blog.dinogane.com: November 2008

Deepak Malhotra is perhaps the world's foremost expert in getting himself out of situations such as this.

In the last few months I’ve changed jobs to a role where I am surrounded by high-powered individuals grappling for territory and at times stomping all over my work. It is not very pleasant as a working experience, but I am learning lots about office politics. Sometimes I find myself searching for solutions on the Internet. I have thus far thought most of my probelms were a communication related, but I am now wondering if they are related to value. This thought comes after my latest Google search brought up a series of videos of Prof. Deepak Malhotra's presentation at Nasscom 2007.

In his presentation, Deepak Malhotra (a Harvard Business School professor) raises some very insightful points and illustrates them with highly memorable stories from history. He also uses examples from business situations that he has worked on or come across, but they are not as memorable. He comes across as someone who has thought long, deep and hard about all aspects of negotiation, keeping a toolkit of tricks and techniques in his back pocket. His presentation certainly got me thinking about scenarios in different ways to how I might normally approach them. It was almost revelatory to hear him talk about mindset and that going into the negotiation feeling weak can be fatal. In a world of that urges you to ask "what if" questions and strengthen your BATNA, this kind of talk can be perceived more often as the realm of self-help literature. However, I completely agree with him because I know it to be true of the experiences I have had.

Going forward,

I'm really going to be thinking about the value I bring to the other parties I wrangle with at work. I've realized that I'm not actually seeing the weakness of their position, which is that they can't always carry out their work without my buy-in.
I think the point on changing the game by attacking the source of their power is also key and something I can work on. One person I work with gets all her power from the sensitive data in the IT systems she has access to; can I gain access to these systems?
I need to listen out for and learn more about the desires and problems of the people I work with. I'll never know when I might need to negotiate...

I'm looking forward to getting a hold of Deepak Malhotra's book, Negotiation Genius. The table of contents certianly gives the impression that the perspective on the subject is different. My notes on the presentation are below. Did he really manage to fit all the stuff below into one chapter of that book?

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The slides can found in powerpoint and slideshare. The videos, in the correct order, are here:

There are often situations when you are dealt a weak hand. How can you negotiate optimally in such situations? Here are the salient points Prof Deepak Malhotra raised.

What's the value that I bring to the other party?

Those that focus on solely on the weakness of their situation and ignore the value they bring to the other party tend to negotiate worse outcomes.
Story: Roosevelt was looking for election in 1912. The campaign manager had printed 3 million brochures without the copyright permission of the photographer. They would have to pay a $1 a copy or $3 million dollars ($60 to $200 million in current prices) in royalties if they were sued. The brochures were already printed. What could the campaign manager? Well he did this: he sent a telegraph to the photographer: planning to print 3 million copies of campaign speech with your photograph. How much are you willing to pay for opportunity? The response came in: Appreciate opportunity, but can only afford $250.
Do not reveal your weakness to the other side; people do this accidentally all the time. e.g. when there is a potential client, they ask to meet and you say you can meet at any time - this action sends the signal that you have no other customers.
Having a weak alternative is ok if the other side weak as well... sometimes we are so obsessed with our own weakness that we don't see their weakness. Being weak is bad, but feeling weak can be fatal. Think about the negotiation analytically instead.

The person who defines the scope of the negotiation often wins the negotiation.

Can you change the focus of the negotiation to be about the weakness of their alternative and the value you bring to the table?
Start the negotiation by saying that there is a lot of uncertainty and that you'd like a go at framing the situation.
All of the advice only works if you can identify and leverage your distinct value proposition. If you are the same as your competitors, you will not be able provide no unique value so your margins in negotiation will be low.
You have to identify what they value and then monetize it.

What can you do about a party that seems to only value price? How can you make your distinct value count?

When people have to submit bids, do you submit the low value - low cost bid or the high value - high cost bid? What you can do is submit both. This will reveal whether your high value proposition is really a high value proposition.
Post-settlement settlement technique: Lower your offer to get the deal. Then once you are in the organisation, sell more services to the organisation (not the same as a bait-and-switch).
Communicate with your customers. Most people only communicate with their customers when there is money on the table. You should also be communicating with them all the time to discover what they value and need.
Lakhdar Brahimi, UN Envoy sent to post-war Afghanistan, notes that the function of diplomacy is this: you go into a country and learn as much as possible about the country because you never know when you might need to negotiate. Doing this, you can sometimes prempt opportunities before other competitors hear of them and sell your solution first.
Not everyone is your customer. Sometimes you have to have the honest conversation with them, "Is it the case that you will pick the lowest priced option, regardless of price?" You have to ask yourself: Are you willing to lose some business so that you can win other business to earn more? How much of your business would you lose if you doubled your margins? If you would lose less than 50%, may be better to just double the margin.

Winning because you are weak.

In 1919, during post World War 1 negotiation, the size of Romania doubled from the size it previously was. This was despite Romania not assisting much help to the allied cause in World War 1. After World War 1, the biggest threat to the West was Russia. Romania said that they were too small to defend the West from the communist threat. If they remained small, they would be taken over by Russia and become communist. If Romania becomes communist, then communism would be at the door of the West. So the West decided to give Romania what they needed to be strong.
We're weak. If you punch us too hard, you will lose a value generating partner.

Change the game.

Attack the source of their power.
Planned Parenthood had protesters lining up outside their clinical, making it difficult for women to come to the clinical to seek help. What could they do to reduce the number of protesters?
The clinics reached out to their supporters and asked for pledges of $10 for each protester that shows up at the clinic. Now, every time a protester shows up, the clinic makes money.
They figured out that the power of the other side was being able to show up and protest. They took away their power.

If you have no power, maybe you don't want to play the power game.

Princeton hires Einstein and ask him how much money he wants. He says '$3000/year, unless you think I can get by with less'. Princeton gives him $15000/year.
Why did Princeton do this? There is an old adage: time reveals truth. What happens when other universities, Harvard or MIT, offer higher amounts later? In behaving in this way, Princeton have changed the game - they have bought trust and loyalty.
When you have only one job offer: accept the offer, then negotiate - 'I love this company, but here are some of my needs and concerns'.

Your power comes from your ability to create value for the other side. Instead of going into a negotiation thinking about what you want to get out if it, you should go in trying to figure out what their wants and needs are.

Even if none of what has been mentioned helps, the most important thing is believing that there are always things you can do to negotiate from a position of weakness, seeking out ways to negotiate from this position and generating value.

The event was held at the Woolgate Exchange, Chicago Booth's London campus. It looks even better on the inside.

Chicago Booth held an event earlier this week, After the Pitch: Entrepreneurial Financing Insights.

The event featured an entrepreneur making a pitch to a panel of investors for money. Following the 10 minute presentation from the entrepreneur, the entrepreneur was quizzed by the panel. The parts that followed were interesting. We were 'let in on' the kind of discussion such an investment panel would have after the entrepreneur had left. Chicago Professor Waverly Deutsch, who chaired the panel discussions, closed the the evening with her summary.

Below are the highlighted insights that I noted...

The Entrepreneur: Riaz Agha, Founder, Greatswitch.com
GreatSwitch is a new price comparison site. The key differentiator between GreatSwitch and its competitors is that the site stores the details of the person using the site and then proactively later offers them opportunities to switch their mortgage / other financial product as better offers arise. This is in contrast to current sites, where you have to search for better deals periodically.

Investor Panel:

Ashish Patel, Managing Director for Europe, Israel, and the Middle East, Intel Capital

We always start assessing the venture by looking at the route to market. How will the venture get there? How will it achieve critical mass? What is the unique proposition?
Very few people make money using patents to prevent copycats.

Giuseppe Zocco, Co-founder and Partner, Index Ventures

Riaz needs more awareness of what he does not know. This is important for building the rest of the management team. There seems to be CTO experience missing. Should seek a former CTO from a competitor.
The venture needs to address how it will continue to innovate after the initial launch.
There needs to be an understanding of the financial needs of the firm for the next 7+ years.
A lot of ventures have approached the firm with the 15th iteration of their business plan, so keep iterating and refining to address concerns of the VC firm. Sometimes the venture does decide some of VC's concerns are not valid.

Sherry Coutu, Angel Investor

Everyone liked Riaz's energy in presenting his idea.
The business plan needs more work. e.g. I would expect to see more detailed cash flows.
Angels will typically come in and hone the financials, as well as put in a team to deliver the final product/service, and enter discussions with other angels to understand what other similar ventures are launching.
Angels will also look to identify who the venture can be passed on to for larger levels of funding in later rounds.
Usually there would be further sessions with the entrepenuer for the angel to determine how the entrepenuer thinks. The angel would also want to get view from other angels with other expertise.
A lot of investing is networking.

Keith Breslauer, Chicago MBA '88, Partner, Patron Capital

There needs to be more thought on the revenue model - how will this make money?
For internet models, think about this: is it a vitamin or a pain-killer? For the online world, the venture needs to be very disruptive.
Would expect the person making the pitch to

Find market data on all the competitors
Find out all their negatives
Give a presenation on how you would address these market issues.

Panel Chair: Waverly Deutsch, Clinical Professor of Entrepreneurship, Chicago GSB

Most entrepreneurs need to be more realistic with their expenses.
Entrepreneurs always underestimate the difficulty of creating behavioral change to make their product/service successful.
The most important thing is to get the investor excited, because you won't be able to answer all their questions.
Emphasise what is different about your business. What will get out the sizzle?
As an entrepreneur, you need to have knowledge available of the industry you are entering. This could be through advisors or others. This is particuarly important if you do not have knowledge of the industry.
People invest in people.
The investors talked about why they would invest - they want to invest more than money to ensure the business is successful; they want to bring in the expertise of their colleagues.
When you are pitching for money, you must have the correct investor profile. e.g. angels invest from £0 to £1M; VCs from £1M+.
For multiple rounds of dilution, the venture must have strong multiple returns.
Investors these days are thinking about the longer duration.
The angel investor is thinking about where the money will come from next (for further rounds); who can they bring in? Investing is a team sport - angels need to ensure their investments have enough money.
The newest money coming into a venture has the power. They will want to change the terms. This is why angels think about who can come in to fund the venture in later rounds.
In the current financial situation, VCs are withdrawing from earlier stage funding and angels are being looked at to fill the gap. It is therefore important that your venture can make money.

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Negotiating to win from a position of weakness.

Chicago Booth - After the Pitch: Entrepreneurial Financing Insights.

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