Fallon and Fernando Get Together
Fallon is an experienced engineer, and sheâs patented a brilliant new invention.
Fernando is a seasoned business executive with significant marketing and sales experience. He is looking for his next business opportunity and has enough money to potentially invest in a new venture. Fallon has a working proof-of-concept prototype, a good business plan, and a carefully polished pitch. A former colleague introduced Fallon and Fernando at a dinner party. They had a great conversation, liked each other, and realized that they could create a lot of value by working together. They agreed to explore starting up a new company.
Before their first meeting, they each took time to prepare. They wanted to be very clear about their interests, that is, the kinds of things they valued most highly. They thought hard about their walkaways â the point at which they would walk away rather than accept a deal. Their two walkaways set the edges of what negotiators call the trading zone or the zone of possible agreement (ZOPA ).
Fallon talked with her trusted business advisor. They estimated the likely commercial value of the company she hopes to create. Her advisor encouraged her to think hard about what her minimally acceptable deal would be and taught her to call it her Best Alternative to a Negotiated Agreement (BATNA). She promised her advisor she wouldnât make a final commitment before checking back and also checking with her lawyer . Together these are her back table. Fallon also tried to learn as much as she could about Fernando and the other companies heâd worked for. She gave a lot of thought to Fernandoâs likely interests and BATNA .
At the same time, Fernando did his due diligence. He gathered all the information he could find about Fallon and her invention. He described to his mentor what he knew about Fallonâs invention. He gauged the level of interest of several former clients who might be customers if he moved in this new direction. They encouraged him to explore the possibility of a deal but make no firm commitments. These are his back table members.
Fernando and Fallon considered using agents to represent them. Fallon was worried she might not have enough experience to represent herself effectively on financial questions, and she worried that she might let her emotions get the better of her. Fernando worried that he might not have sufficient mastery of the relevant technical issues. He knew that no matter how much experience he had, certain biases might cause him to misread what Fallon is trying to communicate.
Fernando and Fallon agreed to an agenda for their meeting. It included items covering what they would each contribute to the company, the valuation of their possible joint venture, how they would split whatever money they made, and how they would handle the risks that could not be avoided. Fallon and Fernando each tried to clarify for themself what they would be willing to offer in exchange for other items that were highest priority for them.
When they finally met, together with their agents, they began by talking about how they were going to negotiate. That is, they specified the ground rules they would follow and the rules of confidentiality that would apply. Once they got to the heart of their agenda, they realized that they disagreed, rather sharply, about the size of the market for the products and services they had in mind. They also disagreed on the equity stake Fernando would receive and the vesting that would apply; that is, the share of the company he would get to own over time and the portion of his promised equity share he would receive if he left early. They realized they had to revisit their process of negotiating. They agreed to a follow-up joint fact-finding effort to gather additional information they both could trust. They also explored some possible contingent agreements that would allow them to proceed, even given their different estimates of the future. They did a lot of âwhat-ifâ brainstorming, otherwise known as âinventing without committing.â For each agenda item, they reviewed numerous options and prioritized which were most important. Then, they explored various packages of options and considered additional trades that would make each possible deal better for both of them. Finally, they talked about a dispute resolution clause they would include in any agreement so that any disagreements that emerged could be resolved quickly.
In the end, after several meetings and a chance to confer with their back tables, they reached a deal. Fallon was confident the deal was in her negotiation sweet spot. It promised quite a bit more than her BATNA and came close to fulfilling all of her aspirations. Fernando also got a deal that his back table supported. He and Fallon created value by including numerous contingencies and guaranteeing how control over key decisions would be shared going forward. Fernando decided that the package was worth it, even though he did not get everything he wanted. He was guaranteed the level of control and the potential upside rewards he needed to justify the risks he would have to take.
Fallon and Fernando were tough on each other, but they listened carefully and maintained a respectful dialogue. They found things to trade and they created value. They came away happy and signed an agreement. They are now cofounders of a seed stage company, and they have a relationship that will allow them to work together as they move ahead.