Wednesday, December 21, 2016

Shark Tank Star - Magnet Lady's Superior Negotiation Techniques

Beating the Sharks at Their Own Game

On the 12-16-16 Episode of Shark Tank presentation by the mother from Seattle, Washington, who has designed removable and reusable magnet stickers for hanging art, I witnessed a bit of deal making art from the contestant. First, she was passionate, confident, and likeable; always a great platform to establish in negotiations. Secondly, she was well-prepared and could easily articulate her prior financial performance. Third, she came in with a very impressive record of prior success on QVC. Too many contestants come in with a "save me" attitude that is not effective.  Magnet Lady focused on growth and what she and a Shark could accomplish.  She was precise in her ask (what she would use the funds for) and her valuation expectations. 

All of this was impressive, but where she earned a grade of A was on her deal creativity and execution under fire. First, Lori was trying to pressure her into a single bid, which is a technique many of the Sharks have tried to use. They try to elicit a single bid auction with the implied threat of the Shark walking away if their initial offer is not accepted immediately. In our Mergers and Acquisitions practice, we find this to be the single biggest mistake that entrepreneurs and business sellers make. They often jump at an unsolicited offer or non-contested offer that ends up being far lower than what a competitive market process would produce. Magnet Lady deftly and respectfully kept the doors open with a comment to the effect that once we were partners, you would not want me to make any rash decisions. This allowed her to receive additional offers from the other Sharks. This resulted in a substantial improvement in her valuation.

So now she has Lori who has been leveraged up by other offers and she knows that buyers hate this. Magnet Lady believes that Lori is her best partner going forward, but her initial offer is one half of what Magnet Lady originally asked for. She also knows that Lori will probably not just raise her bid directly in a bidding war type of auction. So Magnet Lady counters with a very creative structure that commits Lori to her original bid for a valuation at the closing of the deal, with a contingent performance Kicker. If that performance measure is reached then Magnet Lady will receive her originally proposed valuation.

This would have been an excellent strategy with several days and an experienced advisor to help her craft her counter proposal. But the fact that she did it in real time under intense pressure from skilled deal makers is quite remarkable. She knows with Lori's help, hitting her targets will be a slam dunk. So she soothes Lori's ego by not forcing her original ask, but artfully gets there with a slightly different structure. Plus, she has again reinforced her confidence in her venture by putting her skin in the game and not asking for the entire value up front.  Buyers love this. Done deal.  When your magnet days are over, maybe you will be "attracted" to a career as a deal maker. See what I did there?

Dave Kauppi is a Merger and Acquisition Advisor and President of MidMarket Capital, providing business broker and investment banking services to owners in the sale of information technology, software, and other technology based companies. Dave is also the editor of the Exit Strategist Newsletter and author of the Book Selling your Software Company - An Insider's Guide to Achieving Strategic Value

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