Saturday, October 1, 2011

Negotiate the Price Last

One of the start-ups that I am advising is trying to hire its first employee. The candidate said he was making a certain amount of cash in his current job and would like to make more if he changed jobs. The start-up's founder told him they could do that and offered him a specific salary. The problem? This candidate has not yet decided that he wants to work at the start-up. So what? Well, he might use our offer to negotiate a better salary at his current job, then ask us for even more. Or, he might think of this offer as a starting point and ask for more once he is ready to take the job. A better approach is to first focus on getting the candidate to want to join the start-up (without getting into the specifics of the compensation, other than communicating that, if both sides want to make it happen, we are confident we'll find a way). Once the candidate wants to join, then the start-up can find out what the is least amount of cash that will be necessary to hire the candidate (within reason of course) and try to agree to that. BTW: If the cash is lower than market rate most start-ups are better off compensating for that with a generous equity package. But it is hard to go there after you've offered a high cash comp.

So what does this have to do with the kids? It will be a while before they are hiring anyone :-). But the same principle applies when selling anything (not just a job at a company). For example, A recently sold his iPad, and P might want to sell his old iPhone when the new one comes out. Imagine you have a potential buyer who is interested but hasn't yet decided they want what you are selling. Maybe they are undecided between an iPad and a Kindle Fire, or between an iPhone and a Blackberry. No point in negotiating the price until the buyer has decided that they want to buy what you are selling (assuming you can agree on price). If you tell the buyer what your lowest price would be before he has decided that he wants what your are selling he will go to other sellers and try to get a lower price from them. If he does you might be out of luck. If instead you wait until the buyer is "ready", he might get final prices from other sellers and be ready to close when you give him your best price.

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