Negotiating Is A Numbers Game

Published in the San Diego Union-Tribune, February 29, 2016

Carpe diem. But unfortunately you can only carpe this day once every four years, this being the 366th day in the intercalary year. Technically, we need to help God and his cosmic reality by adjusting our Gregorian calendar in order to keep it in alignment with the Earth’s revolutions around the sun.

So, let’s play around with numbers. But not round numbers. It turns out that “when negotiating a price, never bid a round number,” says Matti Keloharju, visiting scholar at Harvard Business School. And he has the numbers to prove it.

People place more value on precise numbers than they do on relatively round numbers. If you say I will pay you $14.26 per share for your stock, you are taken more seriously than if you say $15 or $14. The amount is not that important — it is the appearance of having crunched the numbers and been rigorous and thorough and detailed and not just “ballparking” it.

Note: Sometimes, I listen to the financial /retirement radio junk — and the free books they are sending me are always a $247 value. Enough said.

Also, do not make a bid that ends in zero. In studying the social psychology of bidding, Keloharju went back and reviewed 2,000 merger and acquisition offers between 1985 and 2012. Of course, the investment bankers, those gods of the financial firmament, got it wrong 47 percent of the time. They bid in a round number, and the target company (as well as the stock market) was not enthused, and they did not win the deal. But when their bids were divisible by $1 (but not by $5), the success rate was over 75 percent. So, be precise, it makes you sound smarter than you are. Start to listen closely to the advertorial marketing pitches — not a round number in sight.

I recently spoke to a class of young entrepreneurs. They were charming, but a bit naïve. (Maybe that’s why I got the gig.) At any rate, I polled the group and found that only a couple had read any material outside their narrow interests. I will not beat a dead horse, but please — no more TechCrunch, no more The Funded, no more blogs or industry promotional deal-venture-unicorn oriented nonsense. Seek a wider range of information — Bloomberg Businessweek, The Wall Street Journal, Forbes, Fortune, The Economist, Fast Company. You cannot be in “the startup business” if you do not expand your business horizons — and that does not mean increasing your posts on Instagram.

And this is because of a simple fact. If you are working on something in your garage, I guarantee you that at least a dozen other people in the universe are working on almost the same thing at the exact same time. Remember, it’s what you don’t know that you don’t know that will kill you. (I am now stepping off the soapbox).

And now a shout-out to venture capitalist Nin Desai, 2015 Illinois CEO of the year. Here are her top five qualities that she seeks in an entrepreneur.

1. Dream big with ideas that scale. But have an idea that is applicable to all (or most) industries.

2. Personality traits. Desai preaches focus and communication skills in the CEOs she backs.

3. Industry expertise. You will need some “been there and cleaned the toilets” to demonstrate domain knowledge.

4. Adaptability. She interviews using a series of “what ifs” to see how nimble the team is.

5. Choices. That is code for how you build the management team. How do they work together, what is the culture, can they get across the finish line without killing each other.

And finally, Desai touches something close to my own heart. Does your venture have, at its core, any reason to exist other than to make money? She mentions Zynga (games) and Groupon (coupons) as examples of companies that did not meet her test. She asks, “How does your company make things better.”

Rule No. 456

If you can do well while doing good — that’s a pretty good target to shoot for.

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