The Naked Negotiator

The next time you are planning to make an offer, consider making two offers - of equal value to you - at the same time.

Making multiple equal offers simultaneously has a number of advantages.

One, it helps you uncover what the other sides priorities and interests are. This is especially important where the other is suspicious or distrusts you.

Two, MEOs demonstrate that you are flexible, empathetic, and you’re keen to meet their precise needs.

Three, MEOs are useful in a government or tender driven process where you are required to meet specific requirements. Your first offer, is your answer to their specific request. Your equivalent offer, shows what you could do for the price given more flexibility on their part.

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In Jon Steel’s book: The Perfect Pitch, the Art of Selling Ideas and Winning New Business there is a remarkable tale of how London came “from rank underdog” to beat Paris to host the 2012 Olympics.

The winning pitch was the result of a brilliantly executed pitch delivered in Singapore. Paris had hosted the Olympic games two times before in 1900 and 1924. But so had London, in 1908 and 1948.

Here is the closing video. The video shows children from China, Russia, South America and Africa inspired from pictures of the London games going on to become Olympic Athletes. The film finishes with one of the children on the line at an Olympic 100-meter final.

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In a South Park sketch, the gnomes steal underpants as part of a three-phase business plan. The business plan reads:

1. Collect underpants
2. ?
3. Profits

Pixieland dealmakers buy companies or assets with no proven profits or business models in the vain hope that they can make money where no one has before, and big dealmakers are not exempt from this madness.

Meg Whitman, CEO of eBay, bought Skype from it’s inventors for $2.6 billion in the illusory hope it could find a way to turn Skype clients who were attracted by Skype’s free services into profitable fee-paying customers.

eBay hasn’t succeeded so it has written down the Skype purchase by over 50%.

Forbe’s software columnist, Daniel Lyons writes Sun Microsystem’s purchase of MySQL for $1 billion looks to be another Pixieland deal.

MySQL has sales of only $70 million and doesn’t according to Lyons seem to be making much money from selling its open source software.

The MySQL Chief Executive Marten Mickos believes Sun’s ownership will leverage it’s sales to $1 billion.

I suspect it won’t be long before the purchase is written off as a moment of madness.

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In November 2007, The New York Times wrote an expose on the fiasco surrounding the federal government’s purchase of spy satellites.

In 1998, the U.S. spy satellite agency sought bids to build a fleet of inexpensive spy satellites. The two bidders, Lockheed Martin and Boeing were told the project would operate under a tight price-cap. The government procurement agency made price 50% of the rating score when scoring contract bids. Previously, price had rarely accounted for more than 25 percent of the company’s score.

The front runner based on experience had to be Lockheed Martin. They had years of experience building similar complex projects. By contrast, Lockheed Martin had no track record of building spy satellites.

To win the deal, Boeing came up with a revolutionary play which they claimed could be built for a bargain price.

The Satellite Agency accepted Boeing’s bid. Even so, creating high-concept technology on a fast schedule inside a tightly managed budget - was high risk.

Boeing’s formula to win the bid only on cost and correct the government’s sins with price changes was a train wreck waiting to happen. The project cost $2billion to $3 billion more than planned. The project ran years behind schedule until the government finally killed the project. (The government’s write-off costs have been estimated at $4 billion).

The New York Times investigation reveals that the “multiple failures that led to the program’s demise reveal weaknesses in the government’s ability to manage complex projects.”

Here are some lessons for would-be procurement negotiators.

1. If a price for a complex project looks too good to be true, it probably is.
2. Carefully manage your contractor’s incentives. Incentives for Boeing encouraged them to hide setbacks and dilly dally.
3. Tightly manage big projects. If necessary break them into smaller chunks. Use a traffic light audit system to alert you to problems.
4. Remember if the contractor has a problem, you have a problem. You need to build in contingencies for failure or an early exit.

I help a number of clients negotiate with governments at both the local and central level. It’s remarkable how often you hear suppliers, when formulating a bid comment, lets give them a low price and claw back our margin in “spec charges.”

Is there a flaw in the way many government agencies and big companies manage their big procurements? There is a lot of anecdotal evidence to suggest there is. For a sobering read on the perils of poor contract management, read the full NY Times article.

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