Entrepreneur Pleurat Shabani has seen his brand of premium spirit, Konik’s Tail, named the ‘World’s best vodka’ by bartenders in the globe’s leading bars, and he has won listings in the likes of Selfridges and Fortnum & Mason – all without resorting to external funding. When Shabani was trying to get the start-up off the ground, a number of equity investors sent him away empty-handed. These days, plenty of high-profile backers are getting in touch and he can pick and choose his financial collaborators.
When it comes to sitting down with investors, he always comes prepared to match their tough negotiating tactics with some straight talking of his own. Recently, when it looked like Shabani was about to turn down the latest pair of would-be backers, one of them warned him, “anything that can go wrong with your brand will go wrong.” The investor told Shabani that he could run the business until he was “old and grey” and never make a penny out of it unless he took their money.
“I told them I come from a long line of bald men so you’ll never see me turn grey,” Shabani says. “And as my father told me, any fool can do a deal, but it takes some genius, faith and perseverance to create a brand.” His reply and attitude impressed the investors, who told Shabani to come back to them if he changed his mind.
While such adversarial tactics from power brokers in a deal aren’t necessarily the norm, Pleurat believes that knowing when and how to walk away from a deal is just as important as having the tactics to try and secure a sound one.
A good deal for both sides
Entrepreneur and investor William Kendall believes that deals must favour both parties. “The only deals that work are when they work for both sides so do your best to understand and put yourself in the shoes of the other side,” he says.
“Any fool can do a deal, but it takes some genius, faith and perseverance to create a brand.”
However, the nature of negotiations often means that the odds are tipped in the favour of one party and the agreement terms will vary greatly depending on the investor. For example, negotiating with a retail buyer is very different from trying to get a fair deal from a potential equity investor.
“Negotiating with powerful customers tends to be more binary,” Kendall says. “One wins more and the other loses more, while investment negotiations tend to be more complex.” But whatever the deal, the principle remains the same: “The skill is to try to make the negotiation less binary.”
William Reeve, an experienced angel investor and a co-founder of online streaming service LOVEFiLM, has some straightforward tips for securing a good deal. “Creating a sense of momentum – as in ‘this deal is going to happen with or without you’ – building rapport and having fun, and being easy to do business with, by meeting deadlines and following up, all pay dividends,” he says.
And what impresses him most when he’s on the other side of the table trying to buy a slice of a promising business? “Prior experience of making money, signs that they listen as well as talk and signs that they show flexibility,” he says.
Forewarned and forearmed
Kendall warns that entrepreneurs hoping to secure a deal need to be able to prove why the business can't fail, and not just sound impossibly optimistic.
“They shouldn’t work from a ten-page spreadsheet that has several fundamental errors and doesn't even address the key issues,” he says. I am impressed by somebody who has identified these issues and knows the answers to the questions about real drivers to the business.”
Naturally, the sage advice to do your homework applies. Sometimes, knowledge that one side regards as rudimentary can sound like Ancient Greek to the other, but they might be too embarrassed to admit their ignorance for fear of losing the deal. That can leave them in danger of ending up in a very one-sided ‘agreement’ or, at best, signing a contract they don’t fully understand. Advisers can be costly, but they may be worth the investment if you get a good result.
“Doing it on your own is tough and risky,” says Kendall. “Investments tend to be more complex [than other negotiations] so it’s easier to break it down into many elements. This means there is more room for sharing the spoils but it's also easier to lose concentration and sight of all of these elements. It's why people take on advisers.”
Kendall also advises flexibility. “Try to contemplate several components for a deal. Create more than one lever to pull. That way the negotiation won't get hung up on a single issue and therefore break down.” Finally, be open and optimistic. Shabani’s experience with aggressive investors notwithstanding, most people you negotiate with will want to back you, not fight you. As Reeve advises, “get them onto your team.”
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