Increasingly more people are starting to acknowledge the importance of negotiation in business as well as in everyday life. However, most us associate bargaining with cash and view this process as an opportunity to increase our revenues.
Negotiating a good deal goes beyond the moneymaking process. Reaching an agreement and signing an important contract can upsurge your income, but it’s equally important to promote the company’s image, make connections, form long-lasting relationships, and enter the business market on the right foot. When entrepreneurs are just focused on making money, they eventually end up making mistakes.
These faults often prevent them from signing a good contract and attain their goals. Don’t be ignorant in negotiations aim high but don’t just think about getting rich.
Downplaying the liquidation preference assuming a higher valuation
If you fail to accurately negotiate the liquidation preference, regardless of how high your valuation is, your take of profits will have to suffer. Go over the numbers alone and analyze the possible impact of a liquidation preference.
Privately, when you enter a course of participating preferred rounds (where investment companies get to multiply their venture) the impact is going to be even greater. This doesn’t mean that venture corporations don’t deserve the liquidation preference, but as a proficient entrepreneur, you must comprehend its results.
Are your partners properly informed?
You shouldn’t provide your counterpart with simple facts, but with a vision; neither should you present them solely the “benefits” of a deal, because these are usually just repackaged facts. Instead, you need to present the upsides and well as the downsides of what you have to offer, and allow them to envision how your products can change their life.
As long as your partners are properly informed, they won’t question the purpose of the deal because they have faith. Useful information is critical in a negotiation and every entrepreneur should be able to keep the client engaged with good details about a specific deal if he wants to win.
Entrepreneurs strive to obtain high valuation only to find out later that the valuation’s wrong
That’s a terrible mistake and it may destroy an entrepreneur’s career. If you fight hard and you manage to obtain an outstanding valuation, the excitement may be short-lived. Generally, it is closely followed by a less impressive execution of your business plan and your next round of financing will probably be a down round.
This down-round is going to trigger anti-enfeeblement provisions for earlier speculation investors. Also, it may greatly dilute the founders along with everybody else. If you had spent more time in the initial round negotiating process instead of simply accepting a full ratchet, things would have been a lot better.
A more sensible valuation could have avoided the down round. You must take a future financing plan of the corporation into account when negotiating the initial round valuation.
Every entrepreneur’s vision is related to money
Business entrepreneurs see their goods or services as a product that will eventually be used and stored by a client. Nevertheless, if you’re offering something unique, then you’re not presenting your counterpart with an interchangeable offer, but with an opportunity to achieve tremendous growth in the shortest amount of time possible. This opportunity comes with high price tags, thus you should be prepared. Leverage must never be ignored in business because it’s an advantage you have over your competitors and over your clients.
Every second spent with a prospective client is a negotiation (Remember that!)
Entrepreneurs have a very narrow window to discuss about money in a business negotiation. Every moment you talk with your counterpart is a negotiation. Present your ideas, come up with assorted suggestions, and do everything you can do to make things move in the right direction. It goes without saying that time is money, so you can’t afford to beat around the bush or stall. State your demands loud and clear and be open to win-win solutions without giving up your demands.
Just because you’re an entrepreneur it doesn’t mean you’re in charge of everything. You need business partners to make things running and help your business see. Negotiation is a process every entrepreneur should embrace and master. Without proper bargaining skills you won’t be able to help your company thrive for success.