The magic question that turns transactions into relationships

I’ve been talking a lot lately about being relationship-oriented as opposed to transaction-oriented (for example here and here. )

In short, I believe that many good things – personally and professionally – come from putting relationships ahead of any individual transaction.  

I also believe that the process of conducting a transaction is a powerful opportunity to build a relationship.  Why?  Because a transaction is an opportunity to create an outcome that someone else cares about.  Create a better outcome, and the person on the other side will appreciate that, and think of you positively for future transactions as well (usually a good thing.)  

But how do you do that in practice?

The first important step is to go into any negotiation with the right mindset.  Stanford Professor Richard Pascale said it best in a class I took when I was in business school:

Negotiation is the process of finding the maximal intersection of mutual need.

This to me is a very powerful construct.  Negotiation is not about getting the most of what I want.  The best negotiations (transactions) leave us both better off.   

However, in my many years of practicing this mindset, I’ve found there is often a roadblock to finding these maximal intersections of mutual need.  And it is a surprising one:

People tend to ask for what they want.

While that sounds like a very reasonable thing to do, it doesn’t lead to the best outcome for either of us.  

Here’s why.

Generally, you conduct transactions because you are trying to solve a problem.  Let’s say, for example, your child has just hit school age and you and your spouse determine that you need to send him or her to an expensive private school because of a learning disability.  You have a problem though – you don’t have enough current income to make ends meet with this new school.  So you come to me, your boss, and ask me for a raise.  I, your boss, have my own problems.  I want to make you happy, but I can’t pay you above what everyone else makes just because you need it more.  So I say no.  Problem not solved.

What you missed out on, by asking me for what you wanted, is that you missed the opportunity for me to help you solve your problem – which is what you really want. 

This is generally what people do.  They ‘solve’ their problems using only their brain,  considering only the options they know to be available.  And by doing so, they miss the opportunity of applying someone else’s brain – a brain with other assets and other knowledge about available solutions – to the task.

Let’s replay the above problem.  Same situation, but now you come to me, your boss, and you say, “I have a problem.  My kid needs to go to private school because of a learning disability and I can’t afford it.”  Maybe I can’t give you a raise, but maybe I know of a scholarship or support program that may be available to you, maybe I know of a new school starting up with lower tuition, maybe I’ve had experience with a great public school with a special program that you can apply to transfer to.  Maybe I know someone with a child older than yours, who went through the same issues and found a great solution, someone I can introduce you to who in turn might have a great solution to your problem.   The point is, maybe I can help solve your problem without paying you more money.

In short, the problem with people asking for what they need, is they used only their brain to figure out what they need.  It is far more powerful to also use the brain of the person on the other side of the table.

So, next time you are in a negotiation, instead of stating what you (think you) need, or even asking the other party what they (think they) need, instead ask this:

“What problem are you trying to solve?”

From my experience, this question is literally magical when used in a negotiation. 

First of all, it takes the focus off what I want.  Even though I have my own problems in the back of my head, right now I will focus on you, which makes you feel really good about me just for doing it.  My credibility goes up with you.

Then, I have the opportunity to apply what I know, who I know, and what I have, to solving your problem.  And as I’ve often found, the things I have that you don’t know about can create a superior solution for you that also works better for me.

When I then lay out for you what problem I am trying to solve, a similar thing happens.  There is a powerful, subtle shift that occurs when we move from you-versus-me to let’s-work-on-our-problems together.  We build a relationship above and beyond what we are working on right now, and we develop a pattern of communication and a level of trust that will make anything we do together in the future easier.

I have countless examples of how this has worked for me, but rather than tell you mine, I’d suggest instead you simply go try it for yourself. 

What have you got to lose, except for a few problems you are trying to solve?

 

​The One Rule for Building Your Company Culture

At about 6am on an otherwise uneventful morning, the fire sprinklers in T/Maker’s stockroom went off for no apparent reason, destroying almost everything in the room.

The timing could not have been worse.  We were on fumes financially – pre-VC and bootstrapping by a razor thin margin.  The latest update of our product was in beta, but it still had over 20 significant bugs so it was not shippable.  Even worse, news about the new release had already leaked, so sales of the prior version had dried up. Every member of our team – myself included – was spending most nights and weekends at the office, testing and squashing bugs, and my cofounder Royal Farros and I had not cashed a paycheck in months.  It was all wearing very thin.

What a mess.   The inventory had turned to mush and the artwork for all our recent ads and brochures was also destroyed.  I remember to this day how miserable I felt standing there with water still dripping from the vertical surfaces, the smell of wet paper and humidity filling the room.

We called the landlord, who assured us all would be fine.  He said all he needed was a spreadsheet documenting our loss with the value of the items destroyed and his insurance would write us a check pronto.  We were damp, but relieved.

We set about to calculate the losses.  The retail price of the software, when combined with the cost of creating all the art masters, could easily justify our claiming $150k in damages.

This disaster was starting to look like a gift from sprinkler heaven.

But Royal and I knew that the destroyed products were the old, soon-to-be-obsolete versions.  And all those art masters, they were for the old product too.  Truth be told, it was all pretty much worthless even before the downpour.

We pow-wowed about what to put on the spreadsheet.  The landlord did not seem to care what we asked for because he was insured.  The money would be hugely helpful.  What harm would it do to inflate the value to retail?

But we knew that that would be a lie. 

And more importantly, every other employee would also know it was a lie.

So we told the truth to the landlord, and hoped that our honest deed would in turn make him more lenient about an upcoming lease renegotiation (which I believe it did.)

Why did we forego the easy money?

Because, if you lie about anything in front of your team, what does it say to them about how they should behave when faced with their own dilemmas?

To me, it says, lying is okay. Go ahead and steal a hard drive if you need one for your personal use.  And take your friends out to dinner and charge it as a business expense for a client who wasn’t even in town.  We cheat, so you can too.

We did not want to run a company where cheating was a way of business.  So we told the truth.

And that leads me to the promised single rule about building your company culture:

Your actions are all that matters. 

All the fancy office furniture, designer juice bars and and swinging vodka parties don’t really matter.  It’s been proven time and again that even direct compensation matters only to a point (and even then, fairness is more important than absolute dollars.)  All that stuff is nice, and makes life more pleasant, but it does not change the core of who you are as a company.

How you act – and how you reward or punish the actions of others – will determine how everyone else in the company will act.  And that in turn will set the culture – honest or cheating, respectful or disrespectful, friendly or mean, trusting or mistrustful.

And it isn’t just you.  If you are an open collaborative leader, but you have a direct report that you ‘use’ to do your unethical, back-stabbing dirty work, your culture will be infected with that — because you, as the leader, condone that behavior by allowing it in your company.  It’s on you even if it’s not directly you – no one is fooled.

As your company grows, you have to strive to communicate, manage to and act on your values and ethics, because if you allow them to be morphed by a department or isolated office, dangerous sub-cultures can be formed.   I’ve seen more than one startup end up in a world of hurt because the founder decides, more or less, “I don’t want to know what the sales VP is doing as long as he makes the quarter.”

While this rule is incredibly simple, following it can prove to be very difficult.  I’ve made my share of mistakes and learned over time how painful those could be.  I also kept people on the team and rationalized their belligerent behavior or ethical transgressions because I thought they were too important to lose.  In the end, I can’t remember a single situation where I was glad I did so.  I learned the hard way. 

As you head into entrepreneurial battle today, here are some thoughts to keep in mind as you make the countless decisions that go into building your startup:

•  is this decision consistent with my values?

•  if my team had complete visibility into this decision, would they believe it aligns with our company values as well?

•  if not, is there another decision I could make that would be consistent with our values?  Which cost is ultimately higher?

•  if we are living with a transgression, how can we fix it?  How can we learn from what happened to prevent such an issue arising in the future?

•  if someone in our company is not being consistent with our values, can I get that person to change?  If not, is it worth the infection of our culture to have that person on the team?

 

It’s Different for Girls

Early in T/Maker’s life, I was working on a company-defining deal with a major PC manufacturer.  We were on track to do about a million in revenue that year:  This deal had the potential to bring in another quarter million, plus deliver millions of dollars in the years to come if it went well.  It was huge.

The PC manufacturer’s senior vice president who had been instrumental in crafting the deal suggested he and I sign over dinner in San Francisco to celebrate.  When I arrived at the restaurant, I found it a bit awkward to be seated at a table for four yet to be in two seats right next to each other, but it was a French restaurant and that seemed to be the style, so down I sat. 

Wine was brought and toasts were made to our great future together.  About halfway through the dinner he told me he had also brought me a  present, but it was under the table, and would I please give him my hand so he could give it to me.  I gave him my hand, and he placed it in his unzipped pants.

Yes, this really happened.

I left the restaurant very quickly.  The deal fell apart.  When I told my brother (T/Maker’s co-founder and chief software architect) what happened, he totally supported my decision to bolt. 

Years later, we decided to raise venture capital.  I was meeting with a Boston-based VC in his office.  He had a window behind his head and, unbeknownst to him or the other people in the office, I could see a reflection in that window of what was going on behind my head in the corridor (all-glass offices can be quite revealing in this way.)  As I pitched him, one of his partners engaged in a pantomime in the corridor, making a circle with the fingers of one hand while poking his other fingers through the circle, then thrusting his hips in a sexual fashion.  I found it rather hard to concentrate on my pitch.  I did not get a term sheet from that firm.

Luckily, I did get a term sheet from Hummer Winblad, we closed our series A with them and we continued to grow the business.  A few years later, I was pitching our B round at a Sand Hill firm.  This time, I was five months pregnant with my first child so I was pretty sure no one would be doing hip thrusts in the background.   The pitch had gone well and I was meeting with the partner who was going to lead the deal.  I was feeling the forward momentum, until the partner said the following:

“My partners are concerned that when you have this baby you are going to lose interest in the company and not be a good CEO.  How can you assure us that won’t happen?”

I did not get a term sheet from that firm, either.  But I did get a term sheet from DFJ, and they and Hummer Winblad went on to get a nice return for believing in me, even in all my pregnant glory. (And, this is one of the reasons why I am now a partner at DFJ – I have always found the DFJ crew to be incredibly supportive of women.)

Sadly, I have many stories like the above, and so do my fellow women entrepreneurs (though I leave it to them to divulge their own.)

What’s my point? 

Just that it is different for women entrepreneurs.  We face challenges that our male counterparts do not.

So what’s a girl to do?

In many situations, my answer is, you have to simply walk away. When I was a CEO, I operated under the principle that if I was not treated properly, it was not worth doing business with the other party.  I also believed that if one door was slammed in my face, there was always another door to knock on.  I was persistent, and lucky — I did find enough other doors that were accepting and I was able to build a successful business.

It pains and somewhat embarrasses me that I am not recommending calling out bad behavior and shaming the individual or individuals responsible.  In a perfect world people would have to account for their behavior.  But as an entrepreneur who spent years in a daily battle for existence, I did not feel like I could afford the hit I’d take in exposing these incidents.  (Again, not criminal behavior.  I suffered a few unwelcome gropes at late-night Comdex parties and the like, but never felt like I was in danger and I was always able to walk away unharmed.)

I do think things have improved, though of course I’m not an entrepreneur any more so perhaps it is situational.  I am still (sadly) often the only woman in the room – but my position as a board member in a room full of other board members and senior executives creates an environment where professionalism and civility tend to rule.  Plus, let’s be honest — I’m now in my mid-fifties so I have probably gone from the ‘tempting to grope’ category to the ‘likely to be invisible’ category.

I’ve also developed a pretty thick skin and don’t take offense at some things that the me-of-30-years-ago might have found offensive.  For each of us there is fine line between things that are colorful but harmless speech and things that are truly offensive — in fact I’ve been called out for using the expression “come to Jesus” by a devout Christian and “the pot calling the kettle black” by an African American entrepreneur – I had no idea those might be offensive to other people.  And in my British board meetings they use the expression “tits up” without a thought that I might find that a bit blush-worthy, and I’ve learned there’s no mal-intent behind their usage so I just let it go. 

That is why I encourage my fellow female trailblazers to look for the intent behind the words.  Offensive language is often unintentional, and sometimes you can turn an awkward situation into a bonding experience.

For example, during the dot-com bust, I was a partner at venture firm Mobius and we were dealing with a lot of trauma in our portfolio.  We held an offsite with all the deal partners plus our new general counsel Jason Mendelson (now a partner at Foundry and a fantastic venture capitalist and human being.)   As we reviewed the portfolio deal by deal, many of the deals needed more funding and at that time no VCs were following anyone else’s deals, so it was up to us to decide who would get more dough.  Each of us fought hard for every deal we managed.  After hearing about a dozen of these pleas, my partner Brad Feld (another mensch and great VC who is also a partner at Foundry) pushed back from the table, stood up, and said,

“This is bullshit.  Each one of us is just sitting here with his dick in his hand asking for more money without truly justifying it.”

Jason looked nervously at me, wondering how I was going to react. 

“This is making me very uncomfortable,” I said.

“Because I don’t even have a dick to hold.”

Without skipping a beat, Brad replied “well if you need a dick to hold you can borrow mine anytime.” 

I already knew Brad as a great guy and a huge supporter of women, and I took it for the joke it was intended to be.  Everyone laughed.  It broke the tension of the meeting and was a bonding moment for us all.

Frankly, I’m struggling with how to end this post, because there is no list of quick tips, no way to tie this topic up with a bright bow and be done with it.   I hope that by exposing my stories and my opinions I’m providing a perspective for my male readers to consider, one that they might not otherwise have had.  For my female readers, I hope this has offered some useful ways to think about situations they may face, and – if all else fails – at least provides the comforting knowledge that they are not alone.

How to win friends who influence people

How on earth did I become the subject of a well-known Harvard case about being a master networker? 

During T/Maker’s early years, we had zero budget for public relations.  I knew certain journalists influenced markets, so I made it my goal to be someone they wanted to talk to.  I read their work, engaged positively with them, and was highly responsive to their requests for leads for stories, even when those did not involve me (and the vast majority did not.)  Kevin Maney, the technology editor of USAToday at the time, was so impressed with my ability to connect him to people that he wrote a cover story in the business section about me as the ‘ultimate connector of Silicon Valley.’  Kathleen McGinn, a Harvard professor, read the story and decided to write a case about how I build and manage my network.  That’s how.

While I did not set out to be the ultimate connector for journalists, helping them with my network and knowledge was part of my strategy for getting tiny T/Maker more than its fair share of media attention without spending a lot of money.  Here are some pointers for you to do the same for your company:

  1. Aim at the right targets:  Pick which outlets have the audience you are trying to reach.  A human interest story about you in GQ might be personally gratifying, but it probably has no value if your goal is selling big data analytics to major enterprises.
  2. Do your homework:  Once you know who your targets are, read!  Get to know the writing style of the journalists, their biases, their favorite angles.  Figure out which journalists are most closely aligned with the stories you want to tell and read everything they write. It’s easier than ever to get to know people from afar on Twitter and Facebook to develop an even deeper perspective than what one can glean from their articles alone.
  3. DIY:  As much as PR professionals can be very helpful in background, you are the person the journalist will be interested in, and you need to be the one to invest time in the relationship.  Another person can help gather material and shape your outreach, but you need to have the direct connection and that only comes from personal effort.
  4. Reach out well before you want something:  Let someone know when they’ve written something that you found particularly insightful, or handled a topic in a new or interesting way.  All writers – myself included – like to be acknowledged that our work meant something to someone else.  Build a relationship well before you have anything to ask for.
  5. Introduce your company or product to someone who covers your space but has not included you – again without asking for anything.  After an article that, for example, would compare word processors but not include our product WriteNow, I would reach out to the writer, let them know that I appreciated their perspective on the products we compete with, and send them data about our market share encouraging them to reach out to me should they ever want to talk about the market or try our product.  I always did this in a positive way, never being angry that we were not included.  It worked very well.
  6. Make it easy (and fun, if possible) for someone to cover you:  This should go without saying, but you should respect deadlines and timelines, get product to the journalist in plenty of time, provide a full fact sheet, high resolution photography, and be super responsive to all incoming questions. With today’s realtime coverage environment, a ten minute delay can mean being excluded — while being first to respond can not only increase your chance of airtime, it can even influence the direction of the piece.  We also made our press tours fun by scheduling them at the end of the day and bringing pizza, beer and wine — I even baked cookies for many of these tours, having some fun with the fact that I was a very rare female CEO in the software industry.
  7. Make yourself larger than just your little company:  For many reasons, but this being one of them, I worked hard to rise through the ranks of the Software Publisher’s Association.  As a board member and ultimately president of what was the leading trade association in our industry at that time, my elevated status as an industry spokesperson helped me build relationships with journalists who might not have been interested in me as only the CEO of T/Maker. 
  8. Be helpful, even (especially!) when it is not about you:  As I became known in our industry, I was often sought out for comments on breaking technology news or asked to help with sources.  I always made myself immediately available, studied up on the topic and worked to come up with pithy comments.  Sometimes I would decline, if I felt the situation was not one I could comment on, but would help the journalist find someone else relevant who I thought would comment.  Because I was always helpful and responsive I was a fixture on a number of their “call first” (or “email first”) lists, in turn  creating ever more opportunities.  That’s what I did for Kevin Maney at USAToday, and the article he wrote about me which then prompted the Harvard case has been nothing short of life-changing — and certainly not something I could have planned nor expected. 
  9. When it comes out bad, don’t complain:  Inevitably, not all press will be to your liking.  My advice, don’t complain.  Different people have different approaches, but I don’t believe posting flaming negative comments or fighting journalists in any public way to be  winning strategies – after all they have the ultimate podium, you do not.   If there are factual errors point those out in the most professional way possible. 
  10. Manners count: Your kindergarten teacher told you this, and now I’m reminding you:  Be polite!  Say thank you.  Acknowledge the work that the journalist put into the story.  Repost, retweet — help them (and you) get more eyeballs on the content using social media. Journalists will cover most topics again, and if they remember you as someone helpful, likable and grateful, they will reach out to you again.

There’s a collateral benefit I’ve realized by following the above: I’ve made many lifelong friends among the journalists I’ve gotten to know along the way.  Turns out most great journalists are also intelligent, inquisitive, articulate people who are lots of fun even when (perhaps especially when) no work is involved.  I’m glad I took the time to get to know them.

 

Why I care so much about your plan — even though I know it’s wrong.

During my first rodeo as a venture capitalist, I co-led an investment in Reactrix, a fantastic gesture-reactive video platform (think Minority Report, but in 2003). Not only was Reactrix’s demo one of the most captivating I had ever seen, it blew the doors off the advertising metrics we tested — Arbitron’s study of Reactrix’s unaided consumer recall was so stratospheric that Aribitron proclaimed it to be “the most exciting new advertising platform since the advent of television.”  Whoa.

We decided out-of-home advertising was the best market to start with, and targeted malls and movie theaters for the attractiveness of those audiences to major brands.  We rented space in malls at $2,500 per unit/month and installed a few hundred units.  Our model said we needed to sell only 50% of our ad capacity in order to make our business hum.  The mall and movie-goers were entranced with the units and the property owners were happy with their new high-tech attractions.  All seemed good.

Unfortunately, as we began to operate our network, a number of the assumptions in our business model turned out to be wrong. 

For one, the installation process was more complex than what we had encountered in the lab, necessitating stronger materials and more highly-trained technicians.  The units were more delicate than we had estimated and needed frequent maintenance. The sales cycle for convincing a brand to buy media on our platform  proved to be a challenge despite our fantastic consumer ratings (We were not ‘internet’, nor ‘billboards’, and did not fit neatly into existing budgets).  In addition, the creation and management of the digital media proved non-trivial — Reactrix required a whole new, interactive approach, and existing authoring tools (and the people trained to use them) were not up to the job.

This perfect storm of wrong assumptions resulted in a Catch-22:  If we took the units out of the malls and theaters, we had nothing to sell; if we left them in, the rent would drive us into bankruptcy.  Though we tried to renegotiate with the mall owners, they did not see enough upside from the small ad revenue opportunity to cut us a break.  We were trapped.

In the end, Reactrix — with its great technology and terrific employees and fantastic consumer reaction — was crushed under the weight of an unsustainable business model.  It was an incredibly painful and expensive experience — and one I think about every time I look at a new investment opportunity.

And that, my dear entrepreneur, is why I insist on walking through a detailed business model with you even though we both know that your plan will contain a lot of bald-ass assumptions that will almost certainly be wrong.

Because, even though the numbers will likely be wrong, your thinking behind how you arrived at those numbers is critically important.

I want to know that you’ve done your homework.  I want to know that you’ve gotten to know the insides of your target market and that you’ve fully vetted your cost structure.

I also want to understand which assumptions are most critical to your model and what impact they have.  Think of each assumption as a dial.  Which ones connect to things that matter, and what impact would they have on your ultimate outcome if they turn out to be only half as effective – or then again twice as effective? Of the ones with the biggest impact, what underlying factors determine their outcome?  Which ones can kill your business?  And, if there are those that can, are there different ways to configure your model such that they become less catastrophic in a downside scenario?

The plan you create becomes even more useful when you start actually engaging with customers.  As the German military strategist Helmuth von Moltke said, “no battle plan survives contact with the enemy.”  To paraphrase von Moltke, no business plan survives contact with the customer.  They key with your customer encounters is to learn from what goes wrong and adjust your model accordingly. 

Sometimes a higher customer acquisition cost means a company is not viable.  However, sometimes it simply means that you have to raise more money to survive longer until the total customer value can be realized.  So long as your model compensates for the increased dilution with the ultimate profitability of what the plan will achieve, you’ll be okay.

Often, product pricing will prove wrong: Too low and you have plenty of customers but you are not making a profit; too high and you can’t support your fixed overhead on the small customer base.  Luckily, creative models in SaaS, digital media and shared economies can create lots of dials for you to turn until you find the right mix, and as I always like to say, price is the easiest feature to change.

So, when meeting with a prospective investor, instead of dreading that business model proctology, look at it as an opportunity to fully test your model and see if even the worst of your wrong assumptions can be correctible – and survivable.  Here are few tips for making it a positive experience:

  1. Do your homework: Know everything about your target market –the usual channels, the typical spend on products like yours, the cost of supporting the customer, the customer churn experienced by others, and the myriad of other factors that turn your business economics from red to green.
  2. List out the assumptions that went into the plan:  Which assumptions are critical to your model, how did you determine their ranges, and what impact do they have?  My best encounters have been with entrepreneurs who have built a model that we can play with real-time to see what impact various assumptions have on the model.
  3. Study the entrepreneurs who have gone before you:  It is a great reality check to benchmark your plan against the real-world results of companies who have already followed a model similar to one you plan to use.  If many other companies have shown that, for example, ongoing R&D is 10% of revenue, it is unlikely that your model will work with only 2% allocated to R&D.
  4. Be open to discussion, criticism, and adjustment:  Some entrepreneurs act as if their models are handed down from Mount Sinai.  A business plan is a living, malleable document that has no value unless it learns and changes.  Don’t be defensive when someone brings up challenges.  Lean in, they might unlock some great realizations for you in the process. 
  5. Admit what you don’t know:  If confronted with a question about an assumption or a number you don’t know, don’t lie or try to wing it.  It is perfectly fine to say “I don’t know, but I’ll get back to you.”  But then, do get back with a thorough and thoughtful response in a timely manner.  This actually scores big points and keeps the dialog going.
  6. And finally, be a realist.  I was once in an annual budget review with an entrepreneur who was planning to spend $50 million in the coming year — and triple his revenue to cover that cost. “The problem I see with this plan,” I said, “is the problem with all your plans. They always assume everything will go perfectly, and yet, in my experience, things never go perfectly.”  (And things didn’t go perfectly… but that is another story!)  Even though most entrepreneurs are optimists, you have to model your business with a heavy dose of reality so that you can withstand and survive the inevitable variables that don’t always break in your favor.


Good luck, and may your model be wrong in all the right ways!

 

 

What I Learned Negotiating With Steve Jobs

Fresh out of Stanford Business School, I started a software company, T/Maker, with my brother Peter. He was the software architect and I was, well, everything else. Our little company was among the first to ship software for the Macintosh, and we developed a positive reputation among the members of the nascent developer community, which led us to expanding our business by publishing software for other independent developers. Two of our developers, Randy Adams and William Parkhurst, went to work for Steve Jobs at his new company, NeXT, and that’s how I ended up head to head with Steve Jobs. 

Turns out, Steve had a problem and Randy and William thought I could be the solution. Steve had done an “acquihire” of the developers who had written the Mac word processor MacAuthor. In order to make the deal economics work, Steve had promised to publish MacAuthor and pay royalties to the developers. But now, with the world’s attention on his new startup, how would it look to have NeXT’s first product be a word processor for the Mac?  Randy and William suggested to Steve that if I were to be the publisher, the problem would be solved.  Steve liked the idea, and invited me in to talk about it.

My first meeting with Steve lasted well over an hour. He grilled me about packaging, channels, distribution, product positioning and the like. I must have passed the test, as he invited me back to negotiate a publishing deal. I spent the next three weeks preparing detailed timelines, package mockups and drafting a very specific contract based on our experience with the other developers we had already published.

On the appointed day, after waiting in the lobby for 45 minutes (this, I would come to learn, was par for the course for meetings with Steve), I was called up to Steve’s cubicle. I remember to this day how completely nervous I felt. But I had my contract in hand and I knew my numbers cold.

Shortly into my pitch, Steve took the contract from me and scanned down to the key term, the royalty rate. I had pitched 15%, our standard. Steve pointed at it and said,

“15%? That is ridiculous. I want 50%.”

I was stunned. There was no way I could run my business giving him 50% of my product revenues. I started to defend myself, stammering about the economics of my side of the business. He tore up the contract and handed me the pieces. “Come back at 50%, or don’t come back,” he said.

I slogged down to my car feeling like I had just blown the biggest deal of my life.  Lucky for me, someone had followed me out.

Dan’l Lewin, one of the NeXT co-founders, had a cubicle within earshot of Steve (actually, at that time, every employee was within earshot of Steve.) Dan’l had been working with me in background over the last few weeks and we’d developed a good relationship. If this deal did not get done, it was going to end up being his job to find someone else, so he really wanted me to get the business. Dan’l put his arm around my shoulder, and said one sentence, which I will never forget.

“Make it look like fifty percent,” he said.  

“But I can’t afford to pay fifty percent!” I complained.

“I get that you can’t afford to pay fifty percent of gross,” said Dan’l, “but Steve wants to see 50% on that contract. So figure out a way to make a contract that you can live with that also says 50% at the bottom.”

That’s when the light bulb came on.

For Steve, this contract wasn’t that important to the future of NeXT. While we would go on to pay Next about $5 million in royalties over the life of the contract, and were their first source of revenue, we were not central to his mission (Steve later teased me that he made more money collecting interest on his bank account than he made from me.). However, he had promised the developers 50%, he had said the number within earshot of everyone, and he wanted to be able to tell everyone he got what he wanted.

I had to make the business make sense financially. I just needed to make my 15% look like his 50%.

To do so, I reduced the nut to split by first deducting the cost of packaging, of technical support, the salaries for some developers on my side of the business to implement fixes, and when I still couldn’t get the math to pencil out, I added a $6 per unit ‘handling fee’ thanks to some inspiration from an infomercial on the Home Shopping Network.   My new “Hollywood net” number read 50%, but fully-loaded it was pretty close to the 15% of gross I needed to make the deal work.  Magic!

Steve was happy with his 50% contract and the deal got inked.   T/Maker became the publisher of the renamed WriteNow word processor, which went on to decent success, garnering 25% of the Mac word processing market during its multi-year run and making many millions of dollars for both NeXT and T/Maker.  And, I went on to work with Steve for many years – but that is a different story! 

Here is what I learned:

Know your numbers:  I knew my numbers, what I could make money on, and what I could not.  I understood which dials I could turn to make the deal work for me and for the other side.

Don’t let the bright lights blind you:  I did not do a bad deal just because I was dealing with a high-profile person, no matter how tempting the glory was at the time.   In my current life as a VC I can’t tell you how many times the entrepreneur wants to do a deal simply because it would be a great press release. Don’t do it!

Have allies inside the other organization:  During my preparation process I had gotten to know Dan’l Lewin quite well, and he likewise got to know me as a proactive, thoughtful, ethical person that he wanted to do business with.  Without him working the background this deal never would have gotten done.  For every deal, it is important to cultivate other relationships inside the firm who can help you with perspective and work behind the scenes to move you into the yes position.

Understand the needs of the other person:  In business school, I learned that negotiation is “the process of finding the maximal intersection of mutual need.” At first I did not understand Steve’s needs, but when I reflected on it after being banished from his cubicle, I came to realize that this deal was not important to NeXT in terms of dollars or future, but important for Steve to get the 50% he promised his developers.  Once I got that, it was relatively easy to come up with a contract that met his needs but also met mine.  People are not often as clear as Steve was — it sometimes takes extra work and lots of iterative communications to find out what the other person truly wants, but the process creates better, more sustainable deals.

I finally have a few things to say…

I always wanted to be a writer.  In fact, in college, I majored in creative writing (I bet you didn’t know Stanford even offered a degree in creative writing.)  It was a fun major —  the homework consisted of reading novels and writing whatever popped into my head.  I enjoyed my undergraduate life immensely, and had a lot more free time than my engineering-major roommates.  Life was great!

Unfortunately, upon graduation, two flaws in my plan became apparent.  One, I didn’t have anything to write about.  Two, I was in debt, and there didn’t seem to be any high-paying creative writing jobs available in Silicon Valley. 

So, instead, I got a job as the editor of the company newspaper for Tandem Computers, discovered a passion for bringing technology to non-technologists, got an MBA, started a company with my brother, ran it for fourteen years, led Apple’s developer relations for a year, and then became a venture capitalist.*   

But I still really enjoy writing.

And I finally have a few things to say.  So I’m going to give it a go here.

My life as an entrepreneur and then a venture capitalist has been filled (and continues to be filled) with great adventures.  Some of them have been exhilarating, some of them debilitating, but all of them have left me with war stories and lessons learned that I hope to share here.  Plus, I do have some opinions about the most interesting future trends, the state of various markets, the issues surrounding women in the tech workforce, and other topics I’ll opine upon here. 

I hope you’ll enjoy taking this journey with me and you’ll let me know what you think!

*if you want to read my full bio you can find it at www.heidiroizen.com