Editor’s note: Joe Procopio is the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle. More info at joeprocopio.com.
RESEARCH TRIANGLE PARK – In business, your leverage in negotiations is directly proportional to your size. When you’re a startup, you’re freaking tiny. So how do you get a big deal done without giving away the company?
It’s rare that a startup will get a fair shake from a giant customer or partner. But these kinds of deals can mean the difference between success and failure, so we’ve got to go after them.
Over the last 20 years, I’ve learned that it really doesn’t matter who you are, what you’ve accomplished, or how valuable your offering is to the bigger player. If their revenue outsizes yours by, say, 2x, they’ll have the upper hand. If that number is 10x, they’ll be in complete control. If it’s 100x, they’ll be straight tone deaf.
Joe Procopio
So how we negotiate is a critical factor. Here are a few tactics I’ve picked up that have helped me not only get the deal done, but also make it a win for both sides.
Make It Easy To Say Yes
In my perfect scenario, the gigantic partner or customer — whom I’ll just refer to as Goliath for the rest of the post — can get started with us immediately. There shouldn’t be any costs or work associated on their side. Not yet.
We want to keep the deal small and simple. We’re not interested in casting an outsized reward to Goliath, because that will imply an outsized risk. If you bring anyone a million-dollar deal, their first question is always going to be “What’s the catch?” This totally starts negotiations off on the wrong, skeptical foot.
Look, maybe we can eventually add a million dollars to Goliath’s bottom line over the next two years, but we need to lead with how Goliath is going to make an extra ten bucks on their next customer. They’ll do their own math.
We need to offer a pilot, not a relationship. Just like with a minimum viable product, we want to start with a small segment of their customers, on a subset of their offering, for a limited time. We want to prove percentage increases in the margins.
Then, we want to crawl before we walk before we run. That means as little technical integration for Goliath as possible. We can settle for spreadsheets and text messages and scrambling every time they push the button. Remember, it’s a small customer segment we’re dealing with — that’s also so we don’t get knocked over.
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And then finally, give Goliath an out. Time the pilot for no more than a few months, just enough time for us to figure out their framework and make ourselves invaluable to them. Then we can renegotiate based on those awesome percentages in the margins that we’re about to extrapolate across their entire customer base.
Be Prepared To Say No
We need to go into every negotiation with the expectation that Goliath is going to reject us, because most of the time, they’re going to reject us.
The possibility that we might reject them, no matter how small or silly it may seem, is our only leverage. This isn’t much to work with, and if we do walk away, they’ll probably smile and hold the door open for us.
But we need to have this attitude, because desperation stinks.
There’s no worse way to go into a negotiation than if the other party assumes we need the deal. And if they catch a whiff of “this is our only shot,” they’ll either totally take advantage of us, which, I remind you, they can do anyway, or they’ll walk away because they don’t want to be tied to a sinking ship, no matter how small.
Come With Numbers
Now that we’ve got our super easy offer put together and we’re ready to negotiate from a position of just a little more than total weakness, we need to prepare our proposal.
It should be short, knowledgeable, and quantified.
We don’t want to blow them away with third-party accolades about our company. Believe me, if we were that amazing, we’d already be on their radar. What we want to communicate are numbers that pertain to them. This will require some research, some prep work, and some testing, which is time well spent, because those results will also tell us how important a deal like this is to us.
Don’t Get Shook
I’m going to make some rash generalizations about corporate America to level set the complexity within these types of organizations. The numbers I’m about to throw out aren’t true 100% of the time, but they’re true enough to make my point:
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It takes at least six to nine months to close a deal with a large corporation.
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It takes at least three meetings before anyone at a large corp will seriously start considering a proposal to do business.
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It takes at least three champions within a large org, with at least one at the executive level (VP or higher), to produce any traction to get a deal done.
Don’t let delays, indifference, condescension, confusion, or repetition stop you.
Stay Out Of Legal, But Have Legal
I get a lot of emails from a lot of startup founders and employees whose companies are teetering on the brink of disaster. When I pry, they almost always admit that they rashly signed one or more deals that wound up being crazy unfavorable.
In almost all of these cases, they either didn’t have legal representation, or they had poor legal representation.
Do not sign any large deal without good legal representation.
We also need good legal representation because we need to stay far away from Goliath’s legal department until after the pilot.
Most corps will already have standard customer or partner agreements ready to go, and they’re usually pretty vanilla, outside of the terms we negotiate on the business side. Every once in a while there’s a catch, and I’ll get into a few of them next. But if we have a good attorney, he or she will not only be able to spot those catches quickly, but they’ll also be able to suggest alternatives that their legal comrades at Goliath won’t freak out over.
Don’t Give Away the Farm
Of course we’ll need to be able to make compromises on our side that might be tough, but there are certain things that we’ll want to try really hard not to give up. These are just a few that make me cringe:
Exclusivity: I’m about 50/50 on this, because there are certain cases where it will be inevitable, and if we’re dealing with an unquestioned market leader, it may not be that painful. But at least for the pilot, we should try not to get locked in. If we must, we should try to reduce “exclusive” to a very narrow definition of Goliath’s specific market.
Attribution: I’m about 75/25 on this, meaning I’m 75% I don’t want to give this up. This can turn out to be far more valuable than the money you receive for the deals themselves, especially when you’re just starting out.
Free Work: I’m 100% against this, as I’ve been burned too many times to count. Call it spec work, call it proof-of-concept, call it goodwill, if we’re required to spend money and/or resources to build something custom for Goliath, they need to at least share in those costs. It’s not an easy topic to breach, but far easier than writing down losses.
Make a Deal You Can Live With
I’ve had some negotiations with Goliaths that have been a pleasure. Those are rare, however, and most of the time there’s going to be a least a little bit of pushing, a lot of discomfort, and a few straight up battles. These should be gentle fights though — expected, civil, and ultimately resulting in a deal that’s better for both sides.
At the end of the day, what counts is not that we’ve won, but that we’ve made a deal we can live with. It’s rare that we’ll land one Goliath who will take us from small time to big time, but there is always strength in aggregation, and that next Goliath prospect is just around the corner.
(C) Joe Procopio
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June 22, 2021 at 05:32PM
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