Know the No’s

‘No’ is a powerful word in business negotiations. If used wisely, it can help you (or the other party) achieve the target objectives. If misused or misinterpreted, it can crater (or at least hamper) a deal for the wrong reasons. ‘No’ is such a problem in business negotiations that the seminal book on the topic is called Getting to Yes.

One of the most effective ways to use the word is what I call “early and often”. If there is a critical issue of fundamental importance, it is generally best to put that on the table right up front, so there is no misunderstanding later on. Think of “no personal guarantees”. If you don’t make that ‘no’ an unequivocal condition of the deal at the beginning, two things may happen: first, you will probably face even more friction in the deal when the issue arises later; and second, you will probably need to trade something extra of value in order to prevail on the issue. In this instance, there is no word better than ‘no’. Read more

Business Negotiations: When the Whole is Less than the Sum of the Parts

It’s an axiom of business that “the whole is greater than the sum of the parts.” Through the magic of synergy, a company can often create value by combining two or more things (e.g., businesses, products, marketing ideas) that interact positively and result in more than a purely additive outcome.

The same result can often be seen in business valuation. For example, two companies, each with $10 million in revenue and $2 million in earnings, might become more valuable simply by combining into a single company with $20 million in revenue and $4 million in earnings. (While there are a number of factors that make this true, a discussion of them will have to wait for a future post about business valuation.)

However, I believe that the way people handle business negotiations often results in “negative synergy,” where the whole becomes less than the sum of the parts. Read more

Control Freak

It’s usually easier to review a contract than to write one. It’s usually less expensive to review someone else’s draft. And it’s usually bad legal strategy to voluntarily agree to do so.

Once the basic terms of a legal agreement are decided, they are often given to the lawyers to “document” the deal. This is not a formality. This is one of the most critical steps in establishing the legal relationship. It’s so important, in fact, that customs have developed around who gets to “control the draft” (e.g., banks in loan financings, landlords in lease transactions, investors in first-round financings). Sometimes those customs can’t be altered. Other times, an unassuming offer to write the first draft is greeted with pleasure.

Here are five reasons to make sure your lawyer leads the drafting effort whenever possible: Read more

When Clarity is a Curse and Vagueness a Virtue

A conference speaker recently stated that a company’s legal documents should avoid vague provisions like “the parties will use their best efforts to….”

I agree that clarity is generally a virtue in legal contracts. Except when it isn’t. Practicing law, like many things, is part “science” and part “art”. One of the “arts” is knowing when a vague (or semi-vague) provision might help your client’s interests and, conversely, when clarity might hurt your client’s interests. Read more