Eliminate Ranges From Your Negotiating Vocabulary
I was fortunate that two of my early mentors were master dealmakers. They had different styles and approaches so I learned an incredible amount from each of them. Before I met them I’d never made an investment, acquired a company, or sold a company. In the past 17 years since I met them, I’ve done a ton of each.
React to the following:
“We’d like to buy your company for between $35m and $50m.” That means $50m to you, right?
“We’d like to invest between $5m and $7m at a valuation of between $10m and $15m.” That means a post money valuation of $22m to you, right?
Or what do you think when someone says “about $10m” instead of “between $9m and $11m”?
Given the extensive negotiation theory that exists, I’ve never understood why people talk in ranges when they are proposing a deal. While I understand the hesitancy of many to put the first number out there, I’ve never understood why this often translates into a range. When you put the range out there, you are by definition showing your negotiation flexibility at the very beginning of the negotiation.
While I understand that some people will assert that the range softens up the first volley in a negotiation and also indicates what the negotiating range might be, everyone I know that is a strong negotiator ignores the range and views the starting point as whatever number is most advantageous to them. All the range ends up doing is reinforcing that the range giver is tentative and uncertain about their starting position.
Now, let’s translate this into something useful for the entrepreneur raising money. If you tell me you are raising $3m to $5m, then I don’t really know what you need (or want) to raise since there is a big gap between the two. Instead, if you tell me you are raising $3m, then I can have a discussion with you about how much I think you should actually raise. And – if you have more demand than expected, you can always raise more.
So, before tossing out a range in any negotiation, think again about the starting position you are trying to establish.