Doing Deals With the “Big Boys” – Ten Tips For Entrepreneurs

Entrepreneurs often find themselves in high-stakes negotiations with big, savvy players, with significant negotiating power (referred to herein as “Big Boys”) — whether it be a venture capital firm in connection with a financing or a private equity firm in connection with the sale of the entrepreneur’s business; the situation can indeed be daunting. Below are ten tips for entrepreneurs to help them through this process.

1. Retain a Strong Team. In dealmaking as in business, you are only as good as your team. Accordingly, the first step for the entrepreneur is to retain a strong transaction team — and the quarterback of the team should be an experienced corporate lawyer. Indeed, an experienced corporate lawyer will not only add value to the transaction, but also can help the entrepreneur build-out the team and tailor it to the particular deal (e.g., in an acquisition, a strong tax lawyer is imperative to help structure the deal or in a licensing transaction, a strong IP lawyer is often necessary, etc.). The Big Boys are generally represented by large, aggressive law firms, and the entrepreneur must ensure that his/her team is up to the task.

2. Do Your Diligence. Due diligence is often a critical component to any deal. One form of diligence that is often overlooked, however, is an investigation of the guys on the other side of the table. What’s the reputation of the Big Boy — e.g., is this a venture capital or private equity firm that treats its portfolio companies well or is this a firm that squeezes the little guy? What about the particular individuals with whom you are dealing? What are their reputations? Are they good guys with whom to partner or are they jerks? Indeed, the web is a good starting point for the entrepreneur who needs background information on a particular firm/individual. At a minimum, the entrepreneur should track down other entrepreneurs or CEO’s who have done deals with the guys on the other side of the table and make an informed judgment as to whether they are guys with whom the entrepreneur wants to do business.

3. Create a Competitive Environment. There is nothing that will give the entrepreneur more leverage in connection with any negotiation with a Big Boy than a competitive environment (or the perception of same). Indeed, every investment banker worth his salt understands this simple proposition. Accordingly, a start-up seeking a Series A round financing from a venture capital firm, for example, will clearly be more appealing if such firm learns that other venture capital firms are interested in the start-up. Not only does competition validate a firm’s thinking, but also it appeals to the human nature of the individuals involved. Indeed, everyone wants what he doesn’t have and/or what someone else wants. The entrepreneur will have strong leverage with respect to price and other material terms as competitors are played off of each other and will thus strike the best possible deal. One caveat: as discussed below, it is probably best left to a strong corporate lawyer to play this game on behalf of the entrepreneur; indeed, this strategy must be played carefully and is better-handled by someone with experience.

4. Run the Negotiations Through the Lawyers. The entrepreneur should do what he does best — i.e., build companies — and leave the negotiating to a strong corporate lawyer. Entrepreneurs are generally no match for sophisticated venture capitalists or private equity or corporate development guys who do deals for a living. Accordingly, a smart entrepreneur will stay above the fray and let his corporate lawyer run the deal. The Big Boys may try to do an end-run around the entrepreneur’s lawyer (and may even criticize the lawyer and try to turn the entrepreneur against him), but the entrepreneur should remain disciplined and avoid “side-bar” negotiations with the principal(s) on the other side. This approach is particularly important where the entrepreneur will have an ongoing relationship with the other side post-closing; the goal is thus not to poison that relationship with testy, acrimonious negotiations (i.e., let the lawyers fight it out).

5. Develop a Game Plan. Every deal is different — different players, different negotiating leverage, different risks, different timing — and it is thus critical that the entrepreneur sit down with his transaction team and strategize; in short, he must develop a game plan and then attempt to execute the plan. Indeed, doing deals is no different than any other project: the entrepreneur must think through the issues with a smart, experienced team, set reasonable milestones and then monitor the progress. Rigorous analysis throughout this process is paramount.

6. Be Careful with LOI’s. A letter of intent (an “LOI”) — sometimes referred to as a term sheet or memorandum of understanding — is often executed in connection with all types of deals. The entrepreneur must understand that, depending on the deal and the context, there are different LOI strategies and considerations that must be addressed. For example, in the acquisition context, a selling entrepreneur should try to negotiate all of the material terms of the deal in the LOI when the entrepreneur’s leverage is the strongest; on the other hand, a buying entrepreneur’s main goal with respect to the LOI is merely to lock-up the seller and prohibit it from shopping the deal for a reasonable period of time. Another major concern with respect to LOI’s is that they may be deemed enforceable by a court of law (i.e., be deemed a binding agreement) — despite express language in the LOI to the contrary. The lesson here is simple: an LOI should not be executed without the advice of competent counsel.

7. Check Your Emotions at the Door. Big Boys are masters at taking their emotions out of transactions and being extremely disciplined. Indeed, Big Boys will generally walk from a deal if they get out of their comfort zone (e.g., with respect to the risk profile, price, etc.) — regardless of how much time and money they have expended. Entrepreneurs, on the other hand (particularly those who haven’t had much deal experience), often become emotionally wedded to a particular transaction and are unable to maintain their objectivity the further along they get in the process. Too often, an entrepreneur will fall in love with a particular deal — like the first-time home buyer — which will lead to poor decision-making and risky positions. (“I don’t care if it has termites or there is a cesspool problem, I love this house” becomes “I don’t care if I must personally guarantee all of the reps and warranties without a cap on liability, I love this deal.”) It is critical that the entrepreneur understand this dynamic and address it accordingly.

8. Don’t Blink First. There comes a point in time in just about every deal where both sides have dug into certain positions and the question becomes which side will blink first; e.g., in a venture capital financing, perhaps the issue is control of the board or, in an acquisition, perhaps the issue is carve-outs to the cap on liability. Whatever the issue, the lesson for the entrepreneur is clear (albeit difficult to execute): in order to maintain negotiating leverage and credibility, the entrepreneur should try not to blink first. Indeed, if the entrepreneur has flatly stated that “this issue is a dealbreaker”, but then blinks and nevertheless agrees to go forward with the transaction despite not getting what he asked for, he will have completely undermined his credibility and will have his clock cleaned with respect to any other significant issues. Like poker, if your bluff gets called, it will be difficult to bluff again. Which brings us back to the important tip in #4 above: run the negotiations through an experienced corporate lawyer who does this stuff for a living.

9. Watch-out for the “Good-Cop, Bad-Cop” Routine. Big Boys employ all kinds of negotiating games, and one of their favorites is the “good-cop, bad-cop” routine. The Big Boy, of course, plays the good cop and is smooth, friendly and agreeable and makes the entrepreneur feel like all of his important issues are being taken care of. But then the documents arrive — chock full of bells and whistles and boilerplate provisions designed to protect the Big Boy and often with significant gaps on the deal points. When the Big Boy is questioned as to what’s going on here, the answer, of course, is “it’s my lawyer’s fault” (i.e., the “bad cop”). This game will continue throughout the negotiating process as the Big Boy charms the entrepreneur while his lawyers pound away on every significant issue.

10. Hire an Aggressive Corporate Lawyer to Watch Your Back. As a corporate lawyer at two major New York law firms, I have learned first-hand the importance of watching my clients’ back. Indeed, I have worked on billion-dollar deals where, prior to signing, emotions run high (as discussed above), and a few of the significant risks are minimized or pushed-aside by investment bankers and/or business guys in order to get the deals done. My job, probably more important than anything, is to sober the entrepreneur and lay-out all of the significant legal risks — and then push hard to negotiate appropriate protections. If the deal sours and lawsuits are filed, well-drafted documents become like an insurance policy to the entrepreneur — and what entrepreneur doesn’t have insurance?

How Entrepreneurs Can Benefit From Free Advice

One of the most challenging things about being an entrepreneur is getting the advice you need to move forward. The Internet is full of suggestions, but unless you already know how to separate the wheat from the chaff, you have about as much chance of finding what you need as what will lead you astray. But, that’s no reason to be disheartened, because with a little creative thinking, you can get some of what you need for free.

How can you separate the two? Here are a few suggestions.

1. You need to have very clear ideas about what you’re looking for.

The more vague your questions are, the more abstruse any information will seem to you. If you’re unsure of what you want to discover, then put your uncertainties into the form of questions. Make them as specific as you possibly can. The more precise you make them, the more closely they’ll come to help you solve your problem.

2. Recognize that the best information is not necessarily sold.

It may, and often is; but of itself, whether you pay for information or not is no guarantee that you will get either what you need or that it will be accurate. That means that it could be irrelevant, inaccurate, or both.

3. Consider the source.

It may seem counterintuitive, but many entrepreneurs will gladly talk to you about your business and what you should do next if you’ll just ask them.

On of the most annoying things I recall encountering when I was living the UK was that almost without fail, whenever I ask a question of a “professional” that required his or her expertise, the first words out of his or her mouth were something like, “Who’s going to pay for it?”

I’ve since come to realize that you must give before you can get. That’s not to say that you never sell; but only, that none of us can achieve the business success we desire without the help of others. And those who think they can just take from others without giving anything themselves will eventually find that they come up short.

If the person you talk to is generous with his or her expertise, then you can be reasonably sure that that person is passing along valuable information. It’s only those who cling to what they know for a price who possess very little of value.

15 Characteristics Of Successful Entrepreneurs – Do You Have Them?

Most people are longing to start their own businesses. But do they know what it takes to become successful entrepreneurs? What about you? Which characteristics of successful entrepreneurs do you bring in the business you have or you intend to begin? Before going any further into the details, let me define an entrepreneur as someone, who makes money by starting businesses with some kind of financial risk-taking involved. Is that what you are?

Well, every person joins business with various reasons. These reasons usually determine the performance of the business. I have discovered that many people think that success in business depends upon being highly educated, having lots of money and a supportive family. However, the bottom line of success in your business is motivation, fuelled by the desire to achieve and the enthusiasm to do your business. A highly motivated person tends to behave in a certain way that leads to success and it’s a distinguishing factor of all successful entrepreneurs. How motivated are you?

Through this article, allow me to share with you 15 characteristics of successful entrepreneurs that are fundamental to building a successful business. If you are aiming at succeeding in your business, then it’s high time you started acquiring the following behaviors.

1. BE AN INNOVATOR. To succeed you have to be creative. All successful entrepreneurs think a lot differently from ordinary people. They see things other people have not yet mirrored and are able to introduce new things and new ways of doing things.

2. LEARN TO SOLVE PEOPLE’S PROBLEMS. Successful entrepreneurs are problem solvers. They have the ability to identify specific problems of a given customer group, which require their products or services to be solved. As they solve their customers’ problems, they end up making money. Turning people’s problems into great opportunities is one of the characteristics of successful entrepreneurs.

3. BE AN INFORMATION SEEKER. There is no successful entrepreneur who is not hungry for knowledge. You have to get new knowledge, new information and new skills for you to become successful in what you are doing.

4. PERSISTENCE WILL HELP YOU TO SUCCEED. All successful entrepreneurs keep on and on no matter how hard the going may be. They are success-conscious and believe in succeeding despite all roadblocks. They believe that riches come only to those who work hard and long. Indeed! By working hard and consistently long, riches begin to power so quickly and in such a great abundance that you even wonder where they have been hiding during all those years of toiling.

5. LEARN TO SET GOALS. This helps them to know where they are going and how to go there systematically. Without setting goals you are like someone who is blindfolded and asked to shoot the target. You will never know where the target is and you will only be gambling.

6. COMMITMENT TO WORK. How committed are you to your work? Successful entrepreneurs are able to initiate and to pursue their work contracts to the end. They are self-driven and do not need anybody to drive them, to supervise them.

7. DEMAND FOR EFFICIENCY AND QUALITY. Demanding for efficiency and quality is one of the characteristics of successful entrepreneurs. They detest mediocrity and can never settle for that. They are able to achieve the desired results without wasting their energy. They always aim at offering goods and services of the highest quality.

8. BE HARD WORKING. Successful entrepreneurs are hard working people. They spend a lot of time, energy and other resources working on their businesses to achieve the desired results. They inspect to get what they expect. They think big and strategically.

9. AIM AT ACHIEVING YOUR GOALS AND DESIRES. All successful entrepreneurs are achievers. They do not give up when faced with a temporary defeat. They do not despair because they are highly motivated people. Whatever they put their hands and their minds on, they commit themselves to achieve it. Until they achieve it, they do not stop. Even after achieving it, they look forward to strengthen their achievements.

10. BE A RISK TAKER. Taking moderate risks is another characteristic of successful entrepreneurs. They don’t fear to take risks. FEAR to take risks discourages initiative, brings about uncertainty of purpose, destroys ambition, kills enthusiasm, destroys good reasoning and stops you from taking action. Besides, there is nothing you can engage yourself in without any risks involved.

For instance, by just driving your car to go to work, you risk getting involved in an accident. But if you already know it, you take precautionary measures to avoid getting an accident other than opting not to drive. That’s how successful entrepreneurs go about their business. They anticipate the risks involved and think of how to overcome them in case they manifested.

11. DESIRE TO BE INDEPENDENT. Desiring to become independent is one of the characteristics of successful entrepreneurs. They have a strong drive to be masters of their own life, to take their own decisions and to pursue their own destiny.

12. LEARN TO CONTROL YOUR OWN DESTINY. Successful entrepreneurs control their own destiny. They don’t lose focus of what they pursue. Having a strong desire to walk their road to riches is one of the characteristics of successful entrepreneurs. The end justifies the means.

13. BE DETERMINED. Successful entrepreneurs are so strong-minded that they do not give up despite any obstacles. They are always determined to transform their desires and thoughts into their monetary equivalent at any cost.

14. HAVE SELF-CONFIDENCE. Successful entrepreneurs don’t depend on luck. They are able to visualize and they believe in the attainment of their desires at all cost. Ability to visualize and to have faith in the attainment of your desires is an important factor in building your self-confidence.

Developing a high level of self-confidence is a key element in effective business management and success. You need to be sure of yourself to tackle the tasks at hand. You need to have high expectations of achieving success. If you think you can, then you can. But if you think you can’t, the chances are that you cannot. “Yes, we can”, is the winning formula President Obama applied to become president. You, too, can follow the same principle to become a successful entrepreneur.

15. Last but not least, BE CREDIBLE. Credibility is an important element to the success of any businessperson. In my article entitled “Personal Branding, A Key To Success In Your Business”, I emphasized the importance of credibility. Let me not overemphasize the same point but it’s the absolute truth that successful entrepreneurs are credible and honesty paves the way for them to succeed. Will this information help you?