Time is the Enemy of All Deals

Posted on Feb 25, 2010 | 94 comments


A reminder that it is important for all entrepreneurs is to remember to be careful about “deal drift.”  I think the perfect saying to have as a reminder is “time is the enemy of all deals,” or as my wife is all too tired of hearing me say, “Don’t pop the champagne until the ink is dry on the contract and the money is in the bank.”
So, where does this all come from and how can you apply it in practice?
Let me start with a story.  When I was raising money for my first company we had closed a seed round in 1999 and were working on our A round.  We had many term sheets (it was 1999 and we had a pulse) and we were deciding which one to take.  We were trying to optimize around a few criteria: price, size of round, number of syndicate partners and, of course, terms.
We ended up agreeing a term sheet for $16.5 million at a $15 million pre-money valuation.  Yes, this was stupid.  But we weren’t optimizing for dilution – we were building a $1 billion+ company and we wanted the runway to succeed.  We had people hearing through the grapevine that we were about to raise money and new investors started calling us to get in on the deal.
My co-founder and other management team members wanted us to hold off and see whether we could get the deal done at a higher price.  I was resolute.  “Guys, I accept that we could probably shop this around but we could also end up with nothing.  Let’s take the deal on the table and go build a huge business.”  They accepted my argument.   It was December 1999.
We moved into the legal process and final due diligence in January and February of 2000.  Goldman Sachs was going to be one of the investors in my firm.  Morgan Stanley found out about us and organized a secret Sunday meeting where they flew in a bunch of bankers to convince us to let them in on the round.  We thought it was a good idea so we brought it up to Goldman.
Morgan Stanley had proposed a higher valuation to let them in.  Goldman said NFW.  We were faced with a situation – slow down deal closure to convince all parties to work together or plow ahead.  We plowed.  Morgan Stanley then funded one of our competitors.  That’s a different story.
Our final closure was the first week of March 2000.  If you remember your history the market crashed the next week.  Many companies that were in the process of raising money did not.  It quickly became impossible to raise venture capital.  Anybody who didn’t close was dead.
I lived through this again September 2001.  I don’t even need to mention the date for you to know what happened.  By mid September the entire market was constipated.  Any deal – ANY DEAL – that was pre 9/11 was suddenly in question.  Many deals – VC or otherwise – didn’t close.
History repeated itself in September 2008 with that market crash.
When Salesforce.com decided to buy my company in December 2006 I dropped everything and focused religiously on closure.  I was obsessed with the closure date.  I did everything in my power to get this to be the earliest date possible.  For me it was a binary outcome.  If anything changed (stock market crash, real estate crash, somebody trying to buy Salesforce.com, whatever) I could end up with goose eggs.
This isn’t a story about Black Swan events.  It isn’t even a story about raising venture capital or M&A.  It is a story about the nature of deals themselves.  Any deal.  VC, sales, biz dev, M&A or otherwise.  Time is the enemy of all deals.
Things change.  Your deal sponsor could lose their job or change jobs.  Just ask my dear friend Stuart Lander.  He was working on a big deal at his company Public Spend when his client was arrested for fraud.  True story.  People who were excited about your deal can suddenly become enamored with the next shiny object to come along.  New competitors can introduce stuff into deal dynamics.  I’ve seen it all.
What can you do about it?
1. Don’t over shop – If the deal you’re involved with involves raising venture capital or selling your company you naturally want some competition.  This helps you get your deal done in the first place and it helps you get better terms.
I’m not suggesting to single source.  But be aware that adding weeks adds risks.  If you have a deal that you’re comfortable enough with think hard about going for closure.  Think hard about binary outcomes.  Had I delayed my fund raising in 99/00 by even 3-4 weeks I’m convinced I would not have raised any money at all.
I’ve seen this directly myself.  I’ve offered to fund an early stage company where I promised cash in bank in less than 30 days.  We hit sub 2 weeks.  They were off to the races building their company rather than raising cash.  Within 6 months they raising another round at an up round.
Conversely I offered the same deal to another entrepreneur who decided to shop around longer.  I told him my term sheet wasn’t “exploding” (meaning you put pressure to sign immediately or you’re out) but that it didn’t have an indefinite end date.  6 weeks’ later he didn’t have other term sheets.  I offered a second time to fund and even increased price a little bit.  Second time he also kept shopping.
It’s been a while and he still doesn’t have a term sheet.  It’s a great company and a great team so I’m pretty sure they’ll get funded.  But if it “drifts” too much longer I worry.  You never know.  Anything can happen.
Especially in VC.  There is a fatigue factor.  If deals drift people start whisper campaigns.  It is a tight-knit industry.  Like it or not everybody knows each other.  “Hey, did you guys see ABC company?  Yeah, we passed, too.  I heard they were struggling to get a term sheet.  What’s going on?  They were raising since last August.  Strange that they haven’t gotten a close yet.”
Don’t shoot the messenger.  I’m just telling you the kind of stuff I hear all the time.
2. Don’t grind every detail – The first cousin of the over-shopper is the over-grinder.  It happens on all deals.  I’m not saying to throw in the towel and not negotiate points.  But think about what you really care about in deals.  Try your best to stand your ground on as many points as you care about.  If it’s a biz deal you might care about IP protection, revenue share, investment commitments to joint marketing – whatever.
But I sometime see people get bogged down in PR releases, cancelation clauses, minimum guarantees, whatever.  I’m not saying that these points are unimportant.  On each deal they might be more or less important.  Decide what’s important to you.  Grind on that.
Avoid over grinding.  You know that every turn of the legal documents can add weeks.  Some senior legal guy needs to approve the changes and then run it by his lawyer to be drafted.  Some senior business unit head needs to approve your changes.  Each grind introduces more uncertainty both in terms of elapsed time and other unknown variables.
Grind wisely.
3. Don’t be complacent – What really winds me up is when entrepreneurs are complacent.  I see people who just have a blind belief that the deal will eventually just get done.  They’re not bothered when the lawyers didn’t get the documents out when they promised.
Opposing lawyers used to hate working with me.  If they promised they’d ship documents and they weren’t released I’d be straight on the phone with them.  If they missed 2 deadlines (they always miss the deadlines – sometimes their fault, sometimes the clients) then I was straight on the phone with my negotiation partner to ask him/her to push the lawyer.  I always made them commit in an email to the day they would ship documents and then I’d hold them too it.  I’d send them their email and point out the docs were late.
Lawyers are like any humans.  The squeaky wheel gets oiled.
Don’t be complacent.  Push hard to document turns.  Push hard to set up the technical reviews, the due diligence meetings, the reference calls – whatever.  If they want reference calls be ballsy.  Help schedule the actual calls for them.  I’ve done it.  I’m sure you all have your tricks – feel free to add in the comments.
4. Get people in person – One technique that isn’t aggressive and always works is to get all the parties in one room.  You need your key negotiating partner and both sets of lawyers.  You can streamline what would have taken 2 weeks in document turns and accomplish more in a single day.  Plan well for your negotiation so you know what you’ll give in on.  Be willing to take breaks to let your partner call his senior people for consent.  But get everybody to commit to sitting in the room until the terms are pounded out and creative solutions are reached for areas where you are at odds on terms.

This is part of my ongoing series with Startup Advice (although this also applies tightly with Raising Venture Capital)

hourglassYou all know this intuitively.  But on a scale of ABC (always be closing) there is a wide degree of urgency that entrepreneurs show.  As as I’ve said before, I believe that getting things done is one of the major things that differentiates successful entrepreneurs from just reasonable ones.  This is a reminder for all entrepreneurs to remember to be careful about “deal drift.”

I think the perfect saying to have as a reminder is “time is the enemy of all deals,” or as my wife is all too tired of hearing me say, “Don’t pop the champagne until the ink is dry on the contract and the money is in the bank.”

So, where does this all come from and how can you apply it in practice?

Let me start with a story.  When I was raising money for my first company we had closed a seed round in 1999 and were working on our A round.  We had many term sheets (it was 1999 and we had a pulse) and we were deciding which one to take.  We were trying to optimize around a few criteria: price, size of round, number of syndicate partners and, of course, terms.

We ended up agreeing a term sheet for $16.5 million at a $15 million pre-money valuation.  Yes, this was stupid.  But we weren’t optimizing for dilution – we were building a $1 billion+ company and we wanted the runway to succeed.  We had people hearing through the grapevine that we were about to raise money and new investors started calling us to get in on the deal.

My co-founder and other management team members wanted us to hold off and see whether we could get the deal done at a higher price.  I was resolute.  “Guys, I accept that we could probably shop this around for a higher price but we could also end up with nothing.  Let’s take the deal on the table and go build a huge business.”  They accepted my argument.   It was December 1999.  We signed a term sheet.

We moved into the legal process and final due diligence in January and February of 2000.  Goldman Sachs was going to be one of the investors in my firm.  Morgan Stanley found out about us and organized a secret Sunday meeting where they flew in a bunch of bankers to convince us to let them in on the round.  We thought it was a good idea so we brought it up to Goldman.  Morgan Stanley had proposed a higher valuation to let them in.  Goldman said NFW.  Not just on the valuation creep but also on Morgan Stanley being involved.  We were faced with a situation – slow down deal closure to convince all parties to work together or plow ahead.  We plowed.  Morgan Stanley then funded one of our competitors.  That’s a different story.

Our final closure was the first week of March 2000.  We closed with 5 investors including Goldman.  If you remember your history the market crashed the next week.  Many companies that were in the process of raising money did not.  It quickly became impossible to raise venture capital.  Most people who hadn’t already closed their deals were dead.

I lived through this again September 2001.  I don’t even need to mention the date for you to know what happened.  By mid September the entire market was constipated.  Any deal – ANY DEAL – that was pre 9/11 was suddenly in question.  Many deals – VC or otherwise – didn’t ever close.

History repeated itself in September 2008 with that market crash.

So having lived through this I became a very superstitious and paranoid deal guy.  When Salesforce.com decided to buy my company in December 2006 I dropped everything and focused religiously on closure.  I was obsessed with the closure date.  I did everything in my power to get this to be the earliest date possible.  For me it was a binary outcome.  If anything changed (stock market crash, real estate crash, somebody trying to buy Salesforce.com, whatever) I could end up with goose eggs.

This isn’t a story about Black Swan events.  It isn’t even a story about raising venture capital or M&A.  It is a story about the nature of deals themselves.  Any deal.  VC, sales, biz dev, M&A or otherwise.  Time is the enemy of ALL deals.  Unless, of course, you’re the buyer and playing for a lower price.

Things change.  Your deal sponsor could lose their job or change jobs.  Just ask my good friend Stuart Lander.  He was working on a big deal at his company Public Spend when his client, a Miami public official, was arrested for fraud.  True story.  People who were excited about your deal can suddenly become enamored with the next shiny object to come along.  New competitors can introduce stuff into deal dynamics.  Whatever.  I’ve seen it all.

What can you do about it?

1. Don’t over shop – If the deal you’re involved with involves raising venture capital or selling your company you naturally want some competition.  This helps you get your deal done in the first place and it helps you get better terms.

I’m not suggesting to single source.  I’m not being cynical as a VC and trying to get you to accept my offer on lower terms.  I always tell people to take their time deciding and to be wary of Gym Salesman VCs.  But be aware that adding weeks adds risks.  It’s always a trade off.  If you have a deal that you’re comfortable enough with think hard about going for closure.  Think hard about binary outcomes.  Had I delayed my fund raising in 99/00 by even 3-4 weeks I’m convinced I would not have raised any money at all.

I’ve seen this directly myself as a VC.  I’ve offered to fund an early stage company where I promised cash in bank in less than 30 days.  They accepted and we had cash-in-bank in sub 2 weeks.  They were off to the races building their company rather than raising cash.  Within 6 months they raising another round at an up round.

Conversely I offered the same deal to another entrepreneur who decided to shop around longer.  I told him my term sheet wasn’t “exploding” (meaning you put pressure to sign immediately or you’re out) but that it didn’t have an indefinite end date.  6 weeks’ later he didn’t have any other term sheets.  I offered a second time to fund and even increased price a little bit.  Second time he also kept shopping.  It’s been a while and he still doesn’t have a term sheet.  It’s a great company and a great team so I’m pretty sure they’ll get funded.  But if it “drifts” too much longer I worry.  You never know.  Anything can happen.

Especially in VC.  There is a fatigue factor.  If deals drift people start whisper campaigns.  It is a tight-knit industry.  Like it or not everybody knows each other.  “Hey, did you guys see ABC company?  Yeah, we passed, too.  I heard they were struggling to get a term sheet.  What’s going on?  They were raising since last August.  Strange that they haven’t gotten a close yet.”  Don’t shoot the messenger.  I’m just telling you the kind of stuff I hear all the time.  It simply is.  Better that you know.

2. Don’t grind every detail – The first cousin of the over-shopper is the over-grinder.  It happens on all deals.  I’m not saying to throw in the towel and don’t negotiate important points.  But think about what you really care about in deals.  Try your best to stand your ground on as many points as you care about.  If it’s a biz deal you might care about IP protection, revenue share, investment commitments to joint marketing – whatever.

But I sometimes see people get bogged down in PR releases, cancelation clauses, minimum guarantees, whatever.  I’m not saying that these points are unimportant.  On each deal they might be more or less important.  Decide what’s important to you.  Grind on that.

Avoid over grinding.  You know that every turn of the legal documents can add weeks.  Some senior legal guy needs to approve the changes and then run it by his lawyer to be drafted.  Some senior business unit head needs to approve your changes.  Each grind introduces more uncertainty both in terms of elapsed time and other unknown variables.  On the VC front, I advise other VCs I know to also be careful about over grinding.  You don’t want to enter important new relationships with bad feelings.  It’s not worth it.  Grind wisely.

3. Don’t be complacent – What really winds me up is when entrepreneurs are complacent.  I see people who just have a blind belief that the deal will eventually just get done.  They’re not bothered when the lawyers didn’t get the documents out when they promised.

Opposing lawyers used to hate working with me.  If they promised they’d ship documents and they weren’t released I’d be straight on the phone with them.  If they missed 2 deadlines (they always miss the deadlines – sometimes their fault, sometimes the clients) then I was straight on the phone with my negotiation partner to ask him/her to push the lawyer.  I always made them commit in an email to the day they would ship documents and then I’d hold them too it.  I’d send them their email and point out the docs were late.

Lawyers are like any humans.  The squeaky wheel gets oiled.

Don’t be complacent.  Push hard to document turns.  Push hard to set up the technical reviews, the due diligence meetings, the reference calls – whatever.  If they want reference calls be ballsy.  Help schedule the actual calls for them.  I’ve done it.  I’m sure you all have your tricks – feel free to add in the comments.

If they promise the next meeting in 3 weeks see if you can make it in 2.  Or 1.  But Mark, you met us and told us to come back in 3 months?  Can we push you?  Sometimes.  Read the tea leaves.  Sometimes I’m not yet convinced about the deal and you need elapsed time to have proof points.  I’m not talking about being pushy for the sake of being pushy.  But when you genuinely have “buying signals” then be ambitious about your meeting dates.  Offer to fly at the drop of a hat if need be.  Offer to meet at 7am or 7pm to make schedules work.

Just don’t be complacent.  Time is the enemy of all deals.

4. Get people in person – One technique that isn’t aggressive and always works is to get all the parties in one room.  You need your key negotiating partner and both sets of lawyers.  You can streamline what would have taken 2 weeks in document turns and accomplish more in a single day.  Plan well for your negotiation so you know what you’ll give in on.  Be willing to take breaks to let your partner call his senior people for consent.  But get everybody to commit to sitting in the room until the terms are pounded out and creative solutions are reached for areas where you are at odds on terms.

And, I can never link to this clip enough.  ABC: Always Be Closing.  There is no better movie scene than this.

  • http://www.assaydepot.com/ Christopher Petersen

    Great post, do you have any advice for closing business (non VC) deals?

    I've learned this the hard way. We had been working with a very large partner for 18 months on a deal. Finally, after seemingly endless back and forth we had a finished contract. >150 pages of legalese (we had pushed for a much simpler agreement, but they insisted). One day before final sign off (and payment), they delayed again. While working on that deal, we met another large partner, signed a contract, completed a pilot and entered production.

    Any advice on how to create that sense of urgency when you are on the sell side?

  • http://giangbiscan.com Giang Biscan

    Great post, Mark. You have said that except for the buyer, but I would say that this is true even for buyers. If you see a deal that you are happy with, work hard to close it before someone else does.

    This demonstrates the “get it done” item in your NDA series. Great read. Thanks, Mark.

  • http://walkercorporatelaw.com Scott Edward Walker

    Great post, Mark. As a corporate lawyer for 16+ years, I could not agree more that “time is the enemy of all deals.” This is why I used to have to pull the all-nighters doing big M&A deals in NYC: we were fighting time. We had to get the acquisition agreement signed-up before any leaks hit the market and/or before the financing dried-up. Also, great advice re “getting all the parties in one room.” There is nothing that will facilitate a deal more than pounding-out the key issues in person. Cheers, Scott (@ScottEdWalker)

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    Hi Mark

    Question for you. At what point is “pushing hard” desperation? At some point on the 'sell side' you also have to demonstrate scarcity right?

    The way I look at it – for all deals in life, you have to push hard to get people interested. Once people are definitely interested, you can play scarce and it gets people more intrigued.

    thoughts? – Rajat

  • http://bothsidesofthetable.com msuster

    It's a hard one. When I set out to write this I wasn't only thinking about VC. I guess I slanted it that way by writing too quickly. Getting deals done is more art than science. But the number one way to speed up deals is to have a “champion” who is willing to be an “egg breaker.” I have a blog post coming on the PUCCKA sales approach and the C's stand for “compelling event” and “champion.” You need both to get deals done.

  • http://twitter.com/joshuamking Josh King

    Good thoughts – I wrote a similar article, in the M&A context, for Corporate Dealmaker magazine: https://www.box.net/shared/8y0pdfa365

    Bottom line is there is no value in playing coy, or trying to create the illusion of scarcity, when you are within shouting distance of the deal.

  • http://bothsidesofthetable.com msuster

    I agree partly. If it's a deal in which you buy and someone else loses you're right. But sometimes it's a matter of: you buy or you don't buy OR you buy company A's product or company B's product. If there's a strong compelling event with an ROI maybe there is urgency. But if that isn't in place then delaying can yield better terms and prices.

  • http://bothsidesofthetable.com msuster

    Push hard. And when you're in doubt, pusher harder. It's always the rule. Now …. to your point. You need to push hard gracefully. You need to be as subtle as possible. You need to have plausible reasons why if they don't close they're going to lose out. But I don't believe in slowing things down by playing hard to get.

  • http://www.vumedi.com Roman Giverts

    I think there are other negative aspects to time passing than just the risk that your deal dies because of unexpected circumstance. You could argue that even if you DO get the terms you were negotiating for, your company might be worse off. This is because time is money. If you lose a month of time negotiating for 10-20% better terms, you probably made a mistake. A month for a start up is an eternity, just do the deal and move on.

    Also, deals are often (hopefully) strategic for your business, theyre not just about cash. So in addition to an extra month of time, you could have made a big strategic step forward a month earlier. If you factor these things in, it completely changes the analysis of the deal.

  • http://www.johngannonblog.com/ John Gannon

    Recruiting (esp. in startups) is another area where you need to close good people FAST.

    Even in this overall crappy job market, good people are still hard to find.

    If you find a superstar who is 'loose in the socket', move fast, close a fair deal, and get them on board without sweating the small stuff.

  • http://www.linkedin.com/in/sharelomer SharelOmer

    Another insightful and important post , thanks Mr. Suster.

    Great view of how to balance time to your benefit, close deals not too early but not too late, somewhere between ABC and JFDI…

  • Pingback: Time is the Enemy of All Deals | CloudAve()

  • togilvie

    This is a great post, but I think the issue is a little more nuanced, as there are instances where time works on your side. Bargaining for Advantage articulates it as “the person who's happiest with the status quo has the most leverage in a deal.”

    I think this is shown in your examples, particularly point 1, and entrepreneurs are usually the least satisfied with the status quo. But it's a perspective I try to bring to any negotiation…

  • http://www.assaydepot.com/ Christopher Petersen

    I'll definitely keep an eye out for that post. In our case we had/have a great champion, but we've been lacking the “compelling event”. I also think we've been “elephant hunting” (from your post: http://www.bothsidesofthetable.com/2009/09/16/m…).

    Thanks for the post,
    Chris

  • marklanday

    Mark,
    Nice post. We always say in executive recruitment, “Time kills deals.”

    Mark J. Landay
    Dynamic Synergy
    mark@dynamicsynergy.com

  • http://www.blackbeltguide.com/ Marc Winitz

    Christopher – You can’t force urgency unless there is real pain which there did not appear to be in the case here since this took 18 months. The only other way to create urgency is to provide enough of an incentive that is time limited for someone that has enough pull in their organization to lean on the legal folks to get the contract done.

    On a side but related note I would also add that it’s a common tactic in a negotiation for other side to want to negotiate one item at a time and then bring another one up only after the previous one is agreed. It is a forced sequential process. Don’t let that happen. You can let the negotiation go back and forth 1-2 times but then stop and ask (read tell them) that you need all their points put down in writing. Their legal people should not have to go back and open up an issue if they have already done the review thoroughly. It should have the effect of compressing the process.

    The other thing you can do is ask for a timeline for the negotiation with a specific end point. Tell the other side you want/need this to be closed and signed by “X” date. Ask them to commit to a date. If they can’t do that, ask them why they can’t. At least you then have an idea of the other conditions at play and work on potential strategies to deal with them. I wouldn’t try this specific tactic however until you were sure the process was becoming extended and their is some nuance that has to occur to do this.

  • http://www.assaydepot.com/ Christopher Petersen

    Great post, do you have any advice for closing business (non VC) deals?

    I've learned this the hard way. We had been working with a very large partner for 18 months on a deal. Finally, after seemingly endless back and forth we had a finished contract. >150 pages of legalese (we had pushed for a much simpler agreement, but they insisted). One day before final sign off (and payment), they delayed again. While working on that deal, we met another large partner, signed a contract, completed a pilot and entered production.

    Any advice on how to create that sense of urgency when you are on the sell side?

  • http://asable.com/ Giang Biscan

    Great post, Mark. You have said that except for the buyer, but I would say that this is true even for buyers. If you see a deal that you are happy with, work hard to close it before someone else does.

    This demonstrates the “get it done” item in your NDA series. Great read. Thanks, Mark.

  • http://walkercorporatelaw.com Scott Edward Walker

    Great post, Mark. As a corporate lawyer for 16+ years, I could not agree more that “time is the enemy of all deals.” This is why I used to have to pull the all-nighters doing big M&A deals in NYC: we were fighting time. We had to get the acquisition agreement signed-up before any leaks hit the market and/or before the financing dried-up. Also, great advice re “getting all the parties in one room.” There is nothing that will facilitate a deal more than pounding-out the key issues in person. Cheers, Scott (@ScottEdWalker)

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    Hi Mark

    Question for you. At what point is “pushing hard” desperation? At some point on the 'sell side' you also have to demonstrate scarcity right?

    The way I look at it – for all deals in life, you have to push hard to get people interested. Once people are definitely interested, you can play scarce and it gets people more intrigued.

    thoughts? – Rajat

  • http://bothsidesofthetable.com msuster

    It's a hard one. When I set out to write this I wasn't only thinking about VC. I guess I slanted it that way by writing too quickly. Getting deals done is more art than science. But the number one way to speed up deals is to have a “champion” who is willing to be an “egg breaker.” I have a blog post coming on the PUCCKA sales approach and the C's stand for “compelling event” and “champion.” You need both to get deals done.

  • http://twitter.com/joshuamking Josh King

    Good thoughts – I wrote a similar article, in the M&A context, for Corporate Dealmaker magazine: https://www.box.net/shared/8y0pdfa365

    Bottom line is there is no value in playing coy, or trying to create the illusion of scarcity, when you are within shouting distance of the deal.

  • http://bothsidesofthetable.com msuster

    I agree partly. If it's a deal in which you buy and someone else loses you're right. But sometimes it's a matter of: you buy or you don't buy OR you buy company A's product or company B's product. If there's a strong compelling event with an ROI maybe there is urgency. But if that isn't in place then delaying can yield better terms and prices.

  • http://bothsidesofthetable.com msuster

    Push hard. And when you're in doubt, pusher harder. It's always the rule. Now …. to your point. You need to push hard gracefully. You need to be as subtle as possible. You need to have plausible reasons why if they don't close they're going to lose out. But I don't believe in slowing things down by playing hard to get.

  • Roman Giverts

    I think there are other negative aspects to time passing than just the risk that your deal dies because of unexpected circumstance. You could argue that even if you DO get the terms you were negotiating for, your company might be worse off. This is because time is money. If you lose a month of time negotiating for 10-20% better terms, you probably made a mistake. A month for a start up is an eternity, just do the deal and move on.

    Also, deals are often (hopefully) strategic for your business, theyre not just about cash. So in addition to an extra month of time, you could have made a big strategic step forward a month earlier. If you factor these things in, it completely changes the analysis of the deal.

  • http://www.johngannonblog.com/ John Gannon

    Recruiting (esp. in startups) is another area where you need to close good people FAST.

    Even in this overall crappy job market, good people are still hard to find.

    If you find a superstar who is 'loose in the socket', move fast, close a fair deal, and get them on board without sweating the small stuff.

  • http://sharelomer.blogspot.com SharelOmer

    Another insightful and important post , thanks Mr. Suster.

    Great view of how to balance time to your benefit, close deals not too early but not too late, somewhere between ABC and JFDI…

  • togilvie

    This is a great post, but I think the issue is a little more nuanced, as there are instances where time works on your side. Bargaining for Advantage articulates it as “the person who's happiest with the status quo has the most leverage in a deal.”

    I think this is shown in your examples, particularly point 1, and entrepreneurs are usually the least satisfied with the status quo. But it's a perspective I try to bring to any negotiation…

  • http://www.assaydepot.com/ Christopher Petersen

    I'll definitely keep an eye out for that post. In our case we had/have a great champion, but we've been lacking the “compelling event”. I also think we've been “elephant hunting” (from your post: http://www.bothsidesofthetable.com/2009/09/16/m…).

    Thanks for the post,
    Chris

  • marklanday

    Mark,
    Nice post. We always say in executive recruitment, “Time kills deals.”

    Mark J. Landay
    Dynamic Synergy
    mark@dynamicsynergy.com

  • http://www.blackbeltguide.com/ Marc Winitz

    Christopher – You can’t force urgency unless there is real pain which there did not appear to be in the case here since this took 18 months. The only other way to create urgency is to provide enough of an incentive that is time limited for someone that has enough pull in their organization to lean on the legal folks to get the contract done.

    On a side but related note I would also add that it’s a common tactic in a negotiation for other side to want to negotiate one item at a time and then bring another one up only after the previous one is agreed. It is a forced sequential process. Don’t let that happen. You can let the negotiation go back and forth 1-2 times but then stop and ask (read tell them) that you need all their points put down in writing. Their legal people should not have to go back and open up an issue if they have already done the review thoroughly. It should have the effect of compressing the process.

    The other thing you can do is ask for a timeline for the negotiation with a specific end point. Tell the other side you want/need this to be closed and signed by “X” date. Ask them to commit to a date. If they can’t do that, ask them why they can’t. At least you then have an idea of the other conditions at play and work on potential strategies to deal with them. I wouldn’t try this specific tactic however until you were sure the process was becoming extended and their is some nuance that has to occur to do this.

  • pjozefak

    Mark, so very well said. I blogged about this a while back as well:

    (http://babblingvc.typepad.com/pjozefak/2010/01/…)

    I can't stress enough about the importance of this. I am going to add your post as a link to mine as you put much more flavor into it and it's a great help for entrepreneurs in the process.

  • philsugar

    Point 4 is priceless…it took me three deals to finally figure that out.

    Insist on it. Demand it.

    I'm going to sound like I'm bashing lawyers (I guess I am) but for some reason they will be the ones most opposed.

    That some reason is that when you are getting paid by the hour time isn't the enemy, its your friend!

  • http://bothsidesofthetable.com msuster

    Marc, I always love your comments. Not only because they're spot on (I want you on my side if I ever need to sell something) but because they give me great ideas for future posts. Your negotiation point is valuable. I always used to negotiate sequentially. My friend Stuart (mentioned in this post) was a recovering lawyer. He always told me, “Never negotiate any points until you have all points on the table. Otherwise you might give in on something without knowing other things that are going to be negotiated.” I'll write a separate post on that. Thank you for the input and idea.

  • http://bothsidesofthetable.com msuster

    100% agree. Also, should have been in this post. Will probably be in a future post. Along the lines of my post, “you're most vulnerable after you've won the deal” – even when then accept your offer that's when you need to move fast. Existing businesses often counter offer and add confusions. Here's the link to that article —
    http://www.bothsidesofthetable.com/2009/09/10/y

  • http://bothsidesofthetable.com msuster

    I accept your argument. It is always more nuanced. I think all my posts are that way. Nothing is ever quite absolute and everything always requires judgment. So I try to post “general rules” and hope that people will apply common sense to when the rules don't apply. It's like I said in one of the previous comments, “you need to push subtly and gracefully” but I notice:
    - entrepreneurs who have a supposed “champion” but don't use him/her to push people who are delaying
    - entrepreneurs who accept long turn cycles on docs
    - and who also don't turn quickly themselves
    In fact, I see it all the time and from people I generally respect. That prompted this post.

  • http://bothsidesofthetable.com msuster

    Yes, in recruitment this is definitely true.

  • http://bothsidesofthetable.com msuster

    Thanks, Paul. Make sure to ping me next time you're in CA. I always think of you when I pass Oceana. Never knew it existed before.

  • http://bothsidesofthetable.com msuster

    Ha. This made me laugh. I secretly thought I knew (know) why lawyers say “no”. They work 3-4 deals at the same time. They like to be able to get your documents turned between 10pm and midnight. They don't want to commit to any one client (especially the opposing side) to being in person for an indefinite period of time. I think I'm right about this but any lawyers can weigh in. It's always the lawyers who have opposed these meetings. That's why you need a champion. If the client asks they'll be there.

  • philsugar

    It really has to do with breaking the “full employment act for lawyers” which is taught at law school.

    The full employment act states you can never say: “we can agree to that”

    Its pounded into your head for three years “we can agree to that” means you're a sissy, didn't actually read the document, aren't adding any value and MOST importantly aren't giving the other side the ability to bill hours based on your comments to their comments on your comments.

    Being in the same room means you can't do that. Seriously think about it…if you're in the same room you can hammer it out in an eight hour day. Sixteen total billable hours to get a deal done? That sucks!

  • http://www.stirlingmercantile.com David

    Mark, This is a 'gold medal' post, thanks very much!

    Getting this topic wrong can mess up being perfect on all the rest.

    I'll try to offer some “tricks” as you call them:

    Re point 2, over grinding, I like to keep a spreadsheet of deal terms and add a column each time the term sheet turns to log the changes and monitor the incremental evolution of the deal. It's amazing how many times a grinder, perhaps in the mix of lawyers or parties to the deal looses perspective of how you arrived at the current terms, especially if you are giving on one point to get another. It also helps to reduce or even eliminate renegotiating points, which is an indication of critical deal fatigue.

    Re point 3, I like to track the deliverables including who is responsible in a project and distribute it to all stakeholders whenever a document is added – which eventually is nightly. Then everyone sees who is holding up the close and its easier to push your own lawyers or have the other side of the table push theirs.

  • pjozefak

    Mark, so very well said. I blogged about this a while back as well:

    (http://babblingvc.typepad.com/pjozefak/2010/01/…)

    I can't stress enough about the importance of this. I am going to add your post as a link to mine as you put much more flavor into it and it's a great help for entrepreneurs in the process.

  • Ovi_Jacob

    great post –
    Question: When one party to the negotiation holds fewer chips and his/her counterpart is stalling the deal in order to gain more favorable terms (due to increased desperation) or simply to shop around for a better deal, are there any tools (legal, tactical) that can create a lock-in?
    I have seen a Memorandum of Understanding – is this a legaly binding doc?
    Do you have any additional tactical advice for effecting lock-in between parties, prior to finalized negotiations?
    thanks -

  • http://bothsidesofthetable.com msuster

    Now THAT is seriously funny.

  • http://bothsidesofthetable.com msuster

    Great input. I haven't used either technique. I'll add to my roster. thanks.

  • http://bothsidesofthetable.com msuster

    MOU's typically only have one legally binding term – confidentiality. Sometimes there is a “break up” fee but only if serious money is at stake (like a super competitive M&A deal). Only way to negotiate when you have less leverage in my book is:
    - find a way to convince partner you're more valuable than they perceive or;
    - get a more harmless version of your deal done to get started working together and prove the value / increase the terms at a later date. I've done this plenty. Over negotiating when you're in a position of weakness can be fruitless.

  • Ovi_Jacob

    Thanks very much for the advice.
    Not sure I agree wholly with option (1). Do you think this may lead to perception issues down the road, notably when the goal is a longer term relationship? With no experience closing such a deal (I had to provide that disclosure given the arguement), it seems like there is a very fine line to be drawn. This may just boil down to personality of principles involved.
    again, thanks for the response

  • http://www.barefeetstudios.com Roxanne Darling

    I love this post! It is a sophisticated and *documented* way to address the issue where dreams and greed intersect. I like to remind myself that is something is meant to happen, it will and you will have support from unimagined places. The alternative is what Ze Frank calls “brain crack” and we all the know the thrills and downslide of that. Meanwhile, a kicka** idea + execution is unstoppable. Keeping the energy on the here and now is actually the most efficient way to grow something for tomorrow.

  • http://www.twitter.com/sugdaddy Michael Shafrir

    That is a great point. One-day interviews (especially for junior people) and presenting offers on the spot (and asking for a signature before they leave the building) will drastically increase recruiting close rate.

  • philsugar

    Point 4 is priceless…it took me three deals to finally figure that out.

    Insist on it. Demand it.

    I'm going to sound like I'm bashing lawyers (I guess I am) but for some reason they will be the ones most opposed.

    That some reason is that when you are getting paid by the hour time isn't the enemy, its your friend!