Itâs rare that a startup will get a fair shake from a giant customer or partner. But these kinds of deals can mean the difference between success and failure, so weâve got to go after them.
Over the last 20 years, Iâve learned that it really doesnât matter who you are, what youâve accomplished, or how valuable your offering is to the bigger player. If their revenue outsizes yours by, say, 2x, theyâll have the upper hand. If that number is 10x, theyâll be in complete control. If itâs 100x, theyâll be straight tone deaf.
So how we negotiate is a critical factor. Here are a few tactics Iâve picked up that have helped me not only get the deal done, but also make it a win for both sides.
Make it easy to say yes
In my perfect scenario, the gigantic partner or customer â whom Iâll just refer to as Goliath for the rest of the post â can get started with us immediately. There shouldnât be any costs or work associated on their side. Not yet.
We want to keep the deal small and simple. Weâre not interested in casting an outsized reward to Goliath, because that will imply an outsized risk. If you bring anyone a million-dollar deal, their first question is always going to be âWhatâs the catch?â This totally starts negotiations off on the wrong, skeptical foot.
Look, maybe we can eventually add a million dollars to Goliathâs bottom line over the next two years, but we need to lead with how Goliath is going to make an extra ten bucks on their next customer. Theyâll do their own math.
We need to offer a pilot, not a relationship. Just like with a minimum viable product, we want to start with a small segment of their customers, on a subset of their offering, for a limited time. We want to prove percentage increases in the margins.
Then, we want to crawl before we walk before we run. That means as little technical integration for Goliath as possible. We can settle for spreadsheets and text messages and scrambling every time they push the button. Remember, itâs a small customer segment weâre dealing with â thatâs also so we donât get knocked over.
And then finally, give Goliath an out. Time the pilot for no more than a few months, just enough time for us to figure out their framework and make ourselves invaluable to them. Then we can renegotiate based on those awesome percentages in the margins that weâre about to extrapolate across their entire customer base.
Be prepared to say no
We need to go into every negotiation with the expectation that Goliath is going to reject us, because most of the time, theyâre going to reject us.
The possibility that we might reject them, no matter how small or silly it may seem, is our only leverage. This isnât much to work with, and if we do walk away, theyâll probably smile and hold the door open for us.
But we need to have this attitude, because desperation stinks.
Thereâs no worse way to go into a negotiation than if the other party assumes we need the deal. And if they catch a whiff of âthis is our only shot,â theyâll either totally take advantage of us, which, I remind you, they can do anyway, or theyâll walk away because they donât want to be tied to a sinking ship, no matter how small.
Come with numbers
Now that weâve got our super easy offer put together and weâre ready to negotiate from a position of just a little more than total weakness, we need to prepare our proposal.
It should be short, knowledgable, and quantified.
We donât want to blow them away with third-party accolades about our company. Believe me, if we were that amazing, weâd already be on their radar. What we want to communicate are numbers that pertain to them. This will require some research, some prep work, and some testing, which is time well spent, because those results will also tell us how important a deal like this is to us.
Donât get shook
Iâm going to make some rash generalizations about corporate America to level set the complexity within these types of organizations. The numbers Iâm about to throw out arenât true 100% of the time, but theyâre true enough to make my point:
- It takes at least six to nine months to close a deal with a large corporation.
- It takes at least three meetings before anyone at a large corp will seriously start considering a proposal to do business.
- It takes at least three champions within a large org, with at least one at the executive level (VP or higher), to produce any traction to get a deal done.
Donât let delays, indifference, condescension, confusion, or repetition stop you.
Stay out of legal, but have legal
I get a lot of emails from a lot of startup founders and employees whose companies are teetering on the brink of disaster. When I pry, they almost always admit that they rashly signed one or more deals that wound up being crazy unfavorable.
In almost all of these cases, they either didnât have legal representation, or they had shitty legal representation.
Do not sign any large deal without good legal representation.
We also need good legal representation because we need to stay far away from Goliathâs legal department until after the pilot.
Most corps will already have standard customer or partner agreements ready to go, and theyâre usually pretty vanilla, outside of the terms we negotiate on the business side. Every once in a while thereâs a catch, and Iâll get into a few of them next. But if we have a good attorney, he or she will not only be able to spot those catches quickly, but theyâll also be able to suggest alternatives that their legal comrades at Goliath wonât freak out over.
Donât give away the farm
Of course weâll need to be able to make compromises on our side that might be tough, but there are certain things that weâll want to try really hard not to give up. These are just a few that make me cringe:
Exclusivity: Iâm about 50/50 on this, because there are certain cases where it will be inevitable, and if weâre dealing with an unquestioned market leader, it may not be that painful. But at least for the pilot, we should try not to get locked in. If we must, we should try to reduce âexclusiveâ to a very narrow definition of Goliathâs specific market.
Attribution: Iâm about 75/25 on this, meaning Iâm 75% I donât want to give this up. When my last startup, Automated Insights, provided automated content for both Yahoo Fantasy Football and the Associated Pressâs quarterly earnings reports, we got a âPowered By Automated Insightsâ attribution in very small type on all the content. This turned out to be far more valuable than the money we received for the deals themselves.
Free Work: Iâm 100% against this, as Iâve been burned too many times to count. Call it spec work, call it proof-of-concept, call it goodwill, if weâre required to spend money and/or resources to build something custom for Goliath, they need to at least share in those costs. Itâs not an easy topic to breach, but far easier than writing down losses.
Make a deal you can live with
Iâve had some negotiations with Goliaths that have been a pleasure. Those are rare, however, and most of the time thereâs going to be a least a little bit of pushing, a lot of discomfort, and a few straight up battles. These should be gentle fights though â expected, civil, and ultimately resulting in a deal thatâs better for both sides.
At the end of the day, what counts is not that weâve won, but that weâve made a deal we can live with. Itâs rare that weâll land one Goliath who will take us from small time to big time, but there is always strength in aggregation, and that next Goliath prospect is just around the corner.
This article was originally published on Medium by Joe Procopio
Joe Procopio is a multi-exit, multi-failure entrepreneur. In 2015, he sold Automated Insights to Vista Equity Partners. In 2013, he sold ExitEvent to Capitol Broadcasting. Before that, he built Intrepid Media, the first social network for writers. You can read more and sign up for his newsletter at www.joeprocopio.com