The Shift from Negotiation to Collaboration

Business brain episode 561 for Wednesday, June 26th. National Barcode Day 2024 greetings, folks, and welcome to Business Brain, the show where we take a few ideas, some that have been swimming around in our heads, some from yours. We dissect them, we digest them, we analyze them, we use them to tune our collective and individual business brains every single time we get together. Fastmail.com BusinessBrain is our sponsor, and that's also where you're gonna go to try it out free for 30 days, and then you get 10% off your first year. We'll give more details about that a little later in the episode. For now, here in Durham, New Hampshire, I'm Dave Hamilton.

And out here in the sunny west coast of California, I'm Shannon Jean. How are you, man?

I'm good. We had crazy lightning storms. We actually had a tornado warning here, which is odd for New England.

Yeah, that is odd. Yeah. The weather is crazy back there. I mean, I deal with the earthquake things here, but it doesn't really happen that often. And so it's kind of fun when they don't, you know, kill anybody. But for the most part, it's not bad.

Not bad. Yeah. Yeah, we had tornado warnings when I lived, like, tornado warnings and then also tornadoes when I lived in Texas, but in Austin. But, yeah, here it's. It's rare to see a tornado. Like, when it came across, it was like, I'm sorry, what? Like, all right, maybe we should pay attention to that.

So, yeah, when you first moved out there and your neighbor's like, so what generator do you have? And you're like, I don't know. It's kind of thinking about it. Whenever he's like, oh, okay, you better. Yeah, you better think about it.

No, our power was off for about seven hours last night. And our generator, we, you know, now we have an automatic generator, and it kicks right in. And, you know, we cooked dinner, we did all the things, and it was like, man, are we spoiled. Talk about charmed life. The generator.

That's right.

Yep.

You have to. Yeah. That's good. That's good. Hey, so I. We have a very interesting topic today that I want to get into, but I want to. I want to talk about this. I listened to this other podcast called the Founders Podcast. Great. This guy. Gosh, I forget his name, of course, but I'm sure you'll find it while I'm talking.

Sure.

And he. He talks about books that he's read.

And he's David Senra. Is that right?

That's it. All right. David Senra. It's really good. High energy, talks fast. Yeah, that's him. And I really like it, especially when I'm driving. It really gets me to think about concepts. And he's doing kind of a run on Steve Jobs books lately and one of the topics that he discussed that I really like is this concept of a simple stick that Steve used.

Yep.

That he, he used to like beat people with it. And it was, you know, not figuratively, although maybe he would have liked to, but.

Yeah, right. Yeah.

And it was just constantly beating down on their products to simplify. Simplify. And not just their products, but their, their advertising, their every aspect of what they were doing was just to remove and just continually remove and take things out. And I thought about it, I was like, it's pretty valuable. Just when you're thinking about, like how the messaging you're giving to your customers.

Yeah.

And the, your product design, how your website works. Just, I, maybe all entrepreneurs, you know, we have a tendency to kind of want to do a lot of stuff. Maybe it's because our brains have a lot of stuff going on and sure, we can, we can manage all a wider bandwidth of stuff or whatever. But yeah, I like it. I, I, I recommend you listen to it. It's pretty cool. Great while you're driving. And you know, like one of the famous examples is when imovie first was, you know, came out. I'm sure you know the story, Dave. And they were showing it to Steve and it had all this bells and whistles and software. It's going to do this, going to do that and all this kind of stuff. And Steve got up and said, no, no, here it is. And he drew a square on the whiteboard and said, you know, record, publish and like to it, it's like, this is what you're, this is it. This is the software. And you know, it was just boiling it down to the most simple thing so when someone looked at it, they could immediately think about, well, what's this going to do for me? How easy is it to use? And I, I just, it really struck me, and I've been trying to think more and more about that, on how I, you know, how I use that concept.

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I'm. I'm interested in this topic.

Yeah, I know.

You. You texted. It might have been pretty late at night too.

It would have been. But no, it might have been late at night.

A Slack message. Normally, you know, Dave's on the east coast, I'm on the west coast. So when, when I get pinged from slack, you know, 1:00am or whatever it is from Dave, I'm like, oh, this is going to be good.

What's up?

And sure enough, sure enough, it was good. So, yeah, tell me, tell me the story.

So we're in the process of potentially selling an interest in a business that I never talk about here. And there have been a variety of reasons for that. Mostly because my partners have asked that. That we don't attach ourselves. Yeah. And. But what it does is it gives me the freedom to have this conversation on the show in the midst of this. Yeah, I think, I guess if this episode comes out, then the answer is yes. So we are. We've. We've gone through all kinds of due diligence, and we're at the point where the attorneys or where the contracts are being drawn up. Right. And their attorneys. They said, we'll have our attorneys draw things up. Fine, Great. No problem.

Okay, sure.

So we also have an attorney, actually a couple of attorneys that work on this deal for us. And so they sent over. There's basically two agreements. I'm sure there'll be more, but there's the purchase and sale agreement. You know, talks about that.

Pretty.

Pretty basic. And then because they're buying into the existing business and we would stick around, they want to redraw the operating agreement of the company. Also makes perfect sense because they'll be.

Involved in that kind of thing. Right?

Yeah. What made sense for us six years ago does not, candidly, does not really make sense for, you know, for this kind of scenario. It's all good. It's all so fine.

Okay.

So we get the purchase and sale, and we have our attorney go through it, and he comes back and he's like, well, there's two things here that I think we need to. Two main things. Some other minor things that we need to push back on. One was they had these exhaustive representations and warranties. Essentially, the thing, because they are buying into the company, they're not just doing an asset purchase, which means that the company is still liable for anything that the company would be liable for. And now they're part of that. And they. Okay, they. So there's some warranties that they put in the contract that they would want us to do, and some level of that is standard. What they put in was, according to my attorney and the chief partner at his term, clauses like the likes of which we have never seen before.

Oh, wow.

Okay, fine, fine.

Yeah.

And then they also want the jurisdiction for a future dispute to be in New York State. I will just tell you there are no. The company has no nexus in New York State. None of the partners, current or future, are located in New York State. The business is not organized in New York State. It does no business in New York State. New York State would throw this out of court. And anybody that knows anything about the way US Law works knows that, like, they would not allow us. They would do everything they could to.

Not reason to have. Yeah, correct.

And. And states don't want other states problems, you know, chewing up their resources. Right.

Yeah. Makes. Makes sense.

Yep. Well, so we pushed back on both of these things. And. And the way we pushed back was we pushed back on by rewriting the representations and warranties to be something far closer to reasonable. Right.

Okay, sure.

As I explained it when I was talking to the CEO, sort of after this, during the story you're about to hear, I said it was as though we both know that Something is worth $50. They proposed a $1 value on it. And instead of coming back and proposing $100 value from our side, we proposed something more like 55. Like, okay, you know, something more akin to what it would be. But, you know, we left a little bit in our favor. Ish. You know, like. Like one would. And. And we figured they would have a, you know, a tweak of it and go pushback and. Correct. Yeah. And they said, no, it. We must go with ours. So instead of saying, no, it's $45, they said, no, it's a dollar. Oh, okay. And then they also pushed back on the. On the. The jurisdiction thing, saying, no, it must be in New York. And they cited some statutes that even the hack lawyer in me knew were being interpreted incorrectly.

Wow.

Yeah. And so at this point, now I'm frustrated because we've been very. We're going to work with these people. They're literally going to be our partners. And so I've been very much focused on building that partnership environment. Right. Cause I know how that can help. And now getting this from their lawyers, I was like, all right, I need. And I did. This was like on a Wednesday. I sent out an email to everybody already having cleared the time frame with our attorneys and all of the principals on my side. And I said, we need all the stakeholders. And. And we have a deadline coming up that is imposed by none of us. It's a. It's a state thing that's happening for one of the partners where it would be best if the deal were closed relatively soon. Okay, fine. And so I said, look, you know, we need to get all of us together and we've got this deadline. And now, you know, these contracts are not going anywhere near where they need to. We need to talk. And I need all the stakeholders and at least some representatives from their legal team. And my plan was to get there and say, like, these lawyers are going to kill the deal.

Yeah, that's right.

Right. Which happens.

Uncommon.

No, no, it totally happens.

Not uncommon.

No lawyers. And here's the thing. I told my lawyer this, too. I said, if given the opportunity, a lawyer would kill every deal, because no deal is going to be perfect and no one's perfectly protected in any deal. You've got to throw some faith in there. And at some point it's up to the principals to push the attorneys aside, figure out what faith they're going to throw in and then tell the attorneys, here's where the lines are. You draw them with legalese. Right. And that's totally fine. They are tools, they are valuable service providers, but they are not the decision makers. All good like this and this is fine. But we were at that moment and we didn't have a lot of time and so I wanted to just get every. And we weren't moving at all. And so I wanted to get everybody together and basically call out this other legal team for not. I wanted to see how the principal on the other side reacted when I called out their legal team for not sort of playing the.

It's kind of bad. I don't want to say bad faith, but it's just a waste of everybody.

It's a waste of everybody's time. Yeah, right.

Yeah.

And so I couldn't. And everybody said, okay. There were some begrudging okays, but there were okays from the legal team, especially on the other side. And except the CEO of the company that, you know, the principal on the other side, the primary principal could not. There was zero chance that this person could make the meeting. I was like, okay, crap. So I had a short conversation with him and I said, there's just, there's three or four issues that I need to point out. And so I'm going to do it via email tonight. We can. And he and I were able to talk like early the next morning. I said, but I'll articulate him. I was in the car, I was like, I can't type this while I'm in the car. I can't even, you know, we all need to do this. So I thought, well, I'll just send the email to everybody. So I did. In the interim between that conversation and when I sent the email, we also got our attorney's feedback on the proposed operating agreement, which was again in my attorney's words, the most one sided thing I've ever seen in my life. It basically had us having no say in what happened. They could. An operating agreement for a company, any kind of company in the US has an implied, not even implied, stated fiduciary duty of all the partners. Fiduciary duty for anybody listening means that you, everybody involved agrees to act in the best interests of the company at all times.

Exactly.

Fine. That is there, like that is there by presumption in US Law, unless it is specifically Excluded. Their lawyers excluded it. Wow. They said they could issue new shares at any point in time, essentially diluting our remaining interest and that they could fold up the company at any time they wanted. And we had no.

Ridiculous.

Right?

Yeah.

So it was like, so now I was already frustrated by the, what was going on with the purchase and sale. Now I was pissed. I'm like, okay, this is ridiculous. So I put together an email and I started by saying, hey, I don't, I would prefer to do this face to face because, or at least on a, you know, phone call or zoom call interactively because when I lodge complaints, I like to, I don't like to just lob bombs and walk away.

There's no nuance.

There's no nuance.

Yeah, right. Yeah.

I'd rather do this in person. The timing says that we can't. And so here I am having. I'll lay it all here. And I started. So the problem, the fundamental problem which I will articulate is that the attorneys from such and such a firm have been putting together very one sided agreements and are not willing to budget all. And then I articulated all the things that I just said for you. And I think at one point I in there I said this is, I was pissed that I paid my attorney to review this. I can only imagine how pissed the other people are that they paid their attorneys to draft this. And I said, I.

Knowing that it was going to be completely unacceptable if nobody's going to take this.

And yeah, and they, they. And I said, and I don't know why such and such a firm is, is even bothering to present this kind of crap. That's as far as I went with any sort of colorful language, let's say. Like I didn't go any farther with that. I wanted to, but I, I left it out. I figured we'll just. Fine. And so I said I'm looking forward. And what I said, and this was to me the money phrase, although I'm not sure it landed, is we need to stop negotiating and start collaborating. Otherwise this deal is not going to go anywhere.

Yeah, nailed it. I thought. Nailed it. Yeah.

So that's the part you know, the part you don't know is I had the conversation the next, early the next day with the CEO on the other side. He said, well, you know, I understand how you feel. He's like, I like to let the attorneys kind of just do their jobs and stay out of it until they hit a roadblock and then you and I can step in and decide how to, how to Address the roadblock.

I was like, expensive.

I was like, okay. But he's like, what, you don't want to spend the money? It's going to be like, 10 hours. And I'm like, oh, okay, let's say it's going to be 10 hours. But you're. You put that on the table. I'm willing to pay for 10 hours of my attorney's time, whatever. Okay. You know, 3500 bucks if they're 350 an hour or something, that I'm sure that's what they are. Yeah. And so I was like, okay, yeah, well, I'll do 10 hours of this. Like you. You asked. I'll. I'll play along. Sure. I said, but did you read the operating agreement? Is that what you want? And he's like, well, I read it, but I don't quite understand it. And then he started asking me, like, how do you know that, like, the New York State thing won't work out? I'm like, well, I'm a pretty good hack lawyer, and also my lawyer told me it won't. So that's how I know. I don't know what to tell you. Your guys are incompetent. Like, I didn't use that word, but there was certainly an implication there that Dave the hack lawyer is better than, you know. But that was it. He was like, please work with my attorneys. Great. So I said. I called my attorneys and I said, let's find. Like, here's the thing. I told them the 10 hours thing. Their eyebrows raised higher than mine did. I'm like, I know, I know. Do this. Let me know when we hit 10 hours, because I have the second volley to fire when we do. I said, but, like, go there. And they're like, okay, we. They want to meet with us later today. So they met with them, and there were two of my attorneys on the call and two of their attorneys on the call, and one of their attorneys was very much the I want to. I want to fix. I want to. He wanted to be a deal maker.

Okay.

Okay. And this was an interesting thing because my attorneys told us. They said, we understand that attorneys can kill deals. We also don't want that reputation because we won't get more business if we get too much of that reputation. He's like, certainly deals die. He's like, but we like to be deal makers, not deal breakers. And I was like, oh, what a good phrase. I like that. Yes. Right. And so one of the guys on the other end was the deal maker, saying, please would you send along your things, but don't just send them as you did via email. Like, redline the agreement. That makes it easier for me to show my client what is going on. My attorney was like, that seems like a waste of time. He's like, I know, but please try it my way. Fine, we'll try it your way. The other guy on the call was super egotistical and pissed I got skin. No, it was. What did my attorney say? I probably shouldn't say this, but I will. He said, it was as though we insulted his manhood or as though I insulted his manhood. He was like, it's totally unprofessional for that guy to email us. And my attorney was like, clients talk all the time, especially when they're about to be business partners. Like, yeah, this is super normal, buddy. You're just butt hurt that this guy got your goat, I guess. And he was. He was like eating his lunch while they talked to show that he was being dismissive.

Yeah, how unimportant.

How unimportant this was. And he threatened a couple times to kill the deal. And I said to my attorney, I was like, well, it's a good thing. It doesn't matter because I'm not doing a deal with that guy. Yeah, you know, and they were like, well, he threatened to have his client kill the deal. I'm like, well, the deal maker guy is the partner at the firm. Right. This guy's just of counsel. They're like, yeah, how'd you know that? I'm like, because I looked on their website. He's like, yeah, that's correct. I'm like, well, I know which one has the final say in what they advise their client to do.

It's so frustrating, and it is such a waste of time. It's almost like, you know, everything has like a life cycle. It has to go through. But yeah, you know, I often say, don't. Yeah, why? Why? And I think some of it, you know, they want to justify being involved and hey, we've got to charge a certain amount. We're not going to do this unless we can bill out X number of hours and. And fair. But it's. It's super frustrating. But crucially important that you dig into these documents because, like you said, you're going to be married to these people.

Yes.

And for some period of time anyway. And so you got to look out for your best interest. And, and you can't even. You can't just leave it to your attorney. They can help guide you, but you Got to be reading these. Absolutely. Documents. And, you know.

Well, and this, to me is also a litmus test for the principals on the other side if, if this is how they want their attorneys to negotiate this. I don't know. I don't know that we made the right decision heading down this path with them.

Yeah, it is. It's a test. Right?

It's. It's a litmus test. Absolutely. And, and I'm, I'm really curious that the next. Once we hit the 10 hours, and I'll happily say this on the show, even though the other attorneys don't know it is, because it'll be fine because I'm going to do it anyway. Once we hit the 10 hours, I'm just going to step in and say, okay, look, hey, I know you guys want to do it this way, and you're just delegating everything to your attorneys. I don't work that way. I like to be able to read all this stuff. So I will now be the primary point of contact for your attorneys. I'm not, I'm not firing my attorney. Right. They're going to love this.

They'll love that.

I'm not firing. We're firing my attorney. I'm going to use him. And once we decide what the, you know, primary points of the deal are, then I'm going to bring my attorney back in to write it up and make sure I'm protected.

Correct. I like that method because you're, you're closer to the deal and you are, you know the business and you know the ins and outs. And yes, your attorney should be there by your side.

And he will be. Yeah. I'm not, not firing him at all. Not even close.

And I mean, I've had it many times where my attorney would be like, hey, I can certainly write this letter, but you know more about this. Why don't you write the letter, send me a copy. I'll make sure we add whatever legal stuff we need to get, or you don't say anything that could be problematic, and then we'll send it off. And I love doing that stuff because.

That'S my normal M.O.

Exactly. Exactly. It's like, I want you to support me, not do it for me. Right.

How could they do it for you? They don't know.

They don't know it.

They don't know it unless they're like an employee or partner in the business or, like, I've certainly seen that where people bring attorneys in, you know, of course.

But yeah, man, head legal counsel or.

Something like that, yeah. And that's, that's great if that's the case. But, you know, in this business, that's me, you know?

Yeah. That's crazy, dude.

So.

But I, I do think, you know, and a lot of people take it, that this willingness to collaborate instead of always negotiate, you shouldn't see it as a sign of weakness. It's actually strength. You know, you're not going to give up every. You're still making the same points, but it's like, hey, let's figure it out together. And it should be, you get to that reasonable point of accommodation.

Yes.

Where you both, you're not gonna get everything you want.

Nobody gets everything.

Nobody gets everything. But if you both get enough to get the deal over the finish line, that's what it's all about.

Yeah. You get the things that are important to you. The other people get the things that are important to them. And if you have an impasse, then that's actually where a deal maker attorney can be great because they can throw out a thing where they're like, hey, here's an I, I've seen another deal that got to a point like this. And here's a third option that neither one of you have asked for. That could be the answer. And, you know, they, they need to be emotional. No.

Right? Yeah.

Well, they shouldn't be emotional.

They shouldn't be. Unlike this other.

Unlike this guy. But I love that I got under his skin, by the way.

Yeah, yeah, yeah.

My attorneys loved it too. They were super. They, they were like, we couldn't have told you to send that letter. I'm like, I, I know. That's why I didn't ask you before. I said, they're like. But we love that you did. Like, right?

Yeah. And this whole thing of keeping, keeping the parties apart, I don't think that's good for the deal. It's, it's. Maybe it's good for one side or another for the attorneys to get bill more money and try to get crazy favorable terms and, and, you know, get something for. But it doesn't help get deals done.

No. And I wonder, you know, for, for the months that we've been going through due diligence, we've been very collaborative on our side. And same. It seemed the same from the other side. And I wonder if that was misinterpreted as being not willing to hold our ground.

Yeah, maybe. I think it often is in the sense that, you know, you were pretty friendly. Like, I always, I used to say, hey, don't mistake My, you know, friendliness for weakness.

Right.

You're. I want to be, you know, easy to work with, but we're just not going to roll over and take whatever.

We're not going to take a bad deal.

No, it's, it's not even about the money. Well, I mean, it is, but you're. Especially in the point where you're. It's one thing if you're selling and just walking away, but if you're going to work with these people, it's crucial that you work with these people.

And I even told a week and a half ago, I told the CEO of the Other side, I was like, okay, let's pretend the deal is done. Like we started a zoom call. And I'm like, let's pretend the deal is done. Congratulations. It's all good. Okay. It's behind us now. I want to talk about the first month and then the first six months of what we're going to do together. And we did have that conversation and it went well. That's awesome. And it was like, okay, like, but I needed that to see, like, what's this going to be like? But then in parallel to that, we've got this hard nosed thing going on. I'm curious to see where this. But what I do know is that the other attorneys were yelled at by their client. Now he never told me that.

Yeah.

Nor should he have. Right. But it was clear they were chastised for putting everybody in this position. Which is good. Maybe it's a good. That to me was the best sign.

Yeah.

That we might be able to still work with the folks on the other, you know.

Yeah. And sometimes it's also, their client may not have communicated what they wanted.

That's right. And he truly may have delegated it.

Yeah. Yeah. And I've been on the other side of the table with attorneys like this before where, you know, they're just, you know, pedal to the metal, super aggressive. And then you talk to the other party, you're like, hey, is, is this what you wanted? I mean, because you know, we're not going to achieve much with this. And they go, oh, no, I didn't, I didn't tell them to do that and maybe do a reset. So hopefully, hopefully this, you're on the right track.

We'll find out. It's been several days of radio silence.

So that's part of the negotiation.

I know, I know, I got that. I get that.

Yeah.

But, yep.

Yeah, that's cool. Well, keep us posted. Come back and share with us.

I'll let you know if the deal happens or not. Yeah, I assumed when I sent that email off the other night, that was blowing up the deal and my partners knew it, too. Like, I this wasn't just me flying off the handle solo.

Yeah, because you can't do the deal under those terms.

Correct.

That's it.

Correct. We're not desperate by any stretch, you know.

Correct. Yeah. Yeah. Right on. Well, thanks for sharing that.

Yeah. Yeah. Hopefully it doesn't get me in trouble. I think we can publish this, though. I feel all right about it, folks. Let us know what you think. Feedback businessbrain show make sure to check out that fastmail.com businessbrain and keep living that charmed life, huh? We'll see you on Friday.