Innovating in NH - Innovations Assistance: Negotiation Strategies
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Transcript of Innovating in NH - Innovations Assistance: Negotiation Strategies
Negotiation
• Who negotiates? – Ensure clear decision making lines – Delegate authority to the negotiator,
regardless of “status” • Be prepared -- know ranges of acceptability • Share financial pro formas, business plans • Be creative with proposals and strategies
Negotiations
• Give and take is for real -- lose some, win some
• Generate options that meet needs of both sides
• Be prompt; meet commitments • Focus on interests, not positions; on
problems, not people
The Infamous “Win-Win”
• Can you really achieve a win-win? – Finding your BATNA (best alternative to a
negotiated agreement) is critical – Almost always, the answer is yes
• You will leave opportunity and money on the table
• Don’t confuse winning with not losing
Types of Negotiation
• Brinksmanship • Capitulation • Principled
• Each approach makes sense in a particular setting
Brinksmanship
• Constantly threatening to walk from a deal that doesn’t meet demands
• Can lead to the “prisoner’s dilemma” – Two parties using brinksmanship concurrently
can both wind up worse off – e.g. Cuban missile crisis, MAD
Prisoners’ Dilemma Prisoner B cooperates Prisoner B defects
Prisoner A cooperates A & B serve 1 year A serves 3 years B goes free
Prisoner A defects A goes free B serves three years
Each serves 2 years
• Each party gets a higher payoff by betraying the other • Often leads to the Nash Equilibrium
• Each player makes the best decision they can given what they know about the others
Principled
• Seek first to understand, then to be understood
• Try to guess what the other person needs • Hold firm to areas of true importance
Anchoring
• The first offer often sets the tone and substance of the negotiation
• http://hbswk.hbs.edu/archive/4302.html
BATNA
• Best alternative to a negotiated agreement
• In layman’s terms: backup plan • You must have a principled place to land if
your offer is rejected • Spend your research time figuring out
your peer’s BATNA and you’ll figure out how to win
Marc’s Negotiation Conjecture
• A good agreement is when each side walks away equally unhappy.
• Reciprocity
Negotiation Tip
• Create a list – Need to have – Want to have – Don’t care
• Sacrifice the wants to get your needs • Try to align your “don’t cares” with their
“needs”
Be Objective. B…E…Objective
• Spreadsheets are your most powerful tool • Don’t anchor yourself over false
pretenses, do the math
Your mom was right
• Share • Building trust starts with sharing
information and being open • If you’re losing the deal, tell them
Good faith vs. Bad faith
• Good faith: you’re trying • Bad faith: you’re lying
• If someone mentions that both parties are negotiating in good faith…watch out! – Often a signal that they’re not sure YOU are
Negotiating a Position of Power • Perceived power is real power • You are not always weak • Technology is valuable • Separate what you want to have from what you
have to have • Do not, under any circumstances, lie to improve
your position – Creative use of language is, however, encouraged
Information is Power!
• Valuable sources of information – Comparables – Experience
• Use the inventor – Close to the scientific “bleeding edge” – Rarely as up to date on the market
Comparables/Industry Standards • What do you compare to? • How do you compare:
– Higher royalties to higher initial payments? – Differing technologies or markets?
• Weaknesses of available sources: – SEC filings (e.g. RECAP) are biased due to
reporting requirements • only the big deals get filed (materiality) • key information may be redacted
– Data is incomplete
What does industry do? • Industry uses financial modeling techniques
– Es@mates markets, penetra@on rates etc/ – Es@mates income – Es@mates expenses
• Uses Discounted Cash Flow (DCF) to determine Net Present Value (NPV) – May also look at Internal Rate of Return (IRR) and payback @me (the @me when cash received exceeds cash paid)
What is Your Mission?
• Meet your minimum requirements? • Advance your position? • Advantage both parties? • Win? • Defeat the other side at all costs?
Example 1: A Truly New Idea • What do you want to know?
– What makes it unique? – How much better than the last, best thing? – Stage of development?
• Investigate, don’t assume
– Approximate costs? – Competitive landscape
• Best possible potential
Example 2: Product Improvement
• What do you want to know? – Who owns the original idea? – Does the product still exist? – Does the inventor have contacts at the
company? – Does the technology holder have a plan to
prevent obsolescence?
Example 3: New Use
• “Recycling” • Who owns original idea? • Is your use really new? • Is the use defensible? • Surprisingly valuable, in RARE cases
– e.g. Taxol, Prozac
Business Model Canvas Key Partners Key Activities Value Propositions Customer Relationships Customer Segments
Key Resources Channels
Cost Structure Revenue Streams advertisements or suggestions.
Finding the Unique Value Proposition
• What is it that you do that the other side needs or wants?
• What would it cost them to do it themselves?
• My goal is always to guess the other side’s business model and attempt to align mine
© 2014 University of New Hampshire | [email protected]
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In a Perfect World…
e E rT
T
T ) 0.5 +r ( + (S/E) ln 2
σ
σ
T d2 = d1 -‐ s where d1 =
Value of IP = S N (d1) -‐ N (d2)
…but back to reality
• Few rules • Market may not be
clearly defined • Different firms have
different needs
Valuation
• Most important concept is time value of money (NPV) – PV =sum (FV/(1+R)^n), where
• Sum = sum of all future values • R = rate
– Minimum return rate needed to consider investment
• n = period – Months, years
Discounted Cash Flows
• DCF includes NPV but also adjusts for risk • Risk rate/discount rate/discount factor are
interchangeable in licensing but very different in the real world
• For mature companies the risk rate is very low and often the investment rate/coupon rate is used
What the What?
• Mature company (public) – Look at the coupon rate on their bonds (WSJ)
• Late stage company: 15% • Mid-stage company: 25% • Early-stage company: 40% • Funded startup: 50% • Our startups: 60-100%
• For startups, due to risk, cash flow estimates >3 years are effectively ZERO
Valuation
• What do I have? – Diligence helps to ballpark value
• What is this worth? – Worth what the market will bear
Venture Capital Valuation
1. How much money do you want? 2. I want XX% of your company. 3. Divide those numbers and you have your
valuation.
© 2014 University of New Hampshire | [email protected]
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