Osama Bin Laden, Stockpickr, and Everything I know about Negotiation

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When the FBI came to my door in mid-2002 and asked me what I knew about “UBL”, their name for Osama Bin Laden, I got a bit nervous. My kids were playing on the floor and I was in the middle of trade during a rough patch in the markets. At that time (the Internet Bust) I rarely had anyone who wanted to speak to me at all, particularly the FBI, and everyone in the house at the time wondered if maybe I was in trouble.

But, in a round about way I’ll explain, all of this brings me to memories of walking around an antique coin show a few years earlier with Dr. Larry Brilliant and discussing the best techniques for negotiation.

I’m a horrible negotiator. I think most people think they are good negotiators, with natural-born talent. This is like the statistic that nine out of ten people think they are above average drivers (only 4 out of ten can really be considered to be above average). I’m the one out of ten that knows he’s a poor driver. And I know I’m a poor negotiator. Part of this is because I do consider myself a good salesman. I like people to like me, and to get them to say “yes” as quickly as possible when I’m selling them something (a service, a product, a business, a deal, etc – I’ve sold everything possible for every imaginable price). But negotiators aren’t necessarily eager to please. Sometimes they are exact opposite.

Fortunately I’ve learned from the absolute best negotiators ever. And every negotiator has a different technique. Here are some of I’ve seen in action. First off, there are the basics, which I won’t go over too much because everyone knows them. And then there are the three killer techniques. The basics are: (think of this as Negotiation 101)

– Have a backup: “This price sounds fine to me but I have to ask my board of directors, my partners, my best friend, my CEO, etc”. Always have someone you HAVE to go back to who can then throw a wrench in the middle if need be.
– Never be the first to throw out a price. This sounds easy in theory but is not practical since everyone knows it. Instead, using the Killer techniques below, you can get around this approach and throw out a first price without fear.
Don’t be afraid to say NO: But there’s a more useful way of saying this, which is, diversify your choices. This isn’t always possible but try not to enter into a negotiation unless you have at least one satisfactory other choice. This applies to everything from dating, to selling your house, to selling your company, to providing a service. Makes it much easier to say, “NO”.
– Both sides need to be happy at the end. Otherwise, the deal will end up poorly for everyone.

But using the Killer techniques below, everyone should be happy at the end.

Advanced Negotiation 201:

– The Nicker-and-Dimer. I once went to an ancient coin exhibit with the Dr. Larry Brilliant mentioned above (I know. Its like a name out of a science fiction novel but that’s his name). He was former CEO of Softnet, a company that did a bunch of tech stuff until the tech boom ended. Then he was head of Google Charities. Before all of that he cured smallpox in India. Now I have no idea what he does.

The last time we spoke was in 2001, but for various reasons, in 2002 he mentioned to the FBI I might have some good ideas about tracking down “UBL”. Anyway, we were shopping for ancient Israeli coins together and he told me this: When you are negotiating, always have more items on your negotiating list than the other guy. If you are selling your company, its not just about the price of the company. Its about the size of the earnout, the goals that need to be achieved, salary, salaries for your employees, free car service forever, what’s your title, what are your responsibilities, etc etc. Have more items because then when it gets down to the nut–and-bolts negotiation you can give up the nickels and take the dimes. Then it seems like the other guy is winning but you’re still getting everything you really want.

– The Idiot. I was once partners in a VC fund with a guy who was an ex managing director at CS First Boston. He had negotiated hundreds of leverage finance deals. He was a genius negotiator and everyone liked doing business with him (which is hard for me to pull off when I’m negotiating). His favorite technique in the middle of a negotiation would be to raise his hands up in the air and say, “Listen. Lets take a step back here. Pretend I’m a complete idiot and walk me through this deal.”

He had no fear pretending he was the dumbest guy in the room even though he was probably the smartest. And he would ask any question he wanted and everyone liked being smart in front of him by answering in as much detail as possible. Then he would say “Ok, I think I get it but I’m not sure. I need to spend a few days thinking about it.” He would completely slow the pace down. And then on every item he would add more tiny items (the nickel and dime approach) and would just wear everyone down. it was almost like taking the nickel-and-dime approach to an extreme. And he was never afraid to say, “Ok, its no big deal. We all have other choices.” He was fearless without seeming like he was BS-ing, even though he was always BS-ing (not totally true. We did have other choices but not as good as the one he was negotiating).

– The Math Trick. This is the best technique I’ve seen. This one is from Steve Elkes, former COO of iVillage when he sold it to GE for $500mm. He was then COO of thestreet.com and managed to raise over $50mm from TCV at a price of $14.26 per share. I don’t think the stock ever ticked higher than that (its in the $2s now). He also negotiated for thestreet.com when they bought Stockpickr.com, a company I started, so I was able to see his negotiating first hand and unfortunately for me, he was on the other side of the table.

“The Math” technique is this: before the negotiation even begins, you state what you think a common sense, very straightforward, mathematical formula that everyone should use to value the property, service, business, etc.

So for stockpickr, Thestreet.com was trading for 20 times next year’s earnings. So thestreet needs to buy things where it has upside, Steve said. How about we all agree to pay 10 times next year’s earnings for Stockpickr.

I immediately said yes since I had modeled out what I thought were enormous earnings for stockpickr.com based on the advertising rates thestreet.com was charging customers, average advertising rates in the industry, the rate our traffic was growing, other revenue opportunities, etc. No problem! I said and thought this was a no-brainer. I was counting the money.

Until bit by bit my number was notched down: advertising rates weren’t high as I thought. Steve would then use “The Idiot” technique. “I don’t know what advertising rates really are,” he said, “so how about we just talk to the head of sales here and see.” So then its suddenly out of both our hands and in the hands of an impartial guy who carefully explained to me why advertising  rates weren’t as high as they seemed.

Then he used “the backup technique”: “I’m fine paying whatever, but the board doesn’t see those other revenue opportunities you mention so we have to stick with the revenues and earnings we KNOW you’re going to get.” And since we had a formula we already agreed to, I was whittled down to agree to the number that the formula spat out. Which was fine. By the end of the negotiation, both sides were happy. I was happy because the initial price I had in my head had slid down so much I was just glad the slide was over.They were happy because they got down to the price they wanted.

As for the FBI agents, Larry Brilliant had mentioned to them an idea I had mentioned to him a few years earlier about a company where I thought Bin Laden was keeping some of his money. Nice guys and seemed like they were on top of it. Eight years later UBL has still not been found.

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  • jdbear

    Well done!

  • http://Www.EarthYogi.blogspot.com Claudia

    James, I really like these negotiation techniques especially at the 201 level, keep learning something new as I come back to your blog

  • Arthur

    Good article, I liked the aspect of personal experience in negotiations. They still overpaid for stockpickr:)))). We nickle and dime in negotiations and than have no problem giving everything away in one trade.

  • pjc

    Watch out for those FBI guys. My brother is an agent. He put the cuffs on Madoff (he didn’t catch Bernie so much as arrive first on the scene after the implosion).

    Don’t try to argue with the FBI, just get them out of your office as quickly as possible.

    You’d probably enjoy talking with my brother, you both have interesting opinions on insider trading and white collar crime.

  • James Altucher

    @pjc thats fascinating. Did he have any discussions with Madoff while he was escorting him to jail? What did Madoff seem like?

    @Arthur, I can assure you it was a great deal for them for a variety of reasons. But thats another story.

  • pjc

    Madoff was contrite and forthcoming. Here is a link to my brothers testimony.


  • 3CPO

    Thanks! Fantastic article as usual!

    Any suggestions for great books or blogs on negotiating?

  • http://thepuppets.tv mao_junior

    riveting post and as always the Altucher touch of originality! thnx!

  • http://www.politicomix.net Roberto

    Good post, which I came across via Robert Cottrell’s excellent The Browser e-mail newsletter.

    To your point that “both sides need to be happy at the end”, I’d add that with a few exceptions, “the other side doesn’t really care what you want”, i.e. you’re wasting your breath telling your adversaries (a.k.a. your future partners, clients, employers or employees) why what you propose is “fair for both sides”. Both sides are happy when each side is happy, i.e. each side thinks it has come out (at least) slightly ahead. Concentrate, then, on selling the other side on the benefits of the deal, or your proposal, to THEM. That’s all they really care about.

  • Alan

    I really like your blog, but you may have misunderstood what average means, saying “only 4 out of ten can really be considered to be above average”. If the standard variation is high, it is possible for most people to be above average. Say town X has 10 drivers. They take a driving test. Nine drivers score 9 of possible 10, and one driver scores 1 (the worst driver). The average is 8.2, and hence 90% of the drivers are above average.

    • Anonymous

      Damn right.
      I certainly have an above average number of legs.

    • Intuitive Statistics

      Sorry but that is not correct, lost in statistics.
      Everyone on the road has to pass a driving test with no majors and under 3 minors. That means anyone called a “driver” is already above 50/100 say on a skill level. Of these drivers 1 could be a skill level of 50 and 2 could have 100 – meaning they were both above the mean. However with a sample size of millions that distribution will show a gaussian so most people will be in the middle with some outliers. by not takeing the “average” as the exact mean, but rather as a spread around the middle of the curve, most people will be in this average bracket. 5/10 will be above average and 5/10 will be below average, but all will be above the skill set of 50/100.

    • http://www.marketmentat.com/ Kratoklastes

      Oh boy… way to screw up a ‘gotcha’.

      What you’re referring to has nothing whatsoever to do with the standard deviation, you schmendrick. It has to do with the SKEWNESS.

      A distribution can have as large a variance (the square of s.d.) as you like, but if it’s SYMMETRIC (it has zero ‘excess’ SKEWNESS), it will always be the case that mean=median (=mode) and because mean=median, EXACTLY half the observations will be above the mean. (For those playing at home, it can even be fat-tailed – leptokurtic – and still be symmetric).

      So for example you can parameterise a Weibull distribution (by choosing k and lambda – the scale and shape parameters) so that they approximate an asymmetric PDF.

      Or you could parameterise a log-logistic (Fisk) distribution (scale and shape parameters are alpha and beta for Fisk).

      Or maybe a Burr distribution – any of the ones used to model income distribution would do (since only 33% of people earn above-average incomes… because of – repeat after me – SKEWNESS, not VARIANCE).

      I hate to kvetch too much, but I seriously become almost verklempt when people make such meshugge statements as yours.

  • James Altucher

    Ha, Alan. Thats a great point. But at least one thing I said still holds in that scenario: I’m the one out of 10 below average.

  • James Altucher

    @mao_junior, thanks a lot. I’m taking a different approach than my usual finance writing.

    @3CPO, I don’t really know any other blogs on negotiating. I always ask people what their tips are for negotiating and the main thing is really having other choices so you know your worst outcome in the negotiation is the probable outcome of your Plan B. The one thing that I leave out here, and most blogs on negotiating leave out, is the psychological. You also have to truly believe you deserve what you are negotiating for. This sounds corny but its what holds many people (including me) back, I think.

    @Roberto, I agree. Both sides need to be happy internally, without any convincing from each other.

  • Michael

    James, you need a favicon.
    I’m trying to maximize my bookmarks toolbar by eliminating text, and yours is one of the few that show as a blank icon.

  • fine tune your disciplines

    thanks for giving me a heads up on how not to get conned into accepting less than i want.

  • Steven Goff

    “Both sides need to be happy at the end. Otherwise, the deal will end up poorly for everyone.”~ James A.
    Meyer Lansky founded and operated the Mafia/Murder Inc. under the same pretense for many years. That’s why he was a survivor and not ever whacked! Because he not only earned…but was fair.

    “Everyone has to be happy in a deal for it to be long standing and beneficial to all parties involved”

  • http://cliverich.com/ Clive Rich

    It’s always good to have a package of things you want in any deal as this enables you to have more pieces to play with when striking a deal. It can also often be helpful to appear dumber than your mark when negotiating. As this piece says, other people like to have the opportunity to appear smarter and normally say too much as a result – the more you say the more you give away in deal-making. Reference to some impartial setter of rules can also be helpful if those rules are in your favour, as in the example quoted, as reference to rules and regulations is a secret source of bargaining power.

  • rahul dwivedi

    Everyone has to be happy in a deal for it to be long standing and beneficial to all parties involved”

  • Anonymous

    very well written

  • Miles

    They found and killed him yesterday!

    • Mibrahimkhn

      No, he was killed before few years as people of the region believe, but on 2nd May 2011, it was a political stunt of Obama. After all he has to win the election and has shown that he is too, a good salesman. 

  • kastein

    Found your blog recently via google news (and a couple degrees of kevin bacon / wikipedia effect) and happened to read this post… yeah… eight and a half years later, he HAS been found!

  • cara

    time to update the status :)

  • Booze

    UBL DEAD!!

  • http://twitter.com/androidized Androidized

    UBL was finally fount, probably your tip was the key.

  • Cameron

    James Altucher found Osama Bin Laden.