
You Negotiate Commodities, But You Seize Opportunities - icey
http://steveblank.com/2010/09/16/you-negotiate-commodities-you-seize-opportunities/
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patio11
Over and over in business you'll see people avoid decisions they don't deeply
understand (e.g. the average VC knows nothing about gaming, the average PHB
knows nothing about databases, the average techie knows nothing about your
market), and to paper over their ignorance and demonstrate they are in control
and providing value they'll suggest a change to something they think they
understand (advisor shares, the design of the front page, your pricing
relative to a bowl of ramen).

This rarely works well, particularly when the two decisions are in fact
related. One coping mechanism is being able to ignore advice (if you haven't
taken their money, you can probably ignore their advice). Another is having a
list of knobs people can twirl which are off the critical path (salaryman
survival skill #1: distract the boss with rearranging a Gantt chart which
can't kill anyone).

~~~
shalmanese
"I work in advertising, where frequently the challenge is to get the client to
agree to pay you as much money as possible, then go away. The problem is that
some clients (particularly new ones) will absolutely refuse to let an estimate
pass their desk without making some alteration, just to show that they’re
involved in the process. Now, if you go in with a carefully crafted ad
campaign, where everything beautifully interlocks with everything else, then
this moron blindly slashing away with his pen will inevitably cock it all up.

The solution is to give him a helicopter. A helicopter is something glaringly,
obviously wrong, deliberately thrown in to satisfy a busybody’s need to “do
something.”

It comes from a video producer I once knew who would always include an actual
helicopter (for aerial shots of the city) in the estimate every new proposal
he made. The helicopter was always obviously far more expensive than anything
else on the list, and the client would always immediately cross it off before
approving the proposal. End result: the producer got to do the project as he
wanted, the manager got to feel useful, and everyone was happy."

~~~
gaius
Let's say you have manager A, minion B and ad agency C. If A and C know one
another, A can simply say to C, here's some money, get on with it. If they
don't, A uses B as a proxy in case it all goes hatstand, B can take the fall.

There's no reason B can't be complicit in this and take the day off to play
golf instead...

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iamwil
So the basic premise I get, but as a nascent founder, you haven't seen a lot,
so sometimes, you may not know if this is a dime a dozen commodity or an
opportunity.

I'm wary of fooling myself into thinking most thing's an opportunity rather
than a commodity. Besides getting more experience and seeing more, how does
one guard against it?

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jacquesm
Interesting how your investors see you bringing this guy on board as an asset
but only at a price that _they_ are comfortable with and that might have
brought a multiple in value. Makes me wonder how they'll feel about dilution
if you ever need to go for more capital.

On another note, did you put it to a vote? Do you still hold a majority?

~~~
frisco
In practice, everything a board does is unanimous. If you respond to you VC
board members saying "he is too expensive" with "let's vote on it", the
company has WAY deeper problems.

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jacquesm
The bigger problem in this case was that there was consensus about the budget
before it was made clear what the goal to be achieved by spending it was.

Being in business means being flexible and having a bunch of beancounters on
the board that are scared to be diluted is not going to help at all.

In such a case stating your case as clearly as you can, possibly in a follow
up meeting (because he clearly was not well prepared for this one) would have
been much better, also, and that's another critical mistake here, before you
approach an outsider you first agree internally that you will do so, and what
the budget for that particular outsider is. That could have saved some
friction here.

A ship has only one captain, if the VCs are on the board they are represented
as guardians, but not in a decision making capacity, only an advisory role.

Board decision are not nearly always unanimous, and it could very well be that
a decision like this is determined during a general shareholders meeting if
the board can not find a resolution. 1 share, 1 vote.

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steveklabnik
I really enjoyed the personal touch the last sentence and full paragraph added
to the story; being able to admit personal failure is an admirable trait, and
everyone likes to see the mistakes their heroes make, and not just the
successes.

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ArturSoler
Everything can be overpaid. It seems like he is denying that.

I think what he really means to say is to don't negotiate too much where you
can have a great profit. In fewer words, not to be penny-wise and pound-
foolish.

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ntoshev
So does he mean you shouldn't negotiate opportunities? I don't think this is
valid in general.

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mkramlich
negotiating can send a signal that you don't value the other entity as highly
as they value themselves. it's one thing to negotiate over the price of an
apple, say, because the apple doesn't have feelings. but if you try to talk
down the compensation package for a potential employee/advisor, particularly
one who would likely become a star contributor, you can hurt their feelings
and/or cause them to seek employment elsewhere. you can always buy an apple
from somebody else, and the store/vendor can always sell that apple you passed
over to somebody else. but as a laborer, you have only so many hours in the
week you can sell to somebody else, so in general it's in your best interest
to get the highest compensation you can.

So negotiating as a general rule is good. But in specific cases, where you're
dealing with an opportunity or "non-commodity" thing, no, negotiating can
sometimes be bad. That was his whole point.

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mkramlich
great article but I think he failed to make a significant point which was also
key to that experience: the failure wasn't so much about treating an
opportunity as a commodity but that he failed to follow-through on an offer he
has already made and negotiated with the guy and had buy-in from him on. so
when he came back to him and said i have to make you a lower offer _that_
moment was going to hurt the other guy. It's not that negotiating itself was
wrong, it's that there already seemed to be buy-in from both key parties and
then later one side didn't follow though on it. Ouch.

~~~
brianpan
He did follow-through on his first offer. What he wanted, but the VCs did not
agree with, was to accept the last email two days prior to the board meeting.

