28th June 2008

The five P’s of deal preparation

“If I had a little humility, I would be perfect.” - Ted Turner

The 5 P’s, “Prior Preparation Prevents Poor Performance” reminds dealmakers that poor deal preparation can prove disastrous.

In July, 1985 Kirk Kerkorian, the head of MGM and United Artists called Ted Turner, the owner of Turner Broadcasting Services with an offer to sell him MGM/UA. Kerkorian told Turner he was going to put MGM/UA up for auction in two weeks, but Turner could have the company if he paid $1.5 billion - and closed the deal by August 8.

Turner desperately wanted MGM/UA films to give him control of his programming, so he sent 40 lawyers and accountants to go over the books. Then, two days before the deadline, and without any negotiation on the price, Turner signed a purchase agreement.

Analysts say he overpaid by $200 to $300 million.

Plus, he ignored that MGM was in a bad state producing a raft of poor money losing films. To boot, his lawyers failed to ask what legal commitments MGM had made. Turner did not uncover that on August 4, MGM/UA had signed a contract locking up all cable rights and that HBO had already contracted to buy several MGM movies at low prices.

Turner may have been a visionary entrepreneur but he proved an amateur dealmaker.

Poor preparation causes us to make unwise assumptions, since assumptions are the mother of all stuff-ups.

When you’re desperate to do a deal and under time pressure remember the 5P’s: Poor Preparation Prevents Poor Performance.

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15th May 2008

Power is often a state of mind: A tale from the Arctic wilderness

Brilliant negotiators know how to play a weak hand. They appreciate that power or the lack of all - is often a state of mind - a matter or perception.

Consider the problems an Eskimo trapper faces when he emerges from the Arctic darkness to trade his fox furs at the one and only trading post for hundreds of miles around. If ever a buyer enjoys a monopoly, it has to be the Arctic fur buyer. Yet the Eskimo knows just how to limit the power of the trader.

When a fur laden sledge carrying an Eskimo trapper, his wife, and family, emerges from the farthest wilderness on its six monthly trading mission, all the inhabitants of the village gather round to welcome them. The trapper and his wife enter the trader’s house for a big feast. All the villagers come in too, listening and looking on. Peter Freuchen, a Norwegian fur trader, describers what follows in his Book of the Eskimos.

We discuss the weather, the hunting in the summer, the dogs. The only matter we don’t talk about is foxes. Next day the same thing - eating, dancing, talking - and the next day and the next, until for my part I think that the hospitality has come to an end. Then I just casually ask the man whether he has caught any foxes this year.

“Me, foxes?” he answers. “Nothing doing. One is a poor hunter as far as that goes, but especially for foxes.”

“Well,” I say, “I’m sorry, because I’d like to have a few foxes just to send home to the white people’s country when the ship arrives next summer.”

“Oh!” the man yells out. The big, nice white man has made a mistake. “Oh, you don’t know how unable I am to catch foxes.”

“Well,” I remark, “I saw a couple of bags out on the load which is now on the meat racks, and I thought they contained fox skins.”

“Well,” the man says, “maybe there’s just a couple of skins in the bags, but we just use them to wipe the grease off our hands and other dirty things.”

“Good!” I say. “But just the same I might like to have some of them. What about looking at them tomorrow?”

Next day comes, and after breakfast I again have to encourage the customer to show his merchandise. Now comes the big moment of the year. They bring in a couple of sacks, each containing some fifty blue fox skins, and they have beforehand assured themselves the whole village is present to witness their triumph. As if they were being dragged to the gallows, they open the sacks and pour the contents out. Now it is my turn. I look at the skins, amazed, surprised and beaten.

“Well,” I say, “as usual, these are the best skins in the year. I knew they would come from you; and they certainly did. Here is something I will have to mourn about for years, because I am unable to get those foxes.”

The man raises his head, interested. “What did you say? Are they too poor for you to accept?”

“Oh no; not at all. Just the opposite. You will have to take every one of your skins back with you because I have nothing to pay with. The trading goods that came out this year were especially bad. We haven’t got enough of them and they certainly aren’t of a kind that can pay for such skins as yours.”

“Pay!” yells the man at the top of his voice. “You don’t think that I should show myself low enough to take any pay for these poor skins?” I will feel myself happy if you’ll accept them.”

Finally I put in a question. “I am unable to pay for the skins but anxious to show my gratitude through my poor gifts. What could you be thinking of wanting in case I should be presumptuous enough to compare my unworthy goods to your valuable furs?”

He starts in. “What do I want! What do I want! Oh, I am a man without wishes. I don’t know if I want anything.”

It is then up to me. “Don’t you want a gun?”

“A gun! A gun! Oh, a gun had been in my mind and in my dreams for a long, long time; but I, the man you listen to now, am a terrible hunter. Why should I have a gun?”

“Well, I will give you a gun. You need a knife too, and you need some tools. And what more?”

Now that the big time is here he doesn’t know what he wants. But I have the skins, so I invite the man, his wife and his children to go into the store and look the things over. They get the key and go down to the store. They go in, closing the door carefully behind them, and spend the rest of the day going through everything.

Meantime, I get a chance to look these skins over and figure out my prices, and finally, in the evening when the couple comes back, the man has his wishes. He never tells what he wants, but he relates of what knives he saw, both those with the white handles and those with the brown, and the small ones with the point.

He goes on: “And then I looked at the files. My what beautiful files. And I saw out there you have axes.”

He is interrupted by a sort of yelling or crying from the background. It is his wife, carefully instructed by him, who now breaks in complaining what a bold and fresh husband she has, keeping on asking like a beggar even when it has been proved to everybody that he has nothing to pay with. This, of course, only serves to cause me to protest that his skins are marvelous, unmatched so far, etc.

I turn to the wife. “What about you? Aren’t you going to trade? Don’t you want something?

She blushes and looks for a place to hide. “Me? Certainly not! What should I want? Am I one who deserves anything? Oh, no; I have no wants, no wishes at all.”

“But wasn’t there something that you would like?”

“I would like to have — oh, I happen to be without wishes; only those people who are worth something should have something.”

“Well, but I just want you to take something with you.”

After several more excuses, she tells what she might like to have. A few needles. And she wanted some scissors, and she wanted thread. Maybe for the children some undershirts would be good, and some for herself; also combs. And “I would like to have a mirror, even though I, of course, will never look at myself in it.”

The wife keeps on asking, and finally I have to stop her from asking for more. Meanwhile I have figured out how much they can have for each skin and write it down on a piece of paper, sending them out to my clerk, who now is in the store ready to deliver the goods. Now the clerk has his troubles out there while they are making their choice between the different cups, the different kettles, the guns and whatnot.

And now comes the end of the trading, where they show their smartness and prove what fine businesspeople they are.

The man will come running in. “Oh, I’m so sorry; when I told you what my needs were I forgot to ask for tobacco. I’d like to have some tobacco.”

“All right.” I allow him the tobacco.

A few minutes after he will be back with his purchases.

“Well,” he will say, “I saw a knife out there I would like to have instead of this one, though it will ruin my sleep to part with this one, too.”

I let him have the knife.

The wife will be there. “There was also some red cloth.”

Then the man comes again. “I have the whole time been thinking of a saw, but the tongue refuses to pronounce the word.”

I let him have the saw. And they keep on. The only way to stop them is to have lunch ready. And the deal is closed.

Next day departure takes place. The dogs are harnessed up and attached to the sledge. But sure enough, he comes in at the last moment: “Oh, I forgot matches! Why didn’t I mention a saw file! If I had only asked for a little more goods! Enough for a harpoon shaft.”

The smartest man is the man who remembers most. He gets a reputation amongst his countrymen. Of course the perfectly straight-minded man doesn’t know about this and doesn’t allow for it, but the seasoned trader keeps back four or five fox skins to make up for the forgettings and additional wishes.

When everything is loaded on and woman and children place on top of the sledge, the man gives a signal to the dogs to rise up and be alert. Then I come out with a package in my hand, giving the wife some tea and sugar, or whatever else I know she would like. Of course these things have been allowed for too.”

The Eskimo showed all the skill of a master negotiator. From the start he involved the whole village in the negotiation. The villagers witnessed many of the proceedings. As a result the fur trader was always under public pressure to behave fairly and reasonably.

By playing the role of the reluctant seller the Eskimo forced the trader to publicly state how marvelous the furs were and how much he wanted them.

The Eskimo used time well. Throughout he displayed great patience; there was never any hint of desperation to sell.

Before they got down to the actual trading, the Eskimo and his family spent a whole day in the store sorting out their priorities. The actual trading was carefully orchestrated with his wife chiming in at opportune times. Then after the trading had supposedly ceased they were not averse to extracting a few last minute extras.

In short, the Eskimo understood the different ways power can be used, and exploited each of these to the fullest.

Popularity: 60% [?]

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26th April 2008

Use the power of metaphor to persuade

Churchill’s Greatest Speech?
In 1946 Churchill was a beaten man. The previous year, he had lost the prime ministership after his Conservative government has suffered an overwhelming election defeat.

Churchill wanted to warn the Western world about the spreading menace of Soviet communism, but he worried that Americans wouldn’t listen to someone who was now just the leader of an opposition party, rather than the head of an elected government.

Churchill’s opportunity to convince American’s came when he was invited to speak in Fulton, Missouri. He knew that he had to paint a vivid, graphic picture of what was happening in countries like Poland and Czechoslovakia.

He toyed with words like “Soviet imperialism,” “militarism,” and “tyranny,” but he rejected these as shapeless abstractions. None of these would paint a vivid enough picture in his listeners’ minds.

On the train trip down to Missouri, Churchill scanned his map of Europe. To highlight the spread of communism, he drew a black pen line from the Baltic Sea through Poland down to the Adriatic Sea. He retraced the line, searching his mind for the right image to describe the Soviet threat.

The inspiration came at 2 a.m. during an overnight stop in Salem, Illinois, when the right word picture appeared — which Churchill quickly added to his speech.

The next day, Churchill delivered the words that would mobilize the United States and move it to action:

“From Stettin in the Baltic to Trieste in the Adriatic an iron curtain has descended across the continent.”

The iron-curtain metaphor became one of the galvanizing images of the Cold War. When China fell to Mao Tse-tung’s communists in 1949, the metaphor changed to bamboo curtain.

The iron curtain speech was, according to James C. Humes (author of Churchill: Speaker of the Century), Churchill’s greatest speech.

Why was it the greatest? Because a single speech triggered a change in American feelings about the Soviet Union (America’s wartime ally), and started the Americans to rearm.

Whenever you present a persuasive case, look for an organizing metaphor. The right metaphor will clinch a deal or sale.

Popularity: 80% [?]

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18th April 2008

Control the flow of information, control the deal

The year: 1912. Teddy Roosevelt was nearing the climax of a hard fought presidential campaign. The final push was a whistlestop tour through middle America. At each stop Roosevelt planned to deliver an inspiring address and hand out thousands of pamphlets. On the cover of each pamphlet was an imposing Presidential portrait; inside was a rousing speech. Hopefully, these would win over vital undecided voters.

The final tour was about to begin when a campaign worker noticed a small printed notice on each photo: Moffett Studios - Chicago. The photograph was copyright and no one had obtained a clearance from Moffett.

Unauthorized use of the photo could cost a dollar for each pamphlet distributed. The prospect of a three million dollar bill sent a chill through campaign workers. They simply couldn’t afford it. The pamphlets were a crucial part of the re-election strategy. If they went ahead without Moffett’s permission and were caught out, they’d be branded lawbreakers and be liable for a small fortune.

The campaign workers concluded they had no choice; they had to negotiate with Moffett, and there was no time to lose.

You can imagine how they felt, Moffett seemingly had them over a barrel.

Dejected, they sought campaign manager George Perkins’s help. Perkins immediately instructed his typist to cable Moffett.

“We are planning to distribute many pamphlets with Roosevelt’s picture on the cover. It will be great publicity for the studio whose photograph we use. How much will you pay us to use yours?”

The reply came back soon:

“We’ve never done this before, but under the circumstances, we’d be pleased to offer you $250.”

Legend has it Perkins accepted without asking for more. Perkins understood the power of information; the critical role it plays in shaping a negotiation. By selectively controlling the flow of information to Moffett, Perkins created the illusion that he held the upper hand.

Information power lies at the heart of the bargaining process. In even the simplest of negotiations, both parties take a position, then present facts, arguments, data and other information to support that position. Both sides then use information to get the other side to modify their position until there is enough common ground to reach a mutually satisfactory settlement.

To guard against information being manipulated or concealed, you must do your homework. The more information you have, the more power you have. It’s that simple.

Popularity: 65% [?]

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24th March 2008

The monkey and the organ-grinder

Between 1969 and 1973 Henry Kissinger conducted secret negotiations with North Vietnamese diplomats in an effort to negotiate a face-saving end to the Vietnam War for President Nixon.

Kissinger was undoubtedly very bright, he had three degrees from Harvard and had written a raft of papers and books on international diplomacy and arms control. Kissinger also rated himself as a formidable negotiator. When a journalist asked him what personal qualities it took to be a diplomat Henry replied,

“Knowledge of what I am trying to do. Knowledge of the subject. Knowledge of the history and psychology of the people I am dealing with. And some human rapport…To have some human relations with the people I am negotiating with. This takes some rough edges off. They will make concessions they wouldn’t otherwise make.”

In his first secret meeting with North Vietnamese diplomats in Paris he believed he had made progress. He reported back to Nixon the North Vietnamese had signaled possible concession.

Later Kissinger had to admit, the North Vietnamese had agreed to “nothing more than a willingness to hold future secret discussions at unspecified future dates.”

Xuan Thuy Hanois’s representative “had no authority to negotiate. His job was psychological warfare,” Kissinger later concluded.

Kissinger had made the elementary error of confusing “the monkey with the organgrinder.”

The dangers of negotiating with someone who has no authority is something we all need to guard against.

Popularity: 65% [?]

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