The Art of Negotiation

Alex Lieberman: What's up, everyone. This is Alex Lieberman, co-founder and Executive Chairman of Morning Brew. Welcome back to Founder’s Journal, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. We've got a really exciting episode on deck for you today. I am once again joined by friend of the pod Codie Sanchez. Codie is an entrepreneur and an investor who has climbed the corporate ladder and built businesses. Along the way, she's also become a master at negotiating. So in this episode, part three of our latest conversation, Codie offers some tips, tricks, and principles for negotiating that you must hear. Let's hop into it. Okay, so let's do a few like quick conversations. 

Codie Sanchez: I like it. 

Alex Lieberman: One thing, talking about like your wedge or the thing you're known for. If you were to ask me, you know, what is Codie Sanchez exceptional at, or what is she know better than 99% of people? I would say negotiating. And it's funny, ‘cause like I don't actually know your negotiation ability. I've never negotiated with you or seen you negotiate, but I actually think it's something that through creating a fair bit of content around it and just knowing you're assessing many deals, you've done many deals. It is a muscle that you've had to build up. And so I would love to hear from you, as I go about either, one, angel investing more and potentially negotiating for advisory shares or preferred placement in previous rounds, which by the way, I've never negotiated for that before, or negotiating buying a mini golf course or a house on a college campus, which I've thought about, what are the principles you keep in mind to be a good negotiator, but where you don't leave the other party feeling like shit?

Codie Sanchez: Yeah, so important. Couple of things: One, I would say is you'll be better than 99% of negotiators if you just ask for the things that you want. Most people don't ask for anything. So that's like the one-on-one version would just be in the next conversation you have with an investor, to say something along the lines and just get yourself used to saying it, “Hey, I think this is a really cool company, I want to invest in you,” or, “I think this is real cool, really cool company. I want to work for you,” you know, for people out there listening who are just thinking about it that way. And I would say, “So, you know, I want to be in here, but I want, you know, there's one extra thing.” And so what you just need to think about first, which are, what are those levers? What are those things? Could they be? And in this instance you might say, “Hey, your valuation is that this, this is kind of high for me. What if you let me in at the last round’s valuation and I make an introduction to these people for you?” Or you might say, “Hey, what about I come in at this amount for you? But I also do these couple of other things and intros. Would you be open to advisory shares, too, for something like that. And then you can use my name and you know, and I'll make these other introductions. And if we do something like that, I will be more incentivized to make you more core to the things I talk about across my multimillion-dollar media empire.” So that's one: Just ask. Step two is always like, go about it from incentive alignment. So I'm like, you know, and we've, we've kind of negotiated about some stuff. So I might say upfront, like, so you already know my pain points. Like, “Hey, you're going to need a lot of time from me on this sort of thing. Right? And so you're going to want my time and attention. And in order for that to be worth my time and attention, X has to happen. So I don't want to, I don't want to bullshit you on this. You want it, honestly, you're being honest and you're saying, so I'm not going to tell you I'm going to do Y unless I get X, because otherwise we're not incentive aligned. And then it's going to be bad for us long-term. You're going to have bad expectations. I'm gonna have bad. It's like, nobody wants that.” So that would be number two is like, how can you show them that what they give you is actually making you aligned to give something back to them because humans only operate off of incentive alignment? The third thing that I would say is prep. Prep, prep, prep. I hate negotiating, actually. I hate it. It makes me uncomfortable. I don't ever want anybody to feel like I'm greedy about things. I'm the opposite of the type of person who really gets off on this kind of stuff.

Alex Lieberman: It's like just the epitome of tension and tension is super fricking uncomfortable,

Codie Sanchez: Yeah, right. But, and again, I'm very American. Like we don't like to negotiate for things, you know? And so what I do beforehand is I prep because I know, I repeat this like little mantra to myself. “If I do not negotiate for what I asked for, this partnership or this deal or this, whatever long-term will not work. It will not work because I won't actually get out of it what I want. They won't get out of me what they need or out of this deal, what they need, because I won't have negotiated a well, and it would be bad long-term.

Alex Lieberman: Yeah. You've just set the wrong expectations.

Codie Sanchez: Exactly. And so I'm like, I have to prep beforehand to tell myself: Here's the story I'm going to tell myself on why I have to negotiate hard for the things that I want. And then the second step to that would be, I actually would go back and forth. So I'd be like, Alex, can I call you right now? I'm going to have, for instance, you know that I've had some difficult conversations lately. I would call you, like I have and say, “Hey, I'm struggling with this. I'm like too close to this deal. I'm emotional about it. So like, can we go back and forth? How would you say this? So I think this might happen. I'm thinking to say this, what is that?” And then like two other really quick things that one of my friends that was in the CIA told me that I love is he was like, firm and final, firm and final, firm and final. And so, no matter what, it's like, you're breaking up with somebody. You're like, here's, what's happening. This is, you know, where we're going from here. And it will happen today, in three weeks, or whatever. And you just, don't, over-explain. That's a female tendency sometimes at least in my experience, and for myself, I'll, I'll like, try to get them to agree with me. You don't have to get them to agree with you. You just have to get the deal done.

Alex Lieberman: Well, I think when, again, we're nervous and when we sense tension and we're afraid that we're hurting someone, it's like, I find this as my instinct also, is you have to explain and explain and explain. But oftentimes when you explain, you have to walk back things that you didn't really want to say. 

Codie Sanchez: Yeah, that's exactly right. And it just gives everybody more wiggle room when you know what the outcome's going to be. And you know, it's very easy for all of us to say this Monday morning quarterbacking, but when you know what the outcome's going to be, it doesn't matter all the other explanations. Again, you're not like in this situation, in most negotiations, the other person's probably not going to agree with you that they should give you more money and more time off and more X and more Y. They don't; they're not gonna agree with that. But you know, if you say, this is what it is and what I need, even though they might not agree, you may get it.

Alex Lieberman: Yeah. ‘Cause it forces them to just think about the trade-off, or the opportunity cost, of, is it worth losing this opportunity or this person for this one thing? And you at least forced them to think about that versus never bringing it up at all. One last question on the negotiation part here is, I just have to ask about this because this is so timely. When you think about how much room you leave for negotiation to happen, like where you give a super high-ball or low-ball, because you know, there's going to be negotiation versus just saying exactly what you want. What is your approach? And the reason I ask this is because obviously a shit-ton has been happening with Twitter recently. Part of what's been happening is Elon sending, you know, the letter to the board saying he's interested in buying the company. He said he would buy it, you know, for fifty-something billion dollars, that it's a great offer, that he is going to be the one to unlock the value for the company. And the best line in the whole thing is he goes something along the lines of, there will be no negotiation, quote, “I have moved straight to the end.” Do you think that is a smart negotiation tactic to say I moved straight to the end?

Codie Sanchez: I think in this instance, he knew they were never going to negotiate with him. And so going back and forth would have given them an excuse and time to do different things that he doesn't want to give them time on. So in this instance, I think he was smart. You know, I don't know if I would have done everything the same way that he did. He did some like, kind of crazy Twitter stuff that I don't think that probably helps his case very much. But then again, I'm not a billionaire, so who knows, maybe that was a smart move. But I think, you know, for me, I try to not F around too much at the margins actually. So, you know, if I'm going to buy a company, here's how I do it in 30 seconds. So they usually have a price that they told me up front, price and terms. And I'll say, Hey, I'm going to write an LOI, letter of intent, that basically says, yeah, if what you say is correct, somewhere around that price is reasonable. I'm not going to even negotiate anything pricewise up front. I'm just going to say, we're going to deal with that later. But like, theoretically, if everything is as you say, and with the assumptions that you have, okay, maybe the price is around there, fine. Then I'm going to go and do a bunch of due diligence. And I'm just going to check the assumptions. And then I'm going to go back to them and be really, really realistic. And I'm gonna say, there's like a range. And the range is usually pretty tight. Like I think this business is worth three-to-four-X profit based on these characteristics. And there are things that could make me go lower and higher in this particular offer, but here's like the range that we would need to be in. and we can talk about terms on it. But I'm going to be pretty tight. And that's because when I'm buying businesses, I am not negotiating with sophisticated sellers typically. And so we're–the, the simpler and more honest I can be with them, the less shenanigans, the more likely I get the deal done. And I think for 99% of the people, that's true. You're not going to do a Trump style, you know, walk out of the room and then walk back and like starve them from food, you know? So they're hungry and want to get the deal done. Like that's probably not likely in today's world. So that's what I would say. I try to be tight and honest in it. One other thing about negotiating for small businesses at least is you actually, so there's an old adage that's like, let the other person put the terms down first, like–

Alex Lieberman: Why, why is that?

Codie Sanchez: Right? I don't think that's true with small businesses because they get a crazy number in their head that's like, “I want to sell for $5 million.” And you're like, “Why?” “Cuz,” and so at–

Alex Lieberman: It just brings everything so high. 

Codie Sanchez: Right. And so you want to say, “Businesses are typically bought at this type of multiplier. This is the multiplier at which I typically buy businesses, just so you know, upfront.” And then that tempers our expectations. And you can move forward from there without telling them their business is worth one-fifth of what they said.

Alex Lieberman: Yeah. I think that makes total sense. I was talking to a mini-golf course owner the other day who's like, you know, go does the whole song and dance about, I don't feel like I have to sell, I, I'm not a forced seller, which means it would have to be an egregious price. And so what I would need is 12 to 14 times EBITDA. And, you know, obviously that frames things differently when the intention of my partner and I is to buy a mini golf course at two-to-three times EBITDA. And so it creates like a really hard conversation where it feels like, oh, should we even talk because this is, you know, lightyears apart. The last question I have for you before we hop is, do you believe that people should always negotiate? And so I'll just give you two examples. Whether it's someone who is in a job and they got a promotion, they're offered a new salary, should they always negotiate that? And the second option, which is very near and dear to my heart is, recently went to renew my lease on my apartment. It's an owner that we rent from. He put a number in front of us, my, at me as the person who was just very calm and aloof and like, whatever, let's do it, it's like, oh, Carly, we don't need to negotiate. Like, it's, it's, it seems fair. Whereas Carly's like, no, you fricking negotiate everything. So in the context of job, or just in general, do you think you need to always negotiate?

Codie Sanchez: I think it's a really good muscle to learn to flex. So, yeah. I mean, I even, I dunno, you know, Byron Katie, she's kind of like old school. She does this thing called like a positive inquiry. Basically she's a mind- and mental health coach. Actually, you'd probably like her. She has this thing where she asks herself questions, like, when you say negative, like, are you sure that's true? Is it absolutely true? Could there be a universe in which it's not true? And so you sorta like reframe yourself. Anyway, one of the things that she talks about is that most people are not comfortable asking for the things that they want. And since they don't ask for the things that they want, resentment builds up, which actually creates more conflict. And so I think negotiating helps tamper some of the conflict.

Alex Lieberman: That’s really interesting. 

Codie Sanchez: Yeah. So I think you should negotiate. Now here's the flip side. So this is where like, then everybody goes, well, except for your employees, right? I'm like, no, no, no, no. Employees can negotiate with me too. Absolutely. And I would love if they negotiated for me because it's actually a lot of work, you know, this to put together an incentive alignment plan, a comp plan, is a lot of work. And so if, instead they came to me and were like, “Hey, I run your X. If we increase sales by Y because I do X sort of characteristics or activities, the business makes Z. And thus, I'd love to figure out a way to get more of that Z. Here's my ideas on that process.”

I'd be like, “Buddy, yup. Let's do this.” Problem is most people negotiate like, “Hey, I want more money.” And you're like, “Me too. Okay.” And so I think that's the difference. Saying to your landlord instead, like, “Hey, we'd love to stay here. We liked the place. You've been an awesome landlord. We appreciate you. We hope we've been great tenants for you, too. I think we have, you know, nothing that you have to worry about, which in this day and age, especially with what's happened with COVID, it's probably pretty nice. Right? You don't have to worry about us now with that vein, we’ve been thinking about buying a place. But there, part of me is like, I think we should just stay here. And I think we should really like, enjoy this property. We have other stuff we want to focus on for the next three-to-five years. So with that, would there be any way that you could decrease our rent, actually?” It just, and then he might say no, but maybe he was going to try to increase it, but like, could you decrease it? Because we think these things mean that that's a value add for both of us.

Alex Lieberman: Got it. I would have paid you to negotiate with my owner and given you a take rate. Like that should be a job in itself is negotiation for take rate of what you save people on.

Codie Sanchez: Yeah. Deal, deal. Let's switch negotiations. We have to do ove the next couple of weeks. 

Alex Lieberman: I love that. Okay. We're going to put a pin in it. Codie Sanchez, queen of boring businesses, thank you so much for joining the show. All right, guys, that was the final edition of my three-part conversation with Codie Sanchez. And now I want to hear from you. Two questions: One, what is a future topic you want me to cover on Founder’s Journal? And two, would you like to see me have guest co-hosts in the future of the show? Shoot me an email to alex@morningbrew.com and I would love to use your ideas to inform the future of this podcast. Finally, we are also sending out a survey to get more feedback from you all. So please subscribe to our show newsletter at foundersjournal.morningbrew.com and get your chance to weigh in on the future of Founder’s Journal. Thanks for listening, and we'll catch you next episode.