involves having a very clear understanding of what their needs and wants are, and also what tactics they will use or will not use in negotiation. If they don't come at an uphill negotiation with sufficient planning, then nine times out of ten, these companies do not get what they need to be successful.

Could you give any specific case studies of how a new company would approach this process.

Eric Klein: Sure, one example is a company that had to accept a decrease in valuation--in equity financing negotiation. And they had done their homework before, but they didn't have a list of other things they wanted or needed from this negotiation, which was with a potential strategic partner. So one of the things that I helped them refocus on was not just accepting the decrease in valuation, but more importantly, trying to figure out, if they accepted that, what objectives they were achieving for the investor, and how could they turn that around and use that as an advantage for themselves. So we came up with a couple of additional non-evaluation-related alternatives that, although they did have to accept the decrease in valuation, they were able to obtain these other benefits that ultimately increased their valuation twice as much in the same period of time, and therefore got them back to where they should've been.

Can you tell me a little more about the self-assessment process for a company?

Eric Klein: It really is at two levels. The first is at an individual level, the second is at a team or company level. Many times people negotiate because they feel like they have to--it's their job title, or it's their project, or it's something that they like to do and off they go. That doesn't always necessarily mean that they're the best person, and often what you need to do is take a very clear look at yourself, figure out what your strengths and weaknesses are as a negotiator, and then determine what tactics and strategies you wish to use to fortify your weaknesses, and to emphasize your strengths. Also, especially in entrepreneur companies, you typically tend to have multiple audiences when you're doing negotiation, so thinking clearly about who your negotiating team is proves to be a very valuable exercise, because it may not be immediately apparent. Very often early-stage technology companies go off and negotiate something, whether it's an equity financing or technology deal, and the person sitting down at the table is the person who determines what the company's objectives are. But that person's objectives--say that person is the CFO or the CEO--may not be the same objectives as the technology person, or as the sales person, or as the existing investor, or as the potential investor that's watching this carefully. So trying to figure out who your team is, identifying each member, building a consensus, and bringing the right set of negotiating skills to the table, becomes crucial. The review and approval process is oftentimes very critical, because even if you had a successful result in the negotiating room itself, you may not have a successful negotiation when you take it back to your side.

That kind of leads into another question: is it best to limit certain persons within the upper-management of the company to perform all the negotiations?

Eric Klein: It certainly can be, because it very much comes down to skills and time availability. You have to tell yourself, a negotiation is typically not a one shot scenario. It takes time to build a relationship, you need to go through a number of maneuvers, oftentimes it can take several sessions, whether they be over days or weeks or months. And you have to make sure that the negotiator that you are picking--the lead negotiator--has the time and the head room available to be able to do the negotiation. You send a very negative message if you start off rescheduling the negotiation a few times, or it gets handed down to someone else. So a little time up front to think about that, and studying the stages, is very important. Also, if somebody is a weak negotiator, that doesn't mean that they're a bad business person. It just means that they probably are not the right person to lead the negotiations. We've had situations before where somebody who's incredibly conflict adverse, walks into a negotiating position, and they walk away with something that's quite as worse as their worse case could have been. The reason was because they were in a situation where they were put into a conflict situation and were concerned by it, and didn't have adequate planning or support to get them out of it.

Is it then to some extent something that can't be taught?

Eric Klein: No, it's very much something that can be taught. You can have good negotiators born, but everybody can become a good negotiator. It's typically great negotiators that have that combination of special skills and special personality. But everybody can be a good negotiator, very much something that can be taught. Oftentimes I do a numerical self-assessment at the beginning of my relationship with a company, where I ask them, 'Rate yourself on a scale of 1 to 10 in terms of what level of negotiator you think you are.' And invariably, people's self-assessment between the end of the session rises between 2 to 4 points on a scale of 10. What's interesting is you do follow ups with them, and they report later on that they've used a few of the different tactics and now all of a sudden they've got some confidence. Typically it does take several applications in order to get somebody looking very much like a good negotiator.

Are there certain points in the negotiation process that are more sensitive and important? Or is it wrong to assume that the beginning and maybe the closing are the most important?

Eric Klein: It really comes down to how you set up your negotiation. Clearly beginnings and closings are always critical. But one of the things that I teach is how to set agendas for negotiations, and how to set tempos. Because you can use the tempo of a negotiation, and you can use other techniques, to drive you past danger zones, or to accomplish things that people didn't expect you could accomplish. So it's very much being conscious of your overall negotiating environment. These very simple things people typically are not aware of. You walk into a room and you're going to do a negotiation, most people would sit across the table. And part of what I teach is to think about everything in your negotiating environment, and figure out how it's going to be received. You need to consider body language, what moods people are in and gauge whether they may be more receptive or less receptive. You know, it's very rare that you can get a successful negotiation going or finished on a late Friday afternoon. Most people are tired at that point and frankly would rather not be there. You have to look at the entire negotiating environment, and that helps you plan out how to avoid those type of danger points, and how to create points where there really can be a closure. One of the things I teach is a structural approach that takes you through the process. That way you wind up making sure that you don't have slippage, and that you don't wind up getting stuck on critical points.

Will there will be a holistic approach to class?

Eric Klein: The word 'holistic' is there for two reasons. One of which is to sort of raise eyebrows, and make people think about negotation in that context. A holistic approach is helpful you often read something about negotiation and it focuses on a single piece--how do I get to the side, to be rational, reasonable? Or how do I set up a term sheet? Or what is the--what is the way that we can generate a win-win scenario. And part of what I'm suggesting here, is that that's all very critical, but frankly, most negotiations are won or lost because of things that are not voiced. For example, how you set up the negotiation, how you interact physically during the negotiation. How much appreciation you show the other side's needs, of their business objectives, how much context you give it. You know, most people want to be rational and reasonable, they think it's important to be seen that way. But if you don't allow people enough information, they're not going to be able to judge for themselves. They don't know what the right thing is. But part of this is to set up ways that you are sure of getting the end result you want to get, and you do it by taking a combination of physical attributes, of business approaches, as well as a little bit of acting, and a little bit of psychology.

By Wendy Hall, Larta Staff Writer