Dealmaking is an art unto itself. Following careful negotiations, all parties need to feel as though they’ve won. But, as many of us know, this is easier said than done. Striking reasonable deal terms involves numerous considerations that can often feel daunting to beginners. But, armed with a solid strategy, these disparate factors can coalesce to create a scenario that’s great for you, your business, and your counterpart.
Positive Deal Economics
First and foremost, you need to ensure that an investment meets your metrics. Is it in your sweet spot in terms of industry, size and location? Is the company valuation fair and reasonable? What’s the size of the option pool? The ownership stake? Chances are you already have a checklist of what’s important to you or your business, so make sure that the opportunity either meets your criteria or is close enough that you might be able to nudge it most of the way there. No opportunity is perfect, but you shouldn’t be straying too far from your comfort zone, either. Another best practice is to seek the opinions of other trusted investors in your local market. Sometimes the information that might sway you one way or the other reveals itself in conversations rather than paperwork.
Understanding Your Value
Be prepared to clearly demonstrate your own value. By understanding what the other party seeks from the arrangement, you can better articulate how your offer advances their position. Do you have ideas, products, services or resources that could help them? Could you potentially solve a particular pain point, increase earnings, save jobs, or otherwise improve their business? This could take some real forethought and research, but it’s integral to building trust and goodwill, thus paving the way for a successful negotiation.
Sometimes it’s helpful to break a complex deal into a series of smaller negotiations. That way, each negotiation has its own, single concern that can be kept top-of-mind, and negotiations can even be staged from smaller, easier wins to progressively larger, higher stakes discussions. This gives you and the other party some time to get to know one another, build trust, and gives you both a string of positive experiences and “wins” to draw from when the more difficult dealings inevitably present themselves.
Dealmaking is a little like dating, in that both parties should feel some chemistry. The most efficient way to advance a business deal is to establish trust, so that negotiation flows more freely. The more you can do to show your prospective new partner who you are and where your values lie, the better off you’ll be. This goodwill can be generated in small, simple ways: making an effort at frequent small talk, introducing yourself through a referral, or having another company you’ve invested in vouch for you. It can also be helpful to limit key conversations to a smaller number of people to facilitate more candid conversations and agreement around desired outcomes. Anything you can do to help others feel that they know and can trust you will pay off down the line.
Widen Your Negotiations
By defining your ZOPA, or “zone of possible agreement,” you can figure out your deal space in a particular negotiation. Oftentimes, your counterpart may begin by throwing out a very high number that’s completely unacceptable to you. It’s your job to diffuse that offer by making it perfectly clear that it’s not within the realm of possibility. Your ZOPA is generally considered to be the space in between the first reasonable number your counterpart suggests and your ideal number. A fair deal is usually something that’s about halfway between the opening reasonable offers of both parties. Understanding this can help increase your range of negotiation as much as possible.
Know When to Walk Away
If you’re running into roadblocks with your current counterpart, it’s often helpful to confirm with that person, or someone above them, whether they have the authority to negotiate on behalf of the organization. If you believe that the person is making progress impossible, attempt to add more negotiators with greater expertise and authority. If these efforts fail, it’s time to consider dealing with another organization. If you’re unable to identify outside organizations that are good alternatives, then you can attempt to approach the organization again by developing new relationships that may help you navigate your way around the roadblock.
Dealmaking can be a delicate endeavor, and it’s almost always tough to advance your own interests while simultaneously appeasing others. But by keeping these best practices in mind, you’ll have a built-in strategy for success at your fingertips. Negotiators who approach the table with preparation, clear value propositions, and integrity, will leave the table feeling like a winner.