27 Apr 2022 · 15 min
In this episode of Founders Journal, host Alex Lieberman interviews entrepreneur‑investor Codie Sanchez about practical negotiation strategies for founders, investors, and everyday situations. Sanchez emphasizes three core habits: (1) simply ask for what you want, framing requests as levers that create value; (2) align incentives so both parties benefit, making the deal sustainable; and (3) prepare rigorously, internalizing a mantra that you must negotiate for your needs or the partnership will fail. She shares concrete tactics such as using firm‑and‑final language, avoiding over‑explaining, writing concise letters of intent (LOIs) that state price ranges, and tempering seller expectations with industry‑standard multipliers (e.g., EBITDA multiples). Sanchez also discusses negotiation nuances for buying small businesses, real‑estate leases, and job compensation, arguing that negotiating is a muscle everyone should develop. The conversation wraps with a brief reflection on Elon Musk’s “no‑negotiation” approach, which Sanchez deems context‑dependent, and a call for listeners to apply these principles in their own deals.
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What's up, everyone? This is Alex Lieberman, co-founder and executive chairman of Morning Brew. Welcome back to Founders Journal, where I give you, the business builder, the tools you need to think better in order to build better, whether that's building a business, a team, or a new product. We've got a really exciting episode on deck for you today. I am once again joined by friend of the pod, Codie Sanchez. Codie is an entrepreneur and an investor who has climbed the corporate ladder and built businesses along the way. She's also become a master at negotiating. So in this episode, part 3 of our latest conversation, Cody offers some tips, tricks, and principles to negotiating that you must hear. Let's hop into it.
Okay, so let's do a few, like, quick conversations.
I like it.
One thing, talking about, like, your wedge or the thing you're known for. If you were to ask me, you know, what is Cody Sanchez exceptional at, or what does she know better than 99% of people, I would say negotiating. And it's funny because like, I don't actually know your negotiation ability. I've never negotiated with you or seen you negotiate. But I actually think it's something that through creating a fair bit of content around it and just knowing you're assessing many deals, you've done many deals, it is a muscle that you've had to build up. And so I would love to hear from you as I go about either one, angel investing more and potentially negotiating for advisory shares or preferred placement in previous rounds, which, by the way, I've never negotiated for that before, or negotiating buying a mini golf course or a house on a college campus, which I've thought about. What are the principles you keep in mind to be a good negotiator, but where you don't leave the other party feeling like shit?
Yeah, so important. A couple of things. One, I would say is you'll be better than 99% of negotiators if you just ask for the things that you want. Most people don't ask for anything. So that's like the one-on-one version would just be in the next conversation you have with an investor to say something along the lines and just get yourself used to saying it. Hey, I think this is a really cool company. I want to invest in you. Or I think this is a really cool company. I want to work for you. You know, for people out there listening who are just thinking about it that way. And I would say, so, you know, I want to be in here, but I want, you know, this one extra thing. And so what you just need to think about first, which are, what are those levers? What are those things? Could they be? And in this instance, you might say, hey, your valuation is at this. This is kind of high for me. What if you let me in at the last round's valuation and I make an introduction to these people for you? Or you might say, hey, what about I come in at this amount for you, but I also do these couple of other things and intros, would you be open to advisory shares too? for something like that? And then you can use my name and I'll make these other introductions. And if we do something like that, I will be more incentivized to make you more core to the things I talk about across my multimillion-dollar media empire. So that's one, just ask. Step 2 is always go about it from incentive alignment. So I'm like, and we've kind of negotiated about some stuff, so I might say upfront, So you already know my pain points. Like, hey, you're going to need a lot of time from me on this sort of thing, right? And so you're going to want my time and attention. And in order for that to be worth my time and attention, X has to happen.
Mm-hmm.
So I don't want to— I don't want to bullshit you on this. You want it. You're like, honestly, you're being honest and you're saying, so I'm not going to tell you I'm going to do Y unless I get X, because otherwise we're not incentive aligned and then it's going to be bad for us long term. You're going to have bad expectations. I'm going to have bad— it's like nobody wants that. So that would be number 2 is like, how can you show them that what they give you is actually making you aligned to give something back to them, because humans only operate off of incentive alignment. The third thing that I would say is prep, prep, prep, prep. I hate negotiating, actually. I hate it. It makes me uncomfortable. I don't ever want anybody to feel like I'm greedy about things. I'm the opposite of the type of person who really gets off on this kind of stuff.
It's like just the epitome of tension, and tension is super frickin uncomfortable.
Right. But again, I'm very American. We don't like to negotiate for things.
Yep.
And so what I do beforehand is I prep because I know— I repeat this little mantra to myself. If I do not negotiate for what I ask for, this partnership or this deal or this whatever, long term, will not work. It will not work because I won't actually get out of it what I want. They won't get out of me what they need or out of this deal what they need because I won't have negotiated it well and it will be bad long term.
Yeah, you've just set the wrong expectations.
Exactly. And so I'm like, I have to prep beforehand to tell myself, here's the story I'm going to tell myself on why I have to negotiate hard for the things that I want.
Yeah.
And then the second step to that would be I actually would go back and forth. So I'd be like, Alex, can I call you right now? I'm going to have— for instance, you know that I've had some difficult conversations lately. I would call you like I have and say, hey, I'm struggling with this. I'm like too close to this deal. I'm emotional about it. So like, can we go back and forth? How would you say this? So, I think this might happen. I'm thinking to say this. What is that? And then, like, 2 other really quick things that one of my friends that was in the CIA told me that I love is he was like, firm and final, firm and final, firm and final. And so, no matter what, it's like you're breaking up with somebody. You're like, here's what's happening. This is, you know, where we're going from here. And it will happen today, in 3 weeks, or whatever. And you just don't overexplain. That's a female tendency sometimes, at least in my experience and for myself.
I'll—
like try to get them to agree with me. You don't have to get them to agree with you. You just have to get the deal done.
Well, I think when again, we're nervous and when we sense tension and we're afraid that we're hurting someone, it's like I find this is my instinct also, is you have to explain and explain and explain. But oftentimes when you explain, you have to walk back things that you didn't really want to say.
Yeah, it's exactly right. And it just gives everybody more wiggle room when you know what the outcome is going to be. And, you know, it's very easy for all of us to say this Monday morning quarterbacking, but when you know what the outcome is going to be, it doesn't matter all the other explanations. Again, you're not like in this situation, in most negotiations, the other person is probably not going to agree with you that they should give you more money and more time off and more X and more Y. They don't— they're not going to agree with that. But, you know, if you say this is what it is and what I need, even though they might not agree, you may get it.
Yeah, because it forces them to just think about the tradeoff or the opportunity cost of is it worth losing this opportunity or this person for this one thing, and you at least force them to think about that versus never bringing it up at all. One last question on the negotiation part here is I just have to ask about this because this is so timely. When you think about how much room you leave for negotiation to happen, like where you give a super highball or lowball because you know there's going to be a negotiation versus just saying exactly what you want, what is your approach? And the reason I ask this is because obviously a shit ton has been happening with Twitter recently. Part of what's been happening is Elon sending, you know, the letter to the board saying he's interested in buying the company. He said he would buy it, you know, for $50-something billion, that it's a great offer, that he is going to be the one to unlock the value for the company. And the best line in the whole thing is he goes something along the lines of there will be no negotiation. Quote, I have moved straight to the end. Do you think that is a smart negotiation tactic to say I have moved straight to the end?
I think in this instance, he knew they were never going to negotiate with him.
Yep.
And so going back and forth would have given them an excuse and time to do different things that he doesn't want to give them time on. So in this instance, I think he was smart. I don't know if I would have done everything the same way that he did. He did some kind of crazy Twitter stuff that I don't think that probably helps his case very much.
Yeah.
But then again, I'm not a billionaire, so who knows? Maybe that was a smart move. But I think, you know, for me, I try to not fuck around too much at the margins, actually. So, you know, if I'm going to buy a company, here's how I do it in 30 seconds. So they usually have a price that they tell me upfront, price and terms. And I'll say, hey, I'm going to write an LOI, letter of intent, that basically says, yeah, if what you say is correct, somewhere around that price is reasonable. I'm not going to even negotiate anything price-wise upfront. I'm just going to say, we're going to deal with that later. But theoretically, if everything is as you say and with the assumptions that you have, okay, maybe the price is around there. Fine. Then I'm going to go and do a bunch of due diligence, and I'm just going to check the assumptions. And then I'm going to go back to them and be really, really realistic. And I'm going to say there's a range. And the range is usually pretty tight. I think this business is worth 3 to 4x profit based on these characteristics. And there are things that could make me go lower and higher in this particular offer. But here's like the range that we would need to be in, and we could talk about terms on it.
Yeah.
But I'm going to be pretty tight. And that's because when I'm buying businesses, I am not negotiating with sophisticated sellers typically. And so the simpler and more honest I can be with them, the less shenanigans, the more likely I get the deal done. And I think for 99% of the people, that's true. You're not going to do a Trump-style, you know, walk out of the room and then walk back and like starve them from food, you know, so that they're hungry and want to get the deal done. That's probably not likely in today's world. So that's what I would say. I try to be tight and honest in it. One other thing about negotiating for small businesses, at least, is you actually— so there's an old adage that's like, let the other person put the terms down first.
Why is that?
Right. I don't think that's true with small businesses because they get a crazy number in their head that's like, I want to sell for $5 million. And you're like, why? 'Cause, and so—
It just frames everything so high.
Right. And so you wanna say, businesses are typically bought at this type of multiplier. This is the multiplier at which I typically buy businesses, just so you know upfront. And then that tempers their expectations and you can move forward from there without telling them their business is worth 1/5 of what they said.
Yeah, I think that makes total sense. I was talking to a mini golf course owner the other day who's like, you know, does the whole song and dance about, I don't feel like I have to sell. I'm not a forced seller, which means it would have to be an egregious price. And so what I would need is 12 to 14 times EBITDA. And, you know, obviously that frames things differently when the intention of my partner and I is to buy a mini golf course at 2 to 3 times EBITDA. And so it creates like a really hard conversation where it feels like, oh, should we even talk? Because this is, you know, light years apart. The last question I have for you before we hop is Do you believe that people should always negotiate? And so I'll just give you 2 examples, whether it's someone who is in a job and they got a promotion, they're offered a new salary. Should they always negotiate that? And the second option, which is very near and dear to my heart, is recently went to renew my lease in my apartment. It's an owner that we rent from. He put a number in front of us.
My—
and me as the person who's just very calm and aloof and like, whatever, let's do it, is like, oh, Carly, we don't need to negotiate. Like, it's— it seems fair. Whereas Carly's like, no, you frickin negotiate everything. So in the context of job or just in general, do you think you need to always negotiate?
I think it's a really good muscle to learn to flex. So yeah, I mean, I even— I don't know, you know Byron Katie? She's kind of like old school. She does this thing called positive inquiry. Basically, she's a mind and mental health coach. Actually, you'd probably like her. She has this thing where she asks herself questions like, when you say something negative, like, are you sure that's true? Is it absolutely true? Could there be a universe in which it's not true? And so you sort of reframe yourself. Anyway, one of the things that she talks about is that most people are not comfortable asking for the things that they want. And since they don't ask for the things that they want, resentment builds up, which actually creates more conflict. And so I think negotiating helps tamper some of the contract language.
That's really interesting.
Yeah. So I think you should negotiate. Now, here's the flip side. So this is where then everybody goes, well, except for your employees, right? I'm like, no, no, no. Employees can negotiate with me too. Absolutely. And I would love if they negotiated for me, because it's actually a lot of work— you know this— to put together an incentive alignment plan. A comp plan is a lot of work. And so if instead they came to me and were like, hey, I run your X. If we increase sales by Y, because I do X sort of characteristics or activities, the business makes Z, and thus I'd love to figure out a way to get more of that Z. Here's my ideas on that process. I'd be like, buddy, yep, let's do this.
Yeah.
The problem is most people negotiate like, hey, I want more money. And you're like, me too. Okay. And so I think that's the difference. Saying to your landlord instead, like, hey, we'd love to stay here, we like the place, you've been an awesome landlord, we appreciate you, we hope we've been great tenants for you too. I think we have. Nothing that you have to worry about, which in this day and age, especially with what's happened with COVID it's probably pretty nice. You don't have to worry about us. Now, with that vein, we've been thinking about buying a place, but part of me is like, I think we should just stay here. And I think we should really enjoy this property. We have other stuff we want to focus on for the next 3 to 5 years. So with that, would there be any way that you could decrease our rent? And then he might say no, but maybe he was going to try to increase. But could you decrease it? Because we think these things mean that that's a value add for both of us.
God, I would have— I would have paid you to negotiate with my owner and given you a take rate like that. That should be a job in itself, is negotiation for take rate of what you save people on.
Deal. Deal. Let's switch negotiations we have to do the next couple of weeks.
I love that. Okay, we're going to put a pin in it. Codie Sanchez, queen of boring businesses. Thank you so much for joining the show.
All right, guys, that was the final edition of my 3-part conversation with Cody Sanchez. And now I want to hear from you. 2 questions. One, what is a future topic you want me to cover on Founders Journal? And 2, would you like to see me have guest co-hosts in the future of the show? Shoot me an email to alex@morningbrew.com, and I would love to use your ideas to inform the future of this podcast. Finally, we are also sending out a survey to get more feedback from you all. So please subscribe to our show newsletter at foundersjournal.morningbrew.com and get your chance to weigh in on the future of Founders Journal. Thanks for listening, and we'll catch you next episode.
