Negotiation & Multi-Turn Games

Shortly after graduating from college, I set out to buy my first new car.

I wanted to optimize the process as much as possible. As an at-the-time insufferable know-it-all, I went dealership to dealership and told them (a) exactly which car and configuration I wanted and also (b) that I was going to run a second-price auction and then proceeded to explain in detail how Vickrey auctions worked and why they should bid their best price.

I ended up buying a car for a pretty good price. I definitely didn’t make any friends.

Sitting on the Same Side of the Table

Vaughn Smith is a charismatic, dapper New Zealander who was one of the first heads of Business & Corporate Development at Facebook.

One day early in Facebook’s history, Vaughn hosted a lunch talk for the Engineering team: “Negotiation 101.”

I almost never went to these brown bags, but I went to this one because (a) Vaughn is great and (b) I wanted to do even better the next time I bought a car.

Vaughn’s talk was one of the most impactful meetings I’ve had in my career.

There were many great lessons, but I think the most important for me was –* always sit on the same side of the table.*

Most competitive people default to adversarial negotiations. They want to win and get the best possible deal. They treat the situation as zero-sum. They sit opposite the person and try to grind them down as much as possible. They then go to their boss and celebrate what a great deal they got.

The core lesson for me of Vaughn’s talk was that negotiations don’t have to be zero sum.

To be a truly great negotiator, you want to listen and have empathy.

Your goal is to understand your counterparts’ wants, needs and constraints and then clearly express your own. With all the cards on the table, you can then work together to find a solution that is a win for everyone. In an ideal negotiation, no one feels like they got a deal and no one feels like they got taken advantage of. Everyone feels good about the outcome and treated fairly.

The mnemonic and visual aid I took away was to always sit on the same side of the table. Stand up, walk to the other side, sit next to your counterparty, map everything out on a whiteboard and work together to find a solution.

This mental framework has helped me in many types of conversations:

*1/ Hiring. *At some point, most hiring conversations turn to compensation. Because compensation is the only quantified component of most offers, it is the easiest to fixate on. But compensation is rarely the high-order bit. One’s manager, one’s teammates and the work itself is almost always more important. Few people want to take a miserable job for 10% more cash.

A much better strategy – for both candidate and hiring manager – is to figure out what each side is solving for and make sure it’s a great mutual fit before talking about money. If both sides are excited about the fit, the compensation conversation is much easier.

*2/ Venture. *I advise both the founders I work with and prospective founders to treat choosing a major investor like a hiring decision. If you were hiring a VP of Engineering, you wouldn’t necessarily want the cheapest one or the highest-prestige one. You would optimize for the person you’d most want to work with and the person who would have the highest positive impact. The same is true in venture – first figure out with whom you’d like to work, and then find something that is fair for all parties. There are no “deals” when hiring a VPE, and there are no “deals” in venture.

*3/ Sales. *Sales is not about selling things. Sales is about partnership. To be great, you need to deeply understand your customer’s problems and then partner to solve them. You are not selling a widget and trying to get the best price. You are trying to make your partner successful. If they succeed and feel good about it, you will almost always get to compelling economics.

*4/ M&A. *Inexperienced founders pitch their company – here’s who we are and what we do. Great founders imagine why their company will make the acquirer better and make that case for partnership. And great acquirers care deeply about their reputation – they want to be known as great homes for founders and fair counterparties. They don’t want to be known as PITAs.

Multi-Turn Games

I like to think I would have eventually figured this all out, but Vaughn’s talk was a fortuitous catalyst. I was still young and had spent years in various forms of competition – college admissions, internships, job offers, promotions. My default when confronted with a negotiation was to want to win.

Facebook’s early engineering culture was very focused on selflessness – your job was to make the people around you better, and their job was to make you better. It might sound cheesy, but it was true (and it was glorious). Maybe the reason Vaughn’s talk resonated was that it applied the same philosophy to deal-making – if everyone else wins, there’s a good chance you win too.

A few years later, I bought another car. I spent 15 minutes learning the salesperson’s entire backstory. I weirded him out when I asked what I could do to make him look good (presumably “make the sale”). But I still got a pretty good deal. And I was definitely way less insufferable.