In the Details
While BATNA is essentially your walk-away point, many technology deals are so complicated that it’s hard to come up with an apples-to-apples comparisons.
James C. Roberts III, managing partner at The Global Capital Law Group, counsels his clients to understand wiggle room and horse swapping. “We try to go through the major elements of an agreement and get a client to articulate the core elements, the must-have’s, and then those elements that are in two or three lesser priorities. We then seek to calibrate the wiggle room for each such element. Then we figure out the horses to swap, based on the wiggle room.”
For example, when negotiating with a hosted service provider, you could agree to a lower uptime in exchange for less planned downtime and higher response times. However, if you don’t go through the trouble of valuing various elements in the proposed contract, it’ll be tough to strike deals like these.
Roberts recommends creating an internal “term sheet” to help guide negotiations. “Clients often view a term sheet as complete once the business terms are included but that is not the case. The term sheet should include everything including positions on critical legal issues (indemnification, etc.) that will become the basis for negotiations,” he said.
The term sheet then serves as the basis for negotiations. As a result, the term sheet often ends up being longer than the actual agreement, but that’s not a problem. The term sheet serves as a blueprint that the lawyers can use to be more efficient and accurate when drawing up the final agreement.
“Remember, though, let the business people negotiate the terms, with input from the attorneys,” Roberts said. “Not the other way around.” You obviously don’t want legal making business decisions for you, but this is exactly what happens in many cases.
Focusing on Value
By now, you’re probably nodding your head at the above points. They make sense. They’re logical, consistent. However, negotiations rarely proceed on logic alone. When a negotiator becomes invested in a technology or in a specific deal, that person can become blinded to the actual value of the deal itself. Whether good or bad, it’s immaterial. The negotiator is too vested to not get a deal done.
Anytime you see your negotiators becoming emotionally attached to a specific deal, alarms should go off in your head. If the other side has kept their cool, they’ll stampede over your negotiator and get exactly the terms they want. To avoid this trap, Podowitz advises his clients to appoint a “value monitor.” The value monitor is someone not directly engaged in the negotiations. The person has no emotional stake in who wins or loses.
“The value monitor need not be technology-savvy,” Podowitz said. “But they should be briefed on the perceived value of the proposed investment and be recognized for putting value first in all of their decisions.”
Equally important, the value monitor should have enough power within the organization to make his or her determinations stick. Usually, the value monitor ends up being a senior business executive who reviews and approves all proposals, counter proposals and responses. With a value monitor in place, you protect yourself from getting a bad deal based on emotions alone.
Finally, the single best way to determine whether or not to walk away is to link the deal to a quantitative value. RIO, TCO and ROCE http://en.wikipedia.org/wiki/Return_on_capital_employed are all values that technologists understand and are used to calculating.
Of course, quantifying something like, say, a social media application, can be pretty difficult. There’s a lot of “soft” value in there. Even so, it’s important to assign a value to it. When the terms of negotiations push your calculations below a pre-defined threshold, it is time to get up from the table and walk away.
Jeff Vance is a freelance writer and the founder of Sandstorm Media, a writing and marketing services firm focused on emerging technology trends. If you have ideas for future stories, contact him at [email protected] or visit Sandstorm Media.