A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does is verbally reject the deadline. And the second thing he does is ignore the deadline and offer feedback only after it has passed.
I've seen him employ this many times in practice and it has always worked out. I don't want to be responsible for anyone losing a deal, but remember: when someone offers you an exploding offer, it's because they really, really want you to take it. If anything, it should be a sign there's (a) more time to be had, and (b) plenty of room on the terms.
Any deadline claim has to be concrete and believable. The start of the YC program is a good example.
This reminds me of SharkTank where Mark Cuban would make a shot-clock offer and give 30 seconds for someone to accept the offer.
Here's the thing. Mark Cuban can walk away from any deal, at anytime and not feel like he is missing out.
So, while you are certainly getting the shorter end of the stick with an exploding offer...It's usually coming from a place where the person making the offer has enough leverage to be ok with losing the deal.
In this case, waiting will make you lose the deal.
Sometimes, a good enough offer is better than a slightly better offer.
More importantly, as Robert Ringer says, "The results you get out of a negotiation is inversely proportionate to how intimidated you are when negotiating."
That, and most of the deals he (a Billionaire) is talking about investing in on Shark Tank involve him doling out incredibly small and insignificant sums of money for equally small and insignificant (in his eyes) returns.
He really doesn't care if you take the offer or not on Shark Tank, because even if you do and you succeed beyond your wildest dreams, it's not going to make him any richer than sitting through a Dallas Mavericks game would.
The one thing I've learned about negotiating is that you absolutely must know your negotiating position before evaluating your strategy. Parent post and grandparent post are both perfectly fine points, and how they apply to each of us depends entirely on our set of circumstances.
Equally as important is positioning yourself prior to the negotiation. How the other person views you is one of the strongest drivers of how they will negotiate.
Edit: This is why getting introduced to an investor puts you in a much stronger position than soliciting them directly.
"you absolutely must know your negotiating position before evaluating your strategy"
This is essentially true in any decision-making situation, not just financial negotiations.
I was a really crappy grad student, but I went into my dissertation defense knowing exactly what I was bringing to the table and it went very well. Ditto for the better job interviews I've had.
Also about how many options you have for yourself. You never want to put yourself in a situation where you might get an exploding offer without something else in hand.
Unfortunately I didn't follow this advice when recently buying a car.
It's difficult to imagine a situation where it's rational to offer another rational actor an exploding offer to buy a car. Jobs sometimes need to be filled quickly. But when is selling a car today so much worse than selling one tomorrow?
It sounds like the "exploding offer" another scumbag car dealer pressure tactic. Car dealers will do anything, including lying, to prevent you from negotiating efficiently.
Car dealers have sales targets for each month. If they hit the target, they usually get a big bonus from the manufacturer.
I've gotten a dealer to sell me a car under dealer price by e-mailing every car dealer in the area on the 29th of the month, saying I was looking to buy a (specific model of a) car immediately. All you have to do is find the one dealer who is 1-2 cars away from hitting their bonus target. It is rational for them to sell to you under cost because they will more than make it up in the bonus; it is rational for you because well, it's under cost.
For those curious, This American Life did a whole podcast on the end-of-month car sales thing. It was quite fascinating and really does exist.
One of the more interesting points in the entire thing came in the first minute where they point out that things like the end-of-month sales impact the entire US economy because it has to do with auto sales, and GM and steel working and etc follow up the chain. Weird to think of it like that.
For some reason this brings back memories of Soviet style end of month production cycles, where the goods made earlier in the month were of better quality than those made by rushing in the last few days of the month.
It'd make a lot more sense to everyone if the 30-day periods were staggered for each employee, and if they could score "assists" for fellow employees (said fellow employee would need to agree, of course). This would probably make the sales process far more sustainable and team-oriented.
Of course, companies that haven't set their own quarter ends (my employer's quarter ends on a different day than the calendar quarter) are also subject to a similar larger-scale rush-to-target by Wall Street.
It is for any corporation that has quarters to report to wall street. I used to sell capital equipment ($10-50K invoice amounts) for Snapon Tools. The specials that would come down the line two weeks before the end of the quarter would be ridiculous. I once sold a $30,000 machine for $16,000 because I could close it in June (not July) and the buyer was paying cash and would take a demo unit off my truck. I got the sale, buyer got a discount, everyone above me got some bonus, everybody was happy. Then the same thing happened 2 weeks before the end of the third quarter just thirteen weeks later - suddenly almost all the appliance sized machines were half priced to clear inventory and make numbers. I sold 33 A/C machines in 3 days. That should have taken 3 years to move that many units.
So whenever you are buying something from a corporation, try to figure out if they are ahead or behind in sales. They can get really desperate to make the numbers. If the product is selling faster than they can make it, all bets are off. That popular stuff stays a full retail. Nobody will discount since production is limiting their sales, not demand.
Also, understand flooring costs. Often a dealer of expensive stuff like cars, trucks, motorcycles, RVs etc gets a line of credit from a large bank for "flooring". This is the roughly 1% per month fee the dealer pays to the bank for interest for the line of credit. If that unit has 12 months of flooring charge against it, people can get really good deals. They just want to clear stale inventory and will take a loss to do so.
It's worth being aware that this can work both ways.
I've worked with sales teams where "I need to hit target this month" was used as a cover story to offer a moderate discount to a buyer without creating (too much of) an expectation that such discounts would available in the future, or suggesting that the company was getting desperate to close.
That is, it was a partly-but-not-entirely-true story to justify an exploding offer.
This is off topic, but I would like to appeal to your human sense of dignity.
There are a number of cars available to the Australian buyer which can't be readily had by consumers in much of the rest of the world. You can buy Lapanese-spec sports cars from Nissan. You can buy 4 wheel drive Mazdas. Most importantly, you can buy a ute.
Utes, or car-bodied vehicles with a pickup bed, are extremely practical. You can commute etc. in a low, safe, fun vehicle, yet have significant cargo capacity. This market never took off in the Americas due to our love affair with pickup trucks.
Modern utes can be had in incredibly sporty or economical models, too. Most utes can't be legally imported to America, since no crash safety tests etc. have been done.
I suppose what I'm driving at is to please consider buying a ute (like a Ford Falcon pickup with a big v8), because there are starving drivers in America.
It used to work wonderfully in the UK each year, around August or September, that the registration letter would change. Telephone a bunch of dealerships (in the days prior to email) and tell them you wanted to buy a very specific make and model and the current year which only has a week or two left before the registration letter increments. I don't know if it still works because I haven't owned a car in the UK in over 20 years.
But every car dealership in ever country has sales quotas to meet. You just have to find out when they are.
You assume it was a dealership. A perfectly legit example of an exploding offer would be a used car with an attractive price where the deal goes to the first person to show up and claim it.
Anecdotally: last year I've tried to buy at least 5 cars that were sold before I got to the appointment. When I finally found one that was ok for its price, I bought it without asking any more questions.
> when someone offers you an exploding offer, it's because they really, really want you to take it.
Couldn't it be because they've got a lot on their plate and after a certain period of time they want to free up their brain cycles and stop wondering if you're going to accept that deal?
Couldn't it be that you're barely preferred and making the deadline shows them that you're excited about the offer? Missing the deadline shows that you're not excited and they'll know to go with the second best candidate?
FWIW, I'm relating this to exploding job offers as I have no direct VC experience.
Whenever I've offered an exploding offer in the past, it's because I had several candidates: an extremely strong candidate and several strong but somewhat weaker candidates. In general, all of the candidates have a limited timeframe to make a decision, and there's a risk of losing all candidates if I waited for an indefinite time on the strongest candidate.
In other words, candidates sometimes also need an answer within a certain timeframe (often for very legitimate reasons; a job change can often be a life-changing event) and that means that there are some real time-limits across all of the candidates (in both directions).
>Whenever I've offered an exploding offer in the past, it's because I had several candidates: an extremely strong candidate and several strong but somewhat weaker candidates.
If you had several candidates of equal ability, would you still use an exploding offer? Otherwise, it seems to be less about "giving candidates an answer within a certain timeframe" and more about putting pressure on the candidate you really want.
>there's a risk of losing all candidates if I waited for an indefinite time on the strongest candidate.
Is there nothing in between an exploding short-term offer and an indefinite open-ended offer?
If you had several candidates of equal ability, would you still use an exploding offer?
I would think you would. If you have 10 candidates but only want to hire 1, you can only issue one offer at a time regardless the fact that all 10 are equally qualified. While the first candidate would love to have all the time in the world to contemplate the offer, the employer and the other 9 candidates who are waiting in line don't want that.
>the other 9 candidates who are waiting in line don't want that [to wait for the first candidate to contemplate the offer]
If any of them have other offers, they might appreciate _some_ extra time to decide between them.
EDIT: Nevermind the previous bit--I was still thinking in the context of multiple simultaneous offers, which I guess is not a thing.
And if not, then if the first choice turns it down, you make an exploding offer to the second (to be fair to the next 8), and again to the third (to be fair to the next 7), etc. Is there ever a situation where an exploding offer is not in everyone's best interest?
> And if not, then if the first choice turns it down, you make an exploding offer to the second (to be fair to the next 8), and again to the third (to be fair to the next 7), etc. Is there ever a situation where an exploding offer is not in everyone's best interest?
The ideal scenario would be if it were socially acceptable to rescind offersβthus making the exploding offer unnecessary. An employer could make offers to everyone they're interested in, see who accepts, and then stay with them (essentially, allow parallel analysis on both sides). Instead, candidates can have multiple simultaneous offers while companies can only make offers sequentially. Hence the exploding offers.
Thanks for this. I was looking for someone to come in with basically this point. Sam's point seems to be that if you are trying to hire/fund within a ballpark range of candidates/companies, then exploding offers aren't good practice. If you were trying to hire exactly one candidate, or fund exactly one company this quarter, than exploding offers make more sense. Because companies are often hiring only one person for a role, I don't expect he would extrapolate what he says to hiring.
Depending on the timeframe, this sounds somewhat reasonable.
I'm assuming at the point where you make the offer, you and the candidate have established that you want to work with each other, and already agreed on compensation and terms.
Given that, you're already past the negotiation stage, and there is a time limit on when the deal can close. You need to hire one of your candidates, so it makes some sense to say "you have some-number-of days to accept this offer."
The key here is that you've already negotiated the agreement. In the past, I've had companies make me exploding offers with zero opportunities for negotiation.
Every time I've rejected such an offer, and every time it's been the right decision.
It's imaginable that there's a very short-term deadline affecting a deal. But remember: that puts the side with the deadline at a disadvantage, not an advantage. Consider these examples: really needing to sell something for the money, desperately needing someone to fill a job, needing to use a scarce item in the short term, etc. If one of these is happening for real, then the offer they make will have to be compellingly high and convincing, demonstrating their position of weakness. If someone offered you 5X your normal rate and explained they needed a job done this weekend, that's not a negotiation strategy on their part.
But feigning indifference and giving you a short-term deadline for an offer you're unsure you can beat -- that's just a negotiation move, and personally, I would call them on it. Again, I don't want to be responsible for failed application of this :-)
The key insight is that there's an emotion inside people's heads that's driving their decision-making. You can't see it, and if they're good negotiators they don't want you to see it, but it's there and it'll remain there even if you don't accept the offer.
If they gave you an exploding offer, then that signals that the emotion is "We really, really want you, and we're afraid someone else will snap you up." If it looks like someone else snaps you up and then you suddenly, miraculously become available a month later - what's the emotion? It's usually elation that you happen to still be available.
The one exception is people who are susceptible to sour grapes. "Well, we can't get you, therefore we didn't really want you in the first place." These offers disappear, but you often don't want to work for companies like this anyway, as it shows that management can't get over personal feelings of rejection to do what they'd judged rational a month earlier.
BTW, this is why it's usually not a problem to return to a past job that you've done well at and left on good terms. They liked you then, there's no reason why they wouldn't like you now.
It seems unlikely that someone would instantly flip from wanting to do a deal to refusing to do a deal just because it drags on a little longer than they wanted.
But anything's possible. If you're happy with the offer and don't want to risk losing it, take it!
"A dear friend and excellent negotiator told me that when he gets any kind of short-term exploding offer, the first thing he does"
As someone who considers himself an excellent negotiator (and gets paid to do negotiating) [1] I'd really caution someone from employing a technique that someone else uses that you don't have experience with. Negotiating is all nuance it's not engineering or an exact science. Go try and read a book on it if you want. (I can always tell someone who is fresh from reading a book.)
Actually exactly for this reasons:
"I don't want to be responsible for anyone losing a deal"
Of course, it's easy when someone else is taking all the risk.
"when someone offers you an exploding offer, it's because they really, really want you to take it."
Could be. But there are cases where this is not true. How lucky do you feel in interpreting all the signals based on a limited time as a negotiator?
And getting back to what Sam has said:
"Sometimes they say they have a fixed amount of desk space, but in practice, if a good company wants to join late, they always make room."
Things are never always clear cut. Very possible your company is borderline and you don't fall into a "must have" category. By even YC's own thoughts there are many more qualified companies than they can accept. Not everyone is a superstar that can write their own terms.
"Any deadline claim has to be concrete and believable."
How so? You ask them? You investigate? You poke around? General advice the specifics are much harder.
In any case the last thing you want to do (according to at least my method which might differ from another negotiators method) when you are negotiating is tip your hand. And if someone is bluffing the last thing you want to do is let them know or that you think that they are bluffing. As such saying anything that sounds like "prove it" is certainly a way to do that.
In negotiating often people claim something that isn't true and bluff. It's part of the game. The idea is not to make them prove it. The idea is to figure it out on your own and use it to your advantage.
Deliberately waiting until the offer ostensibly expires seems like an advanced technique, but simply disregarding the time frame seems pretty safe. Exploding offers are incredibly weak; they're a way of slapping your negotiating floor on the table before your counterparty says a word.
There's something to be said for the idea that losing a seed funding deal to term explosion is a dodged bullet, too.
"but simply disregarding the time frame seems pretty safe"
All depends. Once again you could be right but I could also argue under the theory that "once you make a sale you close and get your ass out of dodge". Because things can and do change.
Keep in mind that an open offer not taken can be withdrawn. Or new information can come up which makes it less attractive or gives someone a reason to change their mind. I offer this not as specific advice given the topic but more generally that there are deals that are lost by "dicking around".
I've both seen this happen to others and have had it happen to deals I have done.
In one case Se______a Capital wanted to buy something that I had. I decided to go for a higher amount. Something happened and then they didn't want it at any price. Not even the original offer. Not at all.
Same technique I had used for years that never failed. But it failed in this case.
But there is a difference in my case. It's part of my business to sell what they were trying to buy from me. It wasn't a one shot deal. So I could afford to employ a method that had worked for me for years and be wrong in this one instance.
When a deal dies like that, it's sometimes hard to tell whether it died because of how you negotiated, or whether it died because it started out dead, and your negotiating tactics just qualified it quickly.
In your case there's an excellent chance the deal wouldn't have gone through even if you had agreed to their initial offer. The something that happened would have happened anyway, and a firm like Se____a would probably not worry too much about retracting an offer (assuming it was a term sheet or a signed-but-not-closed contract with a MAE out.)
Practice. Lots' of practice. And practice in cases where the outcome doesn't matter even if you have to make up situations to practice on or negotiate for others.
In addition to my own deals which I obviously work on, I also, some time ago, took on negotiating deals for others since it was fun to do. I ended up having enough takers that I started to have to charge for doing that. While the amount I am paid wouldn't make it attractive full time [1] (besides there are no residuals which I like) it still is something I do just to keep my mind active and since I have the flexibility to take chances where the outcome isn't as important. And to me, it's fun. I get a great buzz from having the correct analysis lead to a positive outcome. In some ways it's better than money.
Another thing that is good practice is simply to try and make deals for others that is to put deals together or what I might will call "shoot the gap". I do that all the time. I'll see something that I think could be helpful to 2 different people and without even getting paid for it I will try to convince both of them that they should get together on some business issue. Then when if reply or are negative I will try and overcome the objections to make a deal happen.
Risk always enters into negotiation. If you are willing to lose you can take more chances because you aren't as worried about going bust. If you can't lose (you really need something) you have to be more careful and can't be as reckless.
[1] Because in the end it's more money in my pocket doing things on my own account time wise although there is a great benefit to doing it for others as well I gather more data because there are more situations to work in and around.
> Practice. Lots' of practice. And practice in cases where the outcome doesn't matter even if you have to make up situations to practice on or negotiate for others.
Playing Diplomacy (and similar games) works for some.
P.S. I'd like to get in touch for some thoughts on negotiation.
Read 'Getting to Yes' and 'Bargaining for Advantage.' Use the principles when making any large purchase or changing jobs.
Most retail cashiers can also give 10% discounts without approval. Find opportunities to negotiate.
Buy things on craigslist and be patient.
If you read the books, you'll also see more everyday situations and compromises as chances to use negotiating skills. There's no reason it needs to be money.
> There's something to be said for the idea that losing a seed funding deal to term explosion is a dodged bullet, too.
Exactly. It sets the tone for how the relationship is going to develop and relationships like that you can miss like a toothache. Better to take your time and see what it is that they're afraid you'll figure out if you think about the offer a bit longer.
And geez there's a boatload of things to take into account and they have to become second nature (like playing a sport or self defense) so you just have to spend time and practice all the time and keep practicing.
I actually keep my own notes on all my thoughts and techniques that pop into my mind.
Here is one as example.
Timing. Timing is important. I take into account not only how quickly someone replies but how quickly I reply or get back to someone. There is a reason and a strategy behind what people do in most, but of course not all cases. Even the time of day they reply and the length of the reply and exactly the words they use as well. Say when you propose something how quickly do they get back to you? All context in different cases means different things.
Also timing as far as when you spring things upon people.
For example I'm currently in the process of getting my bathroom quoted for remodeling. I've settled on a particular vendor that I'm pretty sure I will use. We've been going back and forth on details for probably 6 to 8 weeks. They've given me pricing and I haven't asked or said anything regarding getting a discount. At all. I also haven't asked for any exact details on products they are using. I don't care at this point.
What I will do is most likely bring up a discount at the very end of the process. When they have already spent time on the deal and don't want to lose it. [1] I will also bring up other factors to them (non monetary but convenience for us) at the end. I know they won't be as likely to blow off those concerns after the big investment in time they have made.
[1] After listening to my war stories my ex wife used the same technique against me when we were ready to sign our divorce papers. At the very end as we sat there the deal all done and papers ready to sign she said "I'll only sign if you also pay for my trip to XYZ". While I could have walked she knew me well enough to know that I wouldn't and actually I was kind of proud that she had listened and learned. Which is another point in order to negotiate you have to know as much as you can about the motivations of the other side as possible. (So research is important).
The advice I've been given about negotiating exploding offers is that you first ask for more time. If they say yes, then you just got something of value for free. If they say no, they've improved your negotiating position.
While I applaud Sam and his statement: "an accelerator that does the wrong thing for founders will not last long.", your advice is wrong. An offer is basically giving an option to sell for free. The longer the option is available, the more you're giving away. Exploding offers are just limits on how much people want to give away for free.
Your friend has to do a bunch of stuff in 10 days to satisfy Someone. There's opportunity cost associated with that, and there's no guarantee of money yet.
Just saying no relieves a lot of that pressure. Someone has to decide if they're really interested. If you get No right away, you've saved yourself 10 days of pointless work. If they accept the new timeline, they're probably more interested than you realized.
It's kind of like poker. If you're not sure enough to make a tough decision, you can always make somebody else make a tough decision instead.
edit
Assuming no information about Someone, they're level of interest X might be .01, or .99 - they have at least a little interest, because they're meeting you.
Making a demand lets you calibrate your understanding of X a little bit. Outright rejection indicates X was really low to begin with.
Maybe they have some regulatory constraint, and the date is a huge hassle to change. Well, X is less than that cost of change. In that case, they'd tell you.
In the OK, state, you you're likely better than .01, but you don't get a ton of information about how much better. If they explain why the timeline is they way it is, it's Y effort to change those dates, you can adjust X to the new level proportional to how much extra work you've made them do by missing the deadline. - They're at least that interested.
I've seen him employ this many times in practice and it has always worked out. I don't want to be responsible for anyone losing a deal, but remember: when someone offers you an exploding offer, it's because they really, really want you to take it. If anything, it should be a sign there's (a) more time to be had, and (b) plenty of room on the terms.
Any deadline claim has to be concrete and believable. The start of the YC program is a good example.