In this newsletter, I focus on lessons learned in successful negotiations. But I’m doing something a little different - I’m breaking the newsletter into two inter-related parts.

In Part One, I outline Five ‘Toxic’ Business Personality Types. If you happen to encounter any of these types, it could largely shape the outcome of the negotiation process. So I thought it would be important to first set out these types and provide some of my ‘real world’ experiences.

Once we become familiar with these personality types, in Part Two, I’ll go into the Five Lessons Learned on Successful Negotiations.

So let’s dive right into it!

Five ‘Toxic’ Business Types

Before we get into the five lessons learned, I’ve always found it important to first assess the negotiation situation: specifically what type of a person or group are you negotiating with? Over the years, I’ve been fortunate to negotiate with a lot of great people: honest, straightforward, ethical and skilled. 

But this has not always been the case. In fact, I’ve had many situations where I was forced to deal with very difficult people. 

This is simply part of business and life… In fact, I’ve had so many negotiation situations with difficult people that I can typically characterizes them by type. I’ll outline briefly five of these “toxic” business types. If you can avoid these people in the negotiation process, this is the best outcome.

However, in many situations, you simply have to deal with these people - you can’t ‘fire’ them… either because they are necessary to the process, they have more leverage than you do, or they have the most money! 

I recently attended the Berkshire Hathaway shareholder meetings in Omaha. Warren Buffet and Charlie Munger offered many ‘golden nuggets’ to investors on business and life. 

Here’s a great video, Charlie said:

The toxic people who are trying to fool you, or lie to you, or not meeting their commitments.

The great lesson of life is to get these people the hell out of your life, and DO IT FAST.

Again, not everyone can have Charlie’s prerogative. Many of us have had to deal with difficult people… over the years, I certainly have! But Charlie’s words are nevertheless a great guiding principle.

Getting back to the discussion, if you can spot these toxic business types in advance, I’ve found that you can tailor the negotiation lessons in Part 2 of the newsletter to achieve your objectives, or at least minimize the damage that these people can cause!

So here goes: this is not an exhaustive list of all of the toxic types; but since we like ‘fives’ in these newsletters, I’ll limit this to five types that come to my mind:

1. Mr. No

Mr. ‘No’ is a person that, regardless of the issue, will not agree with you. Mr. No never compromises - he never accommodates - and the only way you reach resolution is if you agree to every one of his positions.

Mr. No is very deliberate - his intention is to be so difficult, objectionable and protracted and he believes he’ll eventually wear you down to the point of exhaustion, to when you cave because you can’t stand it anymore!

We encountered Mr. No in the sale of Sports Illustrated.

This person refused to agree on anything, no matter how small. I believe this person thought that that if he continued to grind us down and move things sideways, we’d eventually cave on all of his positions.

Not necessarily a bad negotiation tactic. Thankfully we found a solution… eventually I contacted the CEO of the company and said ‘we need to have you personally on every deal call, because Mr. No will not agree on anything.’ 

Fortunately, the CEO wanted to do the deal, and everything eventually worked out.

2. ‘Rest assured! I have Full Authority of my Board!’

Frequently over the years, I’ve run into executives who appear to have authority to negotiate, and even represent that they have such authority, but it turns out not to be case.

If you’re slow in learning that the person in fact does not have authority, it can get pretty ugly and expensive.

One situation that is still vivid in my mind is when we were selling Fansided, a digital sports fan business. For several months, we had been negotiating the sale of Fansided to a large media conglomerate. The deal was clearly going sideways, but the executive in charge assured us that as soon as they completed their diligence on the business, we could get the deal signed and closed. I first met this person while I was in London (he was based there). He appeared to have authority of his company: he was a senior operating executive, and he always brought teams of expensive lawyers and finance people into New York for the negotiations.

We finally reached the end of exhaustive diligence and we thought we had agreement on all the terms of the deal. All that was left, so we were told, was final board approval - which we were told was merely a ‘pro forma’ matter.

I remember this quite well, because this company’s board meeting was over the weekend of the final round of the 2019 Masters tournament (as mentioned in a previous newsletter, I was in Augusta and watched Tiger win the tournament on Sunday.)

On Monday morning, we were driving back from Augusta and had an update call scheduled with this executive. Well, you guessed it: the executive curtly told our banker and me that “the board does not want to move forward.’ No explanation - just ‘it’s over.’ 

We had some choice words we could have said on the call; but we decided to take ‘high road’ and ended the call. 

The only thing I could think of was…

One thing about a deal process: it can be very frustrating! But you have to stay resilient and move forward.  Fortunately, Fansided was a solid business and we ended up selling to Minute Media, a leading digital media company.

3. ‘Death by a Thousand Nicks’

This phrase originates from ancient Imperial China and was a form of torture and slow execution.

In more current contexts, it refers to a major negative change which happens slowly in many unnoticed increments so as not perceived as objectionable. 

Death by a thousand nicks' should be distinguished from 'Chinese water torture' - the latter being another negotiation technique that I'll discuss in Part 2 of the newsletter.

This phrase has significant application to deal processes.  In its most common form, it’s when a buyer group conducts endless diligence on a target business to the point that the deal dies eventually - it’s just a long torturous path before the deal collapses!

Some private equity firms are notorious at employing a ‘death by a thousand nicks’ tactic. Here’s how it works: the PE offers a non-binding letter of intent on a target business, setting forth the purchase price but conditioning this purchase price on completing due diligence. The PE also asks for an ‘exclusivity period’ so that the PE firm can lock the target up without worrying about the seller soliciting offers from other buyers. 

Now, a seller should not agree to an exclusivity period without a significant ‘earnest deposit’ or ‘break fee’ that compensates the seller if the deal craters. However, depending on the circumstances, sometimes a seller grants a limited exclusivity period - maybe a couple weeks or so to give the buyer time to complete diligence and negotiate terms of the deal. 

When we were selling Fortune in 2019, the lead bidder for awhile was a private equity firm based in the United Kingdom. This firm employed the above tactic - but took it to a new level!  In addition to dozens of junior PE analysts drilling us with diligence questions, they also retained one of the ‘Big 4’ accounting firms which had an army of ‘pencil pushers’ to grind us down on diligence.

It seemed like this pencil pushing brigade were bringing in due diligence questions in wheelbarrows!

Here’s how I recall it worked:

• The PE would ask 10 questions on a particular subject…

• We answered those 10 questions, but the PE firm came back with more 10 questions on each of our 10 answers - so the list grew to 100 questions!

• You guessed it: the 100 questions turned into 1000 questions! Good grief!

You get the picture! I was literally ready to pull my hair out of my head! This story has a good ending which I’ll describe in the lessons in Part 2 of the newsletter.

Long story short: we granted the PE exclusivity on only a week-by-week basis, so when a much better, well-capitalized buyer came onto the stage, we were able to pivot quickly to this new buyer. 

Within only three weeks of terminating the PE from the process, we were flying to Hong Kong to sign the deal!

4.  “Don’t Worry, I Can Raise the Money!”

Of the 15+ businesses we sold in the course of 18 months following our acquisition of Time Inc in 2018, Sports Illustrated took the longest. One of the reasons was that SI tended to attract a lot of interest from celebrity professional athletes along with various “Hollywood” types.

This made the process fun and interesting, but it also made it very complex. In a previous newsletter, I mention that when it comes to deals, complexity is not your friend.

This certainly proved true in the SI process! The basic reason is that professional athletes and ‘Hollywood’ types, tend not to put up their own money for the entire purchase price. Instead, they might put up some money for a minority stake, and raise the rest with ‘other people’s money’ (other athlete friends, other ‘Hollywood’ types, banking sources, and a cast of other characters). There is nothing inherently wrong in this type of ‘roll up’ equity financing. It’s just complicated and uncertain.

Raising money from Hollywood types is more difficult than it might seem...

I never thought any of these parties were necessarily deceptive.  In fact, I believe that most parties thought they could eventually raise the money; but we were on a time schedule and could not continue to wait for the money to be raised.  Managing one or more competing buyer groups gets very complicated, and the complexity grows exponentially when each buyer group has multiple parties, not all of whom are necessarily aligned. 

As a result, we pivoted to Authentic Brands Group (ABG), a well-capitalized strategic buyer. 

After I left Meredith Corp following its change in control in December 2021, I transitioned to other deal projects with JSZ Holdings LLC. Most of these projects involved substantial capital raising activities with investment groups.

In my experience, when talking to investors, you’ll tend to get 3 alternative answers:

1. ‘No Thanks’

2. ‘Yes I want to invest!’

But often times it’s:

3. ‘Maybe, I’ll think about it.’

‘Maybe’ does NOT equal ‘Yes’. Even sometimes, ‘Yes’ does not equal ‘Yes’!

It’s human nature to ‘hear what you want to hear.’ This is where careful listening and staying brutally objective becomes very important!

Even if you’re dealing with a ‘Low Talker’:

And don’t follow Homer Simpson!

5. ‘The Eternal Optimist’ (EO)

On one of my recent projects, I encountered the Eternal Optimist. I went on the board of a company headed up by an executive with a well-established and successful reputation, although I never personally worked with him.

Over several months on the board, I started to "peel back the onion' and found that there was not much 'there there.' As we would get weekly updates from EO on his deal conversations with various parties, it became clear to me that none of these deals had a 'snow ball's chance in Hell!'

I eventually followed Charlie Munger's advice - resigning from the board and 'getting the Hell out of there!' It certainly was not a happy experience but I learned a good lesson about the Eternal Optimist.

This type of person will give overly optimistic updates and rosy scenarios on potential deals. Perhaps something like:

• ‘I had a great discussion with the [other party]!’

• ‘We are aligned on everything!’

• ‘I think we might be just one more phone call away from getting a deal done!’

I’ve known so many of these people over the years. A lot of them are sales executives, who just by nature, see the brightest side of everything. A lot of times they are group operational presidents. 

To be clear, there is nothing wrong with optimism! It’s just at some point, ‘optimism’ turns into ‘fantasy.’ 

Like the discussion above, it might be that EO only hears what he wants to hear?

Like the Michael McDonald song ‘What a Fool Believes.’

Or maybe ‘fear of failure? There’s been many research studies on this.

Or something else?

All I know is that when a person like this in on your deal team or business development team, it can be a real problem - from lulling his colleagues or board into a fantasy deal that will eventually never happen, spending tons of money on lawyers only to be written off once the deal craters, to not focusing on more viable options that could result in a good outcome. Be especially wary of the EO if he has a tendency to want to control the conversation with the other party, so that you’re at least one step removed from what is really going on.

So there you have it: my five toxic business types!

In Part 2 of the newsletter, I'll discuss my five lessons learned in successful negotiations - and reference back our five toxic business types.

So as they said in Back to the Future, to be continued!

So see everyone next time! And in the meantime, as the most interesting man in the World would say:

Just Say'in!

-JZ