How good a negotiator are you? When you negotiate, are you playing chess or checkers? How about the person on the other side?
Being a good negotiator has a lot to do with knowing how to create a fair deal for both sides to get as close to what they both need from the deal as possible.
In addition to mastering negotiating frameworks like those presented in the excellent book, Never Split the Difference it is helpful to consider the documentation side of negotiation as well.
I can think of literally dozens of critical negotiation points that appear in documents that are supposed to just “paper the deal” which are often overlooked by attorneys eager to move on to the next case, or who have no actual real world experience dealing with the consequences the clauses they put into their deal documentation.
Similarly, many entrepreneurs eager to avoid the time and expense of attorneys, may play cut-and-paste lawyer trying to document a deal without knowing the nuances of all the clauses they are including or deleting.
The bottom line is that every single word is important. If you (or your attorney) don’t fully understand why everything that’s in your deal docs is in there, you might very well be setting yourself up for a lot more than you bargained for, literally!
Contracts and Commercial Law take up semesters worth of law school education time, so I can’t begin to scratch the surface of the important specifics here in this post.
Instead, I just want to make you aware of a small slice of what a good negotiator and deal documenter is thinking about while negotiating in every conversation BEFORE anyone even gets to drafting contracts for a deal.
There are several major categories, each of which has several different leverage points.
Here are 25 different deal documentation negotiation categories just to give you an idea of what a smart negotiator is ideally thinking about but not necessarily sharing during the negotiation:
Taxes of all types
Legal defenses available
Performance + time
Reps and Warranties
Each of those has many nuances, and there can be huge consequences to each.
Oh, and that’s not an exhaustive list.
Also, knowing the end-runs savvy counsel may try to run on you can help tremendously in building great contracts.
Knowing that all of these things are in play should affect every aspect of your pre-agreement negotiation strategy and deal/term sheet points as well.
I can count on one hand the number of times I’ve encountered someone on the other side of the table who was clearly aware of and actively working on all of these deal point categories as part of the negotiation.
If there’s a gap, you can often fill it in the manner most favorable to you or your side.
I have found that many attorneys don’t even know why they are using different clauses in the agreements they draft from form books or prior deals or that they inherited from their firm’s forms library.
So, be aware and understand that the next time you are papering a deal or having a conversation about deal points, you need to be acutely aware that this is a game of chess and. Be sure that it is not a game of checkers that you are playing.
In closing, please do remember that no matter what the other side may agree to, if you are truly interested in a long-term deal and a relationship that will last, you won’t let them agree to something stupid. Even if you build in good protections for yourself, you need to create something of value for both sides.