Five Lessons Learned on Successful Negotiations (Part Two)
Hey Friends!
This is part two of my Five Lessons Learned in Successful Negotiations. Part One focused on Five Toxic Business Personalities. I'll be talking about these people below but please click back to Part One if you want.
So here we go!
1. Knowing When to Say 'Yes'
In the best-selling book 'Getting to Yes: Negotiating Agreement Without Giving In', the authors discuss the first principle of negotiation - 'Separate the people from the problem.'
The authors point out that negotiators are people first - people who have different values, cultural backgrounds, and emotions. The relationship between the parties tend to become entangled with the problem; therefore, issues of perception, emotion, and communication need to be addressed during a negotiation.
In Part One of my newsletter, I identified 'Five Toxic Business Personalities’:
In a twist on the first Getting to Yes principle: it's not 'separating the person from the problem,' but rather, 'the person is the problem!'
Again, think like Charlie Munger: if you can: 'Get them the hell out your life, AND DO IT FAST!'
Unfortunately, you might not be able to do this, for the reasons I mention in Part One. After all, we are not all like 'the most interesting man in the World'.
The reality is that you will likely never 'Get to Yes' with these toxic personalities or many other similar toxic characters. You would never want to get to 'yes' with Mr. No. And you will never get to the 'deal finish line' (i.e. deal execution and closing) with the others...
But if you can identify the 'toxicity' of the person you are negotiating with relatively early, you might be able to pivot in another direction, and it will save a lot of expense, time and needless 'drama!' Or perhaps just 'Kill the Deal' as I discuss below.
OK, enough toxicity! I'm running a positive newsletter!
So, how do we know when to say 'Yes!'?
One of my favorite books on negotiation is Robert Ringer's 'Winning Through Intimidation'. The central theme of the book is not about how you can intimidate the other party; rather it's about how you can avoid being intimidated, and win in negotiations. I highly recommend the book.
Let me discuss some of Ringer's 'Intimidation Theories' and my 'real world' perspectives:
Make-able Deal Theory
Concentrate on just a few make-able deals at all time. When I started business and deal development work many years ago, I found it very useful to have an ongoing 'deal log' which listed every deal project we were working on. The goal was not to make the list as long as possible and impress everyone by how many projects you were managing.
The goal was to 'Fill or Kill:' identify the few deals that were worth pursuing and 'make-able; kill the others.
I found that by limiting the deal log to only those deals that were 'make-able' it was a lot easier to determine which deal issues were important and which were not. As I explain in a previous newsletter, most 'important' issues revolve around economics and risk. Outside these two areas, most of the other issues are not worth jeopardizing a make-able deal.
Fiddle Theory
The longer someone fiddles, the more likely the deal will crater.
I've seen this theory in action countless times. Usually it's the other party - conducting endless due diligence or continuing needless negotiation on issues that don't really matter.
I learned that if you have a make-able deal, and you basically have agreement on the few issues that really matter: Don't fiddle!
We'll talk more about Ringer's Intimidation Theories later, but I'll offer a few of mine:
Don't Touch Up the Mona Lisa!
I've frequently said over the years, 'Don't touch up the Mona Lisa!' What I mean is: if the deal is where it essentially needs to be, GET IT CLOSED!
By the way, I was at the Louvre a few years back and saw the Mona Lisa.
Frankly, I was kind of underwhelmed! I mean it was a nice painting... but it's no Michelangelo.
So if you’d like, you can insert any famous painting into this theory!
You get the picture! Just Say'in!
Coffee is for Closers!
I found over many corporate years, that you rarely get rewarded for the deals that did not get done.
It's sort of like the scene in Glengarry Glen Ross. Alec Baldwin's character is a bit extreme, but I've found it's pretty much the reality in business.
This is unfortunate since there are many terrible deals that should never happen. In a perfect world, there would be a reward structure for avoiding terrible deals.
But we don't live in a perfect world. Just Say'in.
So we move onto the second lesson learned:
2. Knowing When to Say 'No'
Sometimes you need to say 'no' ... even if you don't get credit for it. As we've discussed earlier, if you're dealing with a toxic business person, saying ‘no’ is always the best path.
And even on the good 'make-able' deals, saying 'no' on significant economic and/or risk issues is likely the best path.
But let's get a little more nuanced. Even if you're ultimately going to say ‘no’, I've found that knowing when to say ‘no’ can be useful.
Let me give a few examples.
I discussed in a previous newsletter, the many businesses we sold following the acquisition of Time Inc., in many cases, the best buyer did not immediately emerge. In fact, many lousy buyers came out of the woodwork!
Pretty much anytime you buy or sell a business, or select a partner or vendor, it's typically good to keep your options alive. Even if you'll ultimately say 'no', you don't want to say no too early in the process.
There's various tactics that can keep your less desirable options alive, until it's finally time to say ‘no’ and sign and close the deal with the best party.
Here's a few from the playbook:
Rope-a-Dope
This technique was made famous by Mohammad Ali and refers to a boxing tactic of pretending to be trapped on the ropes and goading an opponent into throwing tiring but ineffective punches.
Rope-a-Dope is useful in deals when you have a buyer - let's say a private equity firm or a less credit worthy buyer - that you know you will discard assuming a good buyer emerges. You keep them 'alive' by letting them throw diligence questions at you and giving the perception that they are succeeding. When the good buyer emerges, you stop the Rope-a-Dope, and sign the deal with the good party.
Stalking Horse
Stalking Horse is another tactic that is useful particularly in asset sales: have an anonymous party put in a bid proposal and create the impression with other buyers that is the 'low floor' for bidding. This tends to minimize the possibility that other bidders will come in any lower for fear of losing out on the deal.
Kabuki Theater
Kabuki Theater is an activity or drama carried out in real life in a predictable fashion, reminiscent of a kabuki style of Japanese stage play. It refers to an event that is designed to create the appearance of an uncertain outcome, when in fact the actors have worked together to determine the outcome beforehand.
In deals, Kabuki theater comes into play when there is one strong buyer of a business and absent a calamity, this buyer will get the business. However, to hedge against the risk of the strong buyer not closing the deal, you keep the other parties alive until the deal is signed and closed. You create the appearance of an uncertain outcome, even though it's highly likely that the outcome has already been determined.
I like to think of these tactics as 'audibles' that can be called at the 'line of scrimmage' depending on the circumstances.
After all, negotiation is a game. Just say'in.
3. Never Negotiate when 'Spectators' are in the 'Bleachers'
Wow, I've learned this a few times the hard way!
Negotiations are best done in a private confidential setting, comprised of only those people who are necessary.
The first time we started looking at Time Inc, it was a subsidiary of Time Warner. Once both of our boards were advised and approved moving forward with discussions, Meredith's CFO and I were tasked with meeting with our respective TW counterparts (the TW CFO and CDO) to see if we could frame up a transaction.
We spent several weeks meeting with the TW executives, productively addressing deal issues, tax considerations, regulatory concerns, deal timing, etc. We selectively brought in outside legal and financial advisers to assist. I recall we believed we had a good framework to move to a definitive deal stage.
The first red flag arose when the TW execs told us 'Hey guys, we'll need to bring in some Time Inc people to help on the 'carve out' financials’. A major challenge back then was that Time Inc did not have separate financial statements - so 'carve out' financials needed to be put together for the deal.
Well, the next time we walked into a TW conference room at Time Warner headquarters, there were over 30 employees sitting around the table!
We could have probably managed through this many people; however, the group soon increased to over 50! The worst part was that these people somehow invited themselves to sit in on the deal negotiations! I recall walking into a conference room the size of a football field to negotiate deal issues with about 100 'spectators' - employees, lawyers and 'advisers!'
It got to the point where I said to my team colleagues: 'You can't make this sh** up!'
Long story short, the productive discussions ended and the deal stalled. It soon leaked to the press that we were in deal discussions. The irony was that Fortune first broke the story! Game over... at least for awhile!
4. Realize that 'Winning' might be 'Losing'
Another way to say this: if you have the other party 'over the barrel’, be careful of overreaching on deal terms; it could come back and bite you!
Soon after I joined Meredith Corp, our broadcast group President - shall we say - 'abruptly departed' the company.
Before he departed, this guy apparently committed to purchase a small television station in Kansas City from Sinclair Broadcast Group.
When we briefed the Meredith board on the situation and the purchase price of the station, one of our outside directors said he did not approve moving forward unless we negotiated a $5 million decrease in the purchase price.
Well, guess who was tasked with going back and negotiating the price reduction? Yep, me.
So I set up a call with Sinclair's General Counsel and its banker. It was not pleasant! A lot of yelling, cursing and lawsuit threats. But I got Sinclair to agree to the $5 million price drop.
But the story was not over.
A little background: the Federal Communication Commission (FCC) did not allow a company to own two television stations in the Kansas City market. We already owned the CBS station. The exception to this rule is if we received a 'failing station' waiver from the FCC for the small station.
Failing station waivers were not easy to get from the FCC, and until we received the waiver, Sinclair continued to run the station. Not surprisingly, Sinclair made life difficult for several months until we finally received the waiver. I'm sure it cost us well over $5 million in value, not to mention a lot of 'emotional drama.'
Looking back, I can't blame Sinclair. They thought they had a deal.
Under the Tuscan Sun
In Part One of this newsletter, I discussed 'Death by a Thousand Nicks' and the private equity firm that was - for awhile - the lead bidder on Fortune. If this firm would have moved forward at their proposed purchase price and not continuously dragged out the process, they probably would have ended up owning the business. Instead, they just continued to grind us down.
It got to the point where I started to employ my 'Rope-a-Dope' tactic thinking a better buyer would eventually emerge...
Sometimes an angel comes down from Heaven. In this case, it was a beautiful autumn afternoon under the Tuscan Sun.
We were traveling back from a wine tour with friends to our hotel in Tuscany. I received an email from an individual who said he was representing a very wealthy family in Asia who wanted to purchase Fortune at an attractive purchase price, favorable deal terms, and wanted to do it quickly.
I was incredulous at first. But it turned out that this was the real deal.
'Meredith got a tremendous purchase price, much higher than originally expected. Their patience has paid off.' - Reed Philips
5. The Most Successful Negotiations are When You Remain Friends Long After
I was a founding board member of Texture, a digital magazine app formed by the major publishers in the US. Texture was formed in 2010 mainly because traditional publishers were concerned that the recently launched iPad and Kindle would transform the way readers consume magazine content.
We spent several years running the business and investing in the distribution platform. Over time, it became clear to some of us that Texture could not be successful without aligning with a much larger digital company.
As a result, in early 2017, we led a process to find a strategic solution. Through this process, Apple proposed to purchase Texture and enter into a multi-year content licensing agreement with the publishers. I thought it was a great 'win-win' deal if we could work out all the details.
We did work through all the details in a very complicated license agreement. The senior leadership team at Apple led by Peter Stern were smart, straightforward and fair.
In most deals, once an agreement is well negotiated and thought out, once signed, you usually don't need to 'open it up' again. This was not the case here: the magazine landscape was challenged and digital aspects were constantly changing. This contract needed to 'breathe.'
And it did. We addressed all kinds of issues with Apple after closing. Apple - invariably the most valuable company in the World - always worked in good faith on solutions. We didn't always agree, but we gained a high mutual respect for each other.
For several years, I was on the board of London-based Iris, one of the largest digital marketing agencies in Europe. We bought a 20 equity interest in Iris as part of expanding of our marketing services business.
While on the Iris board I developed a great friendship with some of the most talented and creative professionals I've known - including Ian Milner, Stewart Shanley, Sean Reynolds and Steven Bell.
When Iris decided to pursue a strategic buyer for the business, Meredith was moving away from marketing services (we eventually sold this business to Accenture). So Iris sought another strategic buyer, deciding on Cheil Worldwide, one of the largest agencies in Asia.
As part of this deal, I negotiated the sale back of our 20 percent equity. The sale could have been problematic, since we were exiting the relationship (it could have been like a divorce!).
Due to our friendship and mutual trust, the sale went smoothly for all companies.
I have many great memories of hanging with my iris mates in London, New York, Des Moines and Pebble Beach.