Monday, January 1, 2007

Overcoming Power Imbalances

A start-up has a promising technology or product. It has se- cured early-stage funding, assembled a solid management team, and developed a prototype that clearly demonstrates commercial potential. Now it faces a big hurdle. To get to market, the young company must make investments in product development or op- erations or distribution that are beyond its reach. Perhaps the com- pany’s product is an enabling technology, such as a new composite material, or a component to be embedded in the products of much larger companies with established brands. Perhaps the start-up lacks the expertise to shepherd the product through convoluted product development or regulatory processes. Regardless, it has no choice but to negotiate deals with much larger companies. And that’s when life can get very hard indeed. How can a mouse negotiate with an elephant? This is a life- or-death question for many entrepreneurs (and anyone on the wrong side of a power imbalance). If they can’t do those early deals to demonstrate to investors that they are on track, they crash and burn. Plenty of advice is available on negotiation, but there is sur- prisingly little on how to negotiate when you are a mouse deal- ing with elephants. This chapter will show you how to apply the techniques outlined in Part One. 117 118 BREAKTHROUGH BUSINESS NEGOTIATION THE LIFE AND DEATH OF GO COMPUTER To illustrate how hard it can be to negotiate with elephants with- out getting crushed, consider the untimely death of GO Computer. As chronicled in CEO Jerry Kaplan’s memoir Startup: A Silicon Val- ley Adventure, GO was founded to develop a small computer that would be operated by stylus rather than a keyboard, an early per- sonal digital assistant. 1 With initial funding from a gold-plated group of investors including Mitch Kapor of Lotus Development and John Doerr of the Silicon Valley venture capital firm Kleiner Perkins, Kaplan assembled an outstanding team of software and hardware developers who quickly put together an impressive func- tional prototype. The prototype attracted interest from State Farm Insurance for an auto claims estimating application. Kaplan was sure they were off to the races. But after a promising start, things started to unravel. State Farm insisted that GO team up with one of its conventional computer suppliers, IBM or Hewlett Packard (HP). Kaplan concluded that IBM would bring more weight to GO’s efforts to establish its pen- based computer as a standard and decided to negotiate an alliance. The result was a year-long nightmare in which Kaplan was passed from person to person in IBM while GO’s cash burned. The deal that was ultimately signed placed onerous oversight restrictions on GO and held its intellectual property hostage to performance. It became evident that some individuals within IBM viewed GO as a source of technology at best and a potential competitor to be crushed at worst. Persistent problems in the relationship ultimately contributed to GO’s bankruptcy. GO made some classic mistakes in its negotiations with a much larger partner. Management didn’t understand how to leverage its core technology to negotiate deals with multiple potential part- ners, leading to overreliance on a single partner. Worse, the choice of partner was unfortunate: HP had been anxious to work with GO, but IBM didn’t really need the start-up and was in no hurry to do a deal. IBM could afford to wait while GO depleted its re- sources and then impose very unattractive terms. Perhaps worst of all, some people within IBM viewed GO as a threat. Kaplan never found an internal champion or identified a group within IBM that had a lot to gain by working with GO. At bottom, he simply didn’t understand how to dance with an elephant. GO ended up paying the price. The GO case is only one of many stories of mice failing to ne- gotiate effectively with elephants. Often the outcome is less dra- matic than outright bankruptcy: the mouse gets swallowed by its larger partner at terms unattractive to its shareholders. By giv- ing away too much too early, it prematurely caps its ability to reach critical mass. THE MILLENNIUM EXPERIENCE The difficulty of negotiating with elephants doesn’t mean it can’t be done. A biotechnology start-up, Millennium Pharmaceuticals, faced a situation very much like GO Computer’s in the mid-1990s and the outcome couldn’t have been more dissimilar. 2 Millen- nium’s founders had developed a promising genetics technology for early-stage drug discovery, and they intended to leverage the technology to build a full-line pharmaceutical firm. Their strategy was to create a technology platform that would enable the com- pany to develop and sell information assets—initially drug targets, later drug leads, and eventually elements of the technology itself. The company set out to exploit the new knowledge base produced by the Human Genome Project to speed drug discovery. To realize this ambitious vision, the founders of Millennium had to raise the necessary capital. At the time, the venture capi- tal community was wary of the high risks and long time frames of biotech product development; so was the public investment community. A typical successful biotech company burns through between $500 million and $1 billion in capital before it becomes profitable, and product-based revenues typically do not begin to flow for at least a decade. OVERCOMING POWER IMBALANCES 119 120 BREAKTHROUGH BUSINESS NEGOTIATION Management concluded that Millennium could not secure ven- ture funding at the right terms and decided instead to negotiate strategic alliances with established pharmaceutical companies, both to gain access to capital and to validate the company’s tech- nology in the eyes of the investment community. The new firm would take advantage of the industry’s thirst for new drug candi- dates to engage in targeted collaborations. The revenue generated by contract research would provide funding to develop the tech- nology platform and eventually to produce and market products. Strategic deal making was at the core of this ambitious vision. Millennium not only had to produce knowledge valuable to the pharmaceutical companies; it had to extract maximum value for that knowledge while building the base necessary to develop its own products. Otherwise Millennium would degenerate into a con- tract research shop. The company also had to develop a diverse cus- tomer base or risk losing its independence and becoming a captive research subsidiary of one of the large pharmaceutical companies. In short order, Millennium negotiated alliances with eight of the world’s ten largest pharmaceutical companies. These alliances yielded about $130 million in equity financing, over $200 million in targeted funding for research, $600 million in licensing fees to support technology development, and valuable rights to future milestone payments and royalties, as well as a growing base of re- tained intellectual property to support the company’s own drug- development efforts. This string of deals was capped by a 1998 joint venture with Bayer that qualifies as the largest biotech deal of all time. By 2001, Millennium’s market capitalization had grown to close to $5 billion. DANCING WITH ELEPHANTS Millennium’s success was founded on a set of principles for nego- tiating with much larger partners. These principles represent ways that smaller players can deftly shape the structure and manage the process when facing a negotiating partner of greater perceived power. Sometimes there is no substitute for heavy artillery, but you can do a lot to level the field of battle. Principle 1: Never Do All-or-Nothing Deals The biggest mistake a small player can make is to enter into a sin- gle make-or-break negotiation with a larger partner. Doing so just reinforces the elephant’s perception of its own strength and in- evitably leads to disadvantageous deals. This was the hard lesson GO learned: reliance on a single large partner can lead to depen- dence and then to absorption or extinction. GO focused on de- veloping a single application for one customer, and so was limited to doing a deal with IBM or HP. GO might have survived if it had defined its technology platform as a pen-based operating system, which has many potential embedded and stand-alone applications. This is why it is essential for weaker players to shape the struc- ture of the situation in such a way that everything is not riding on a single negotiation. A primary objective, then, is to diversify part- ner risk so that no single large negotiating partner can exert mo- nopoly power over you. One way to do this is to enter into complementary relation- ships with several larger counterparts. Millennium decided at the beginning to create a balanced network of alliances with larger players. If the company could negotiate a portfolio of roughly bal- anced relationships with larger pharmaceutical companies, the loss of a partner wouldn’t be fatal, and no single partner could hold the company hostage. Millennium had to figure out how to negotiate early deals with large companies without precluding other future deals. Otherwise, it risked selling the crown jewels early and getting locked into too narrow a set of partners. Avoiding this misstep called for leverag- ing the company’s core assets to generate what the founders called "partnerable applications" that would create value for a range of OVERCOMING POWER IMBALANCES 121 potential partners. Millennium decided to invest in developing promising leads in five distinct disease categories: obesity and di- abetes, cardiovascular, central nervous system (CNS), respiratory, and oncology. The company then did a separate deal in each of these areas, with Hoffman-LaRoche (obesity and diabetes), Eli Lilly (cardiovascular and oncology), Astra (respiratory), and American Home Products (CNS). A deal for diabetes with LaRoche didn’t preclude a deal with Lilly for cancer targets. These deals all lever- aged Millennium’s core gene-based technology platform and met important needs on the part of the chosen partners. Millennium reinvested the proceeds of these deals in the technology platform to create still more partnerable applications. Even if you believe that you can negotiate a strong, mutually beneficial relationship with one reliable partner, it’s essential to diversify partner risk: the partner’s strategy can change, or your champions within the partner company can leave, or internal competitors for your offerings can emerge. Principle 2: Make Them Smaller A second classic mistake is to treat a larger partner as a single uni- fied entity. The notion of big-company-as-powerful-monolith fails to recognize that large companies are made up of smaller units led by people with their own incentives and interests. This is increas- ingly true given large companies’ trend toward increasing decen- tralization of responsibility and accountability. The point here is that the mouse should negotiate with the elephant’s leg or the trunk rather than the whole beast. This means looking for individuals and units within the larger company likely to have a vivid interest in what you have to offer and to champion a deal upwards. Your task is to pinpoint potential alignments of in- terests and then to work your way up the chain of authority to someone with real clout and to get them on board. GO never found such a champion within IBM. Perhaps there was none, in which case GO shouldn’t have been negotiating with IBM. But it’s equally 122 BREAKTHROUGH BUSINESS NEGOTIATION plausible that a champion could have been found if Kaplan had relentlessly searched for one, perhaps by leveraging his connec- tions to people like Mitch Kapor and John Doerr. Millennium, by contrast, understood this principle well. It de- signed its deals to be attractive to the leaders of specific subunits within large pharmaceutical companies. This required creativity in structuring deals. More important, it called for a thorough grasp of how the larger partner was organized and how the performance of its key people was measured and rewarded. By framing its early deals in terms of disease categories, Millennium was able to nego- tiate with managers inside the big pharmaceutical companies who cared only about diabetes drugs, or cancer drugs, or cardiovascu- lar drugs. Because an alliance with Millennium would generate a lot of value for these managers, they were willing to advocate in- ternally on behalf of deals with the company. Millennium’s negotiators structured deals to give these man- agers what they needed but still claimed a lot of the value that got created. Specifically, Millennium retained rights to the intellec- tual property that got created and the right to pursue multiple, complementary sources of funding. Millennium committed to producing a certain number of target genes or drug candidates, granting exclusive rights for certain disease categories and non- exclusive rights for others. Steven Holtzman, Millennium’s chief business officer, put it this way: One of the key principles was the notion that the major goal of [units within the large pharmaceutical companies] was the acquisition of targets for small-molecule drugs. What the CNS guys care about is developing CNS drugs. What the cardiovascular guys care about is developing cardiovascular drugs. That’s where their bonuses lie. And they have budgets to fund it. So you can go in and say, "We will undertake a program of research which is going to generate a bucket of knowledge, lots of different molecules, only some of which will be relevant for CNS. You will have the right to exploit OVERCOMING POWER IMBALANCES 123 those targets to develop small-molecule drugs for central nervous disorders. All the bits of knowledge that don’t be- come CNS targets, we own. If it turns out the target is also relevant in cardiovascular disease, we have the right to ex- ploit it." So we could structure deals where they got targets for small-molecule drugs for specific disease conditions. We retained the rights to use that knowledge for many other applications. 3 A corollary principle is: Don’t try to negotiate deals that require approvals from multiple powerful groups inside the larger player. Such deals are a recipe for trouble because cross-unit decision-making processes are inherently political and time-consuming. They may also lead the other side to adopt lowest-common-denominator po- sitions that limit your opportunities to create and claim value. So keep it clean: structure the deal so that it’s within the purview of a single unit within the larger company, led by someone whose in- terests are aligned with yours. Principle 3: Make Yourself Bigger There is strength in numbers. So a mouse dealing with an elephant should focus hard on building coalitions to buttress its bargaining power. An effective coalition can be built with one or a few large players or a lot of smaller players: it is essential to diagnose the sit- uation carefully, identify promising allies, and build alliances with them. The larger player must come to see that you, in conjunction with your allies, are a force to be reckoned with. A related technique is to play balance-of-power politics adeptly. This means finding other large players that can act as counterbal- ances in negotiations—finding a gorilla, if you will, to help keep the elephant in check. GO could have used this strategy but did- n’t. It had a very eager potential customer in State Farm Insurance but never exploited this relationship in its dealings with IBM. Kaplan decided to go it alone rather than, for example, convening 124 BREAKTHROUGH BUSINESS NEGOTIATION a joint steering committee of representatives from GO, State Farm, and IBM to set objectives and oversee negotiations. This was a big mistake. Having built a coalition, of course, you have to expend effort to maintain it. Otherwise, you risk seeing your supporters slip away, leaving you alone in the spotlight. Assume that the elephant will try to blunt your coalition-building efforts and even break your al- liances. Principle 4: Build Momentum Through a Sequence of Deals As David Lax and Jim Sebenius have noted, negotiating the right deals early makes it easier to negotiate subsequent deals at better terms. 4 But early deals with the wrong partners can make every- thing that follows an uphill battle. A small company usually has two objectives in negotiating deals with larger players: building its reputation and acquiring resources (funding, technology, distribution) at attractive terms. In early deals, the reputation-building component looms large. Millennium’s initial deal with Hoffman-LaRoche, for example, put the company on the map as a serious biotech player. It also gener- ated resources to develop the company’s technology platform fur- ther, allowing the company in turn to negotiate alliances with Eli Lilly, Astra, and American Home Products. Clearly, reputational gains from early deals can be leveraged in negotiating later deals. The first major deal is the crux because it defines whether the company is playing in the big leagues. That’s why GO chose IBM over HP: IBM had the resources to make the company’s pen- based computer a standard. So it is advantageous to do the first deal with a big player, even if smaller ones would provide more attrac- tive terms. The risk is that a very strong first partner who negotiates very attractive terms could set a problematic precedent for future deals. The ideal first partner is thus the "wounded elephant"—the one OVERCOMING POWER IMBALANCES 125 that has the most to gain from access to the small company’s of- ferings. In the case of Millennium, the wounded elephant was Hoffman-LaRoche, which was falling behind the curve in gene- based drug discovery and hence was eager for an alliance that would propel it to the forefront. When you think about sequencing your negotiations with ele- phants, ask yourself these questions: • With which set of potential partners would I like to do deals? • Which companies within the set have the most to gain from doing a deal with me? Pursue these partners first. • Which potential partners would want to see that I have done deals with credible partners? Pursue these partners later. • What is the most promising sequence in which to approach potential partners? Principle 5: Harness the Power of Competition Trying to dance with several elephants at once may sound like a dangerous undertaking for a mouse. But a mouse who cultivates competition among the elephants gains bargaining power. This is a classic example of creating linkages among negotiations to shape the structure of a situation favorably. If successful, the mouse may be in a position to demand denial value. When elephants realize that you will do a deal with a com- petitor if they don’t do a deal with you, some will be willing to pay a premium to prevent you from falling under a competitor’s sway. Millennium cultivated and exploited this status: competing phar- maceutical companies that did not want each other to enjoy a leg- up bid up the value of Millennium’s offerings. Of course, it is difficult to harness the power of competition in your earliest deals when you have no reputation. So unless the po- 126 BREAKTHROUGH BUSINESS NEGOTIATION tential impact of your offering is relatively certain, massive, and well recognized, it’s tough to attract multiple bidders early on. That’s why it’s important to do an early deal with a wounded elephant. Once you are on the map and have done the first couple of deals, things change. The watershed appears when you have de- veloped a reputation and people recognize the value of what you have to offer. Potential partners who begin to fear that you will do a deal with a key competitor may seek you out preemptively. As Steven Holtzman of Millennium explains, you can cultivate such fear by strategically sharing information: Whenever we feel there’s a possibility for a deal with some- one, we immediately call six other people. It drives you nuts, trying to juggle them all, but it will change the perception on the other side of the table, number one. Number two, it will change your self-perception. If you believe that there are other people who are interested, your bluff is no longer a bluff—it’s real. It will come across with a whole other level of conviction. 5 Spreading the word that you may do a deal with someone else sets the stage for judicious use of competition in negotiating the terms of deals. As Holtzman points out, competition for your busi- ness also bolsters the self-perception of your negotiating team. If you believe that there are other people who are interested, "your bluff is no longer a bluff—it’s real" and it comes across with much more conviction. After its initial deal with LaRoche, every op- portunity that Millennium explored involved negotiations with multiple potential partners before converging on a single deal. Principle 6: Constrain Yourself Most people resist constraints. But when negotiating with ele- phants, you need plausible rationales for why the elephant can’t have everything it wants. "I’m sorry but you can’t have my cheese" OVERCOMING POWER IMBALANCES 127 probably won’t cut it. Far more convincing is, "Much as I would like to, the terms of my contract with Company X prevent me from giving you that cheese." This is why you may want to constrain yourself, by entering into binding prior agreements, to buttress your bargaining power with elephants. 6 Millennium’s network of relationships with pharma- ceutical companies functioned this way. Its early deals pinpoint- ing specific diseases imposed contractual restrictions on what Millennium could offer to other partners, effectively reinforcing its strategy of narrow deals with multiple large players. The same constraints also protected Millennium from hostile takeover. Acquisition by one of the large pharmaceutical compa- nies would require unwinding a complicated web of agreements. In effect, Millennium had a built-in blocking coalition that would sustain its independence. The price of using constraints as a source of bargaining power is, of course, that they are constraining. They can come back to bite you: if you aren’t careful, you can become so constrained by prior commitments that you have no room to breathe. Smart mice carefully balance the benefits of commitments that constrain ne- gotiating partners against the costs of lost flexibility. Principle 7: Hold the Informational High Ground The right information, processed and organized for easy access, is a potent source of strength in negotiations with elephants. Nego- tiation positions are built on supporting rationales and arguments: you have to build a solid foundation of fact for your position while you attempt to knock supporting pillars out from under the other side. It’s therefore essential to be better prepared than the elephant and to gain and hold the informational high ground in the nego- tiation. 7 Ask yourself: What information would most strengthen my negotiating position? Can I acquire it from prenegotiation re- search, or must I learn it at the table? Start by thinking broadly about the types of information that will leverage you at the negotiating table. You obviously need a 128 BREAKTHROUGH BUSINESS NEGOTIATION firm handle on your own assessment of the economics of the sit- uation so that you are prepared to argue the merits. But in order to anticipate where the ZOPA will lie, you also need to understand how the other side is likely to see the economics. "Remember there’s often a wide window there," says Millennium’s Holtzman. "Partly it’s the intrinsic value of what you have. But there’s also the value to the other side. . . . We spend a lot of time trying to understand how they are modeling it, so that we know whether we can fall within their window." 8 You also need to understand who you will be dealing with and how decisions will be made within the larger firm. What parts of its anatomy will be involved? Who will make the final call? What are the key decision makers’ interests and incentives? GO’s Ka- plan was never able to answer these questions about IBM. Mil- lennium, by contrast, raised this form of intelligence gathering to a high art. "We spend a lot of time thinking about the person on the other side of the table," says Holtzman, "and how he is going to have to go sell this deal to the boss." 9 Collecting information is just the beginning. You also have to analyze and organize the information in such a way that you can deploy it deftly at the table. Suppose you are negotiating to sell your company to a much larger player and you foresee a poten- tial environmental liability on a piece of your property. Identify- ing the issue is just the beginning: you must also generate a list of ways to deal with it. Alternatives might include a reduction in price, indemnification for the buyer, a take-back of the affected land, or a restructuring of the transaction as an asset purchase with the tainted parcel excluded. What is the cost of each alternative? Which, on balance, is preferable? The arguments for your preferred option, and the downsides of the others, must be outlined and quantified before meeting the other side. Which option will the other side prefer? Where are you willing to compromise? All of this information ought to be easily accessible to you. In summary, keep in mind that your core goals in managing the process are to learn and shape the other side’s perceptions. Ef- fective learning helps you gain and hold the informational high OVERCOMING POWER IMBALANCES 129 ground, which in turn equips you to share or withhold informa- tion in order to create and claim value. Principle 8: Take Control of the Process If, as a small company, you are at a significant disadvantage in terms of BATNAs and resources, it is essential to take control of the process. If you let the elephant select the music and lead the dance, you are probably in big trouble. GO’s Jerry Kaplan slipped into this trap: at each stage, he al- lowed IBM to call the tune, reacting to its moves rather than de- signing a process favorable to him. When he was shuttled from person to person within IBM, he dutifully tried to deal with each new player. When IBM sought to impose more and more oner- ous terms, he failed to respond. Millennium’s negotiators, by contrast, skillfully controlled the sequencing of the process, shepherding it through successive stages to build momentum. As Holtzman explains: First we would establish that there was this valuable thing that we could make together, "a bucket of gold." Then at the right time we shift to a dialogue of "Gentlemen, at some point we really need to establish whether we are in the same ballpark, on the same block, in the same city, in the same hemisphere, on the same planet" in terms of monetary expectations. 10 Articulating the reasons that both parties came to the table in the first place establishes an initial sense of momentum. Then, Holtzman says, "We always make the first offer. We want to define the playing field." 11 The more complex the deal, the more cautious he was to flesh out the offer thoroughly and work out the basic structure of the deal (who would get what intellectual property and rights) before even raising the subject of money. Millennium also paid close attention to logistics, including where the negotiation would take place. Holtzman insisted that 130 BREAKTHROUGH BUSINESS NEGOTIATION every individual on the other side who needed to vet the deal be at the table and sometimes even locked the players into a room for days until the deal was done. Millennium also drafted the agree- ments. "We always do the drafting, partly because we think we are better at it," Holtzman notes. "These are very complex deals, and you have an advantage if you know how to deal with the com- plexity." 12 Process control is not a panacea. It can’t compensate for lack of a credible BATNA or failure to cultivate competition or build coalitions. But it can have a substantial impact on the margin, es- pecially in combination with the techniques already described. Principle 9: Negotiate with Implementation in Mind It’s one thing to negotiate an agreement with an elephant and another to get it implemented satisfactorily. Mice often become vulnerable after a deal is signed because they have let go (often ir- revocably) of alternatives. In effect, the strength of their BATNA erodes once the process moves from deal making to implemen- tation. As GO discovered with IBM, when the elephant has you all to itself and gets access to more information about what you are up to, it can really get in your face. This is also a juncture when in- ternal competitors or opponents within the other side can inter- vene to slow or even stymie implementation of the deal. So what can a mouse do to reduce its vulnerability in the im- plementation phase? In brief, try not to burn your bridges, and try to preserve the strength of your BATNA in case serious problems arise during implementation. This is easier said than done, which is another reason not to put yourself at the mercy of a single large partner. Second, give your champions within the other side as big a per- sonal stake as possible in successful implementation of the deal. They need to own it in a visceral way. Entangle them, cognitively and emotionally, in making the deal work. As Holtzman puts it, "There are three things to making deals: you have to move minds, OVERCOMING POWER IMBALANCES 131 hearts, and bodies. You have to move someone’s mind; the deal has to make sense. But you have to move their heart too. They have to believe that the deal is good in an emotional way. Then you have to move the bodies to close the deal." 13 A related technique is to negotiate a formal structure for over- seeing implementation as part of the deal and, crucially, build a network of personal relationships that will supply you intelligence about what is going on and social capital to draw on if things get tough. GO didn’t build a formal implementation structure or good working relationships, and repeatedly it got blindsided. Millen- nium, by contrast, established multilevel governing structures up front, not just a joint management team with each partner but a joint steering committee composed of higher-level executives from both companies. Millennium also fostered informal relationships at multiple points of contact. That network provided Millennium with an early-warning system about changes in partners’ direction and intentions. "That was something which we saw becoming more important over time," says Holtzman, "especially as com- panies change people. We need to be able to maximize the value of the relationship, even through the changes." 14 Finally, leverage the coalitions you build during negotiation into implementation of the deal. For example, GO could have in- vited its champions at State Farm to participate much more ac- tively in implementation of the deal with IBM. Principle 10: Build Superior Organizational Capabilities To apply the first nine principles, you will need specialized orga- nizational capabilities. The foundation is getting the right tech- nical and business people on board, and then setting up the right team structures and coordination mechanisms. Beyond that, it is essential to forge relationships with skilled external advisers, such as lawyers and investment bankers. These are the necessary conditions for success, but they are not sufficient. You must be organized to learn rapidly as you do more 132 BREAKTHROUGH BUSINESS NEGOTIATION deals with elephants. Fast learning is a dynamic source of advan- tage for small players: if you can learn from past negotiations, cap- ture the resulting insights, and, crucially, share these insights among yourselves, you will increase your overall negotiating effectiveness. But unless you put specific mechanisms in place to capture and dis- seminate learning, valuable knowledge will be lost. Given the press of business, it requires real discipline to set up and maintain orga- nizational learning processes. But the rewards well outweigh the costs. It is particularly important for small players to cultivate orga- nizational capabilities and not just individual competence. Oth- erwise, you will run the risk of being dependent on one or a few people and suffering greatly if you lose them. The starting point is to ask some basic questions: How can those newly hired learn to negotiate? Are insights from past negotiations captured and shared? How is knowledge preserved and forgetting prevented? Particularly in organizations with substantial turnover, the risk of losing institutional memory is very high. Memory loss can be avoided only by self-conscious management of the acquisition and dissemination of knowledge. Collective knowledge sharing and reflection could take the form of postnegotiation debriefings that distill and share lessons learned or reports that summarize specific negotiations. Person-to- person transmission is usually more flexible and time efficient than written documentation. Flexibility and time efficiency are im- portant because of the pace at which most negotiators operate. Busyness—a given in small organizations—is often the enemy of learning. NEGOTIATING AS AN ELEPHANT It seems only fair to close with a few thoughts on how elephants ought to deal effectively with mice. Elephants’ most common mistake is overreliance on their power (a strong BATNA and lots of resources) to impose terms on OVERCOMING POWER IMBALANCES 133 weaker players. Power may work, but it is likely to provoke resis- tance on the part of mice who don’t like being dictated to. It may also provoke reactive coalition building, prompting the mouse to seek out allies. Even the best-intentioned elephant can fall into this trap, because the mouse is likely to feel on the defensive be- fore the negotiation even begins. It takes only small slights to ac- tivate the mouse’s expectation of being taken advantage of. A second mistake is to get nibbled to death by many mice. At the height of the Internet frenzy in the late 1990s, a large soft drink company was approached by many small firms eager to leverage the big company’s core brands. The small companies were apply- ing a principle we endorsed earlier: make overtures to interested individuals and units within a larger company seeking to cut a deal. Chaos threatened, so the soft drink company created a cen- tral point of contact to keep track of and vet deals. Individuals in the line organizations remained champions of individual deals, but the central group represented the corporate interest in selecting partnerships and conducting negotiations. Beyond using power deftly and maintaining a companywide perspective, how you approach deals with mice flows from a basic strategic decision: Will you try to preserve and deploy your power to extract very favorable agreements, or will you position yourself as the partner of choice for smaller players? If the former, you should work to blunt the tactics that we have urged mice to em- ploy. If the latter, you should cultivate the reputation and ca- pabilities to negotiate and sustain deals with smaller and more vulnerable partners. Many negotiations match stronger and weaker parties: entre- preneurs deal with venture capitalists, suppliers deal with cus- tomers, and small companies are acquired by conglomerates. In these situations, it is essential to be realistic about whether you are a mouse or an elephant and to condition your approach to nego- tiation accordingly. 134 BREAKTHROUGH BUSINESS NEGOTIATION

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