Negotiation & Bargaining

(NAB)

select slides 7

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 Claim
Value

Outcomes
Create & CV

CCV Ethically

NAB – for
Relationship
NAB -

Expectations
By Influence

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 Equity splits in Updown
case analysis

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 What is this case all about?

Creating Relationship

and

Nurturing Relationship

It is about Value Creation, Value Claiming,

Relationship Creation & Relationship building

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 What is key to this NAB?

What would constitute

success of this NAB?

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 Then what is the right strategy
for this NAB for all the 3?

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 How many teams decided to
collaborate?

How many did not?

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 Degree of Interdependency

Who needs who more??

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 How much you understood the
others’ interests and needs?

How far hence you were able to

create additional value?

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 How well did you use the scoring
system and the score card?

How many of you worked for

pareto improvements?

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“..it’s a game that can’t be won,
only played…!”
- Bagger Vance.
The Legend of Bagger Vance
 Why ?
• Influence – capacity to invoke expectations & belief
of rewards/punishments, through/by you.
• Why Michael, Phuc seen more Influential? Why
Georg seen *less* influential ?
• ??

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 Phuc Salary – PGDM.Ch.19.21

86,000.0

(5k@2%, 270k@20% & Money-value of time)

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 Clues to Phuc Salary nab?

270k/20 = 13.5k

1% = $ 13,500

200,000/12 = $ 15,400 p.m.

86000/15400 ~ 5.7 months

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 What is key frame for all partners to move
to?

Partnership Success

What are key to Partnership success?

Relationship J

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© rsveeravalli 15
 Michael Georg Phuc
Issue Possible Outcome Points to Micheal Possible Outcome Points to Georg Possible Outcome Points to Phuc
PARETO IMPROVEMENTS Founders' Equity to each founder, Same as Nov.
relative to Michael's proposal agreement Deal breaker -2.00% -50 Any further reduction Deal Breaker
-5.00% -200 -1.00% -25 No change 0
-4.00% -160 No Change 0 1.00% (+)40
-3.00% -120 1.00% (+)25 2.00% (+)80
-2.00% -80 2.00% (+)50 1.00% to Georg -20
-1.00% -40 No Change to Georg 0
No Change 0 (-)1.0% to Georg (+)20
(-)2.0% to Georg (+)40
Goerg % > Phuc % 0
Goerg % <= Phuc % (+)30
Total Best Outcome for team
Phuc Salary $70,000 0 $70,000 0 $70,000 (+)50
$80,000 -6 $80,000 -5 $80,000 (+)60
$90,000 -12 $90,000 -10 $90,000 (+)70
$100,000 -16 $100,000 -15 $100,000 (+)80
$110,000 -24 $110,000 -20 $110,000 (+)90
Total Best Outcome for team
Seed Equity Split % 0/50/50 0 0/50/50 0 0/50/50 Deal Breaker
Phuc / Michael / Georg 10/45/45 -10 10/45/45 -10 10/45/45 -50
25/37.5/37.5 -25 25/37.5/37.5 -25 25/37.5/37.5 -20
unique part - proposed &
33.3/33.3/33.3 -33 33.3/33.3/33.3 -33 33.3/33.3/33.3 0 preferred
Total Best Outcome for team
Founders' Equity to Warren 1.50% -8 1.50% 0 1.50% -6
1.25% -4 1.25% -10 1.25% -3
1% (No Change) 0 1% (No Change) -20 1% (No Change) 0
0.75% -4 0.75% -30 0.75% (+)3
0.50% -8 0.50% -40 0.50% (+)6
0.25% -12 0.25% -50 0.25% (+)9
0.00% -16 0.00% -60 0.00% (+)12
Total Best Outcome for team
Negotiation Best Outcome -41 -83 (+)194
Individual Walkaway -220 -115 40
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 Pareto Efficient Solution?
SHARE THE POINTS DATA and check outcomes

• Georg gives up 1% to Phuc = M 45, G 27, Ph 27.

• Phuc agrees to lower salary to 70000
• Seed equity equal at 33.3%
• Warren share 1.5%

CAUTION – beware of Points Vs Trust

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 Two objectives
1. Maximize one’s own value score
2. Preserve / strengthen the Relationship
3. What will nourish Relationship?
4. Sustain/build Social Capital –
– Trust,
– Happiness,
– Cohesion,
– Commitment

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 Social Capital
T-H-C

trust

happiness commitment

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 Critical to New Venture founding?

Right Partners !!

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 Critical to Right New Venture Partners?
A-M-R

attract

motivate retain

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 What decides what each partner should
get?*
• Role
• Responsibilities, deliverables
• Rewards

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 R-R-R

role

relationship reward

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 R-R-SC-R

role

relation
reward
ship

Social
Capital

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 Fate of *your* 20 startups, Updowns..!! 😅
Social Success
Team no Michaels Georgs Phucs
Value prospects
happiness trust commitment happiness trust commitment happiness trust commitment total
1 9 9 10 9 10 10 8 8 8 81
2 8 7 8 10 10 10 9 8 8 78
3 9 9 9 8 8 8 7 9 10 77
4 7 7 9 9 10 10 8 8 8 76 30%
5 9 9 9 9 9 9 6 6 9 75
6 8 8 10 8 8 8 9 8 8 75
7 7 8 9 8 10 9 7 9 8 75
8 9 8 10 8 10 9 6 7 8 75 10%
9 10 10 10 8 6 9 8 5 8 74
10 8 8 8 6 7 7 9 10 9 72
11 4 4 7 9 9 9 9 9 10 70
12 5 5 7 9 9 10 8 8 8 69
13 9 8 9 7 5 6 7 10 8 69
35%
14 8 8 8 7 7 9 7 6 8 68
15 8 8 9 8 9 7 6 6 7 68
16 7 8 8 6 6 8 8 8 8 67
17 8 8 9 8 8 8 6 6 6 67
18 6 7 7 8 8 8 6 7 7 64 15%
19 9 9 8 7 5 6 6 6 7 63
20 8 8 10 7 7 8 4 4 4 60 5%

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 So when should you re-NAB?*
1. Change in Partners
2. Change in the Investment – Fin Capital, Intellectual
Capital, Social Capital
3. Change in Roles, Responsibilities, Deliverables
4. Change in Value Delivered and or in $ delivered
5. Flaws or deficiencies in last NAB
6. Change in Environs/Paradigms
7. Mergers/Acquisitions
8. ?
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 How often should one rewrite
the shareholders’ Agreement??!

Depends.
On how Dynamic
your earlier agreement is

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 How do you draft a Dynamic Agreement?
• Mile stones
• Guidelines to split the Equity
• Vesting formulae
• Set aside some equity
• ?

Are these enough?

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 Unknown Known
x x
known known

Unknown Known
x x
unknown unknown

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 Potential? facts

uncertainties risks

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 Dynamic agreement Brainstorming
• Known- • Known- • Unknown-
known Unknown Unknown
•
•
•
•
•
•
•
•

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 ? terms

Trust
Values
Principles contingencies
Social
Capital

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 Strategic Thinking for NAB
non-cooperative & cooperative

Key insights on
Game theory

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“what’s your life?

It’s looking forward,

or looking back..

That’s it…!”
-Al Pacino
Glengarry Glen Ross.1992
• Strategic thinking is the art of outdoing an adversary, knowing that
the adversary is trying to do the same to you.

• It is also the art of finding ways to cooperate, even when all/others

are motivated by self-interest, not benevolence.

• It is the art of interpreting and revealing information.

• It is the art of putting yourself in others’ shoes so as to predict and

influence what they will do.

• It is the art of convincing others, and even yourself, to do what you

say.

• Businessmen and corporations must develop good competitive

strategies to survive, get what they want, and find cooperative
opportunities to grow the pie
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 The Source http://www.artofstrategy.net/

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 Two types

SEQUENTIAL AND SIMULTANEOUS

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 Five Rules
• Rule 1: Look forward and reason backward – alone/with others in the
game.
• Rule 2: If you have a dominant strategy, use it.
• Rule 3: Eliminate from consideration any dominated strategies and
strategies that are never-best-responses - and go on doing so
successively.
• Rule 4: Having exhausted Dominated Strategies & Never-Best-
Response (NBR) strategies, next search all cells for a pair of Mutual
Best Responses in same cell – that is a Nash Equilibrium.
• Rule 5: In case of having multiple Nash Equilibria, look for Focal Points
to narrow down the choices.
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 Sequential

Look forward and reason backward

(rule 1)
Alone & with others

Decision Trees & Game Trees

What’s the difference?

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 Charlie Brown & Lucy
Game Tree
in the comic strip
Pull Ball away
Peanuts, Lucy holds
a football on the
ground and invites Lucy
Charlie Brown to run Accept
Let Charlie
up and kick it. What kick
should Charlie do? Charlie

Reject

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 Charlie Brown & Fredo
@ Freedonia (banana republic, recently reformed)

Fredo says,
“Invest $100,000 with me, and in a year I will
turn it into $500,000, which I will share equally
with you. So you will more than double your
money in a year.”

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 Charlie Brown & Fredo @ Freedonia
Game Tree

Abscond

Charlie: -
$100,000
Fredo Fredo: $500,000
Invest
Honor
contract
Charlie
Charlie: $150,000
Fredo: $250,000

Don’t
Charlie:
0
Fredo: 0

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 Congress & President
• there were two items of expenditure
under consideration: Urban renewal
(U) and an antiballistic Missile system
(M).
• Congress liked the former and the
president liked the latter.
• But both preferred a package of the
two to the status quo.
• Table shows the ratings of the possible
scenarios by the two players, in each
case 4 being best and 1, worst.
• Two scenarios – with, or without, the
Line item Veto option with President.

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 Congress & President
without Line Item Veto
Congress President
Sign 3 3
President
Veto 2 2
U&M Sign
President 4 1
U
Veto 2 2
Congress
M Sign
1 4
President Veto 2 2
Neither
2 2

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Congress & President
with Line Item Veto
Congress President People
Sign both 3 3 ?

Veto U 1 4 ?
President
Veto M ?
4 1
Veto both
U&M ?
President Sign 2 2
U ?
4 1
Veto
?
Congress 2 2
M Sign
?
President 1 4
Veto ?
Neither 2 2
2 2 ?

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 What about chess?
• It is a definitive sequential game
• Shud be able use DT/GT?
• Trouble is – total nodes likely about 10120 !!
• Will take 10103 years for a super computer L
• Not practical
• What do Deep Blue & Fritz do?
• Openings + end games (+ now, mid game too)
• What do Grand Masters do?
• Do a combo of GT + judgment
• Science + Art = judgment = experience ?
• What is the fundamental difference between the machine &
(wo)man?
• Rational Vs Rational + Irrational
• Patterns reading / heuristics > algorithms / rules
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 Real Life
• Choices not irreversible
• Rules not frozen
• Sequences not visible
• Choices/choosing not always rational
• Selfishness not only motive*(?)
– *Maslovian selfishness is - and that covers Altruism too !J
– As well as Larger Good –
– Both of which are ‘Enlightened Selfishness’ !!
• Choices possibilities become massive – like chess

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