As ever, this Dragon’s Den episode provided an array of examples of how to negotiate a deal – and how not to negotiate one.
First-up was the Rascal Dog Litter Box. No points on negotiating skills for Minah from this team who seemed unable to keep quiet at any point in the discussions. Good negotiators know that listening is far more important than talking when negotiating – generally the more you say, the more you give away. Her husband did not fare much better, as he seemed to have no grasp at all on the numbers for his business. Was that £100k turnover he was forecasting for next year? Or £200k? Or £30k? All these numbers were mentioned. Fail to prepare for any negotiation and you prepare to fail – and knowing the numbers for your own business is a pretty basic preparation requirement.
The next interesting example was the Hart family’s fancy dress business. They did well in that their franchise model for expansion attracted interest and an offer from Duncan Bannatyne. He made an offer of £100k for 60% as opposed to their proposal of £100k for 10%. This was a fairly drastic reduction in their valuation. It would have been sensible for the Harts therefore to have taken a break and decided what to do next. Taking a break is always a good idea when you are under pressure in the bargaining phase of a negotiation. Instead the Harts ploughed on even though they clearly had not prepared for this turn of events. The husband uncertainly said that they wanted to keep at least 50% of their own business – a massive shift in their position. The wife undercut him and said they might accept a 40% stake. Then they offered a 45% stake without even hearing Duncan Bannatyne’s response. All of this is poor negotiating discipline. You need to prepare your fall-back positions in advance. You also need to be clear which one of the team is authorised to offer concessions, and you certainly need to offer only one concession at a time and then see what happens, rather than offering successive compromises without listening to the other side’s response. This kind of lack of discipline encourages the other side to feel stronger and it’s no surprise that they ended up giving away 50% to the Dragon. Sure, they got their cash, but they gave away five times more than they had anticipated and now they no longer control their own company. Hmm. Could do better..?
Finally we had Jim and Richard George with their protective fencing proposition. They presented well and had credentials as entrepreneurs. Expertise always gives you bargaining power in a negotiation and so it proved. They got a number of different offers from the Dragons. However, all the offers were for more than 25% of their company, which was as much as they wanted to give away. They made this clear – calmly and with conviction and further offers duly appeared. Deborah Meaden made the offer closest to their requirements with an offer for 30% but with an opportunity for them to get 5% back if they achieved their projected financial milestones.
To their credit the brothers took a break to consider the offers and evaluate their position, rather than just continuing with the negotiation. They came back insisting that they did not want to give away more than 25% of their company up-front, and no deal was done. They were roundly criticised by the Dragons for rejecting 4 different offers, but if you have decided up-front what your bottom line is then it’s important to stick to that. The only criticism I would make is that, like many Dragon’s Den negotiations the discussion becomes a “zero sum” dialogue in which the only moving parts are money and equity. Actually negotiation is about far more than this kind of surface level content. Deal-making is really about tapping in to the emotional needs and requirements on both sides and trying to meet those. If you are able to do that then it normally opens up other possibilities for getting the deal done which have nothing to do with clumsy levers like cash and equity. None of those other possibilities were explored by the brothers (or by the interested Dragons, with the exception of Deborah Meaden) and so a do-able deal got left on the table.
Before Dragons’ Den fans get the impression that excellent entrepreneurs like Deborah Meaden are ruthless with extra 5% fights for excellent business ideas like the Postsaver idea, I think current and future budding business stars should take a step back,reflect and think again. Just watch the superb Shark Tank show equivalent from the United States and controlling 51% are common deals. 25% versus 30% debates of the UK are very small in comparison. I think the Dragons’ Den team in most cases are fair and could if anything demand and command more and much like the US colleague show, Shark Tank.
Best Wishes,
DINESH R MAKWANA
Thanks for your comments Dinesh – I’ll try to have a look at the Shark Tank programme you talk about.
Clive