“Organizations shouldn’t work in teams, they should work in tribes. In a tribe, there is a chief and a circle of senior elders . . . The chief’s job is to help make the elders successful in doing their jobs. In this way, the chief will be more successful than a captain trying to lead a group of functional equivalents. This paradigm shift from team to tribe got me thinking about law firms. Partnerships often struggle with organizational dynamics and decision making because of the flat hierarchical structure.”

This is a terrific point. I’ve always thought the flat hierarchy of the legal world is a major challenge to increasing productivity. This is especially the case in thinking about cycle time in transactional law. Clients would love to see deals close quickly, but lawyers spend enormous amounts of time negotiating contracts. Much of this is due to a slow contracting process that has numerous end points, with each individual lawyer on each side’s attorney team capable of grinding negotiations to a halt. A tribe, with a chief who has authority and accountability to constantly move forward within the contracting process, would be a much more effective model for driving a negotiation to conclusion and quickly concluding a high quality agreement. And this is just as true in the corporate legal environment as it is in the law firm arena.

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1. Goods/Services: What is actually being sold? Do we have a clear description on paper?

2. Cost. What is the fee? Have we worked out the payment schedule, expense reimbursement, and invoice issues?

3. Timing. When does the good/service need to be delivered and completed?

4. Customer Work. What does the customer need to do to allow you to be successful?

By establishing clear expectations as to these issues up front, you can speed up cycle time and close more sales deals faster while ensuring a long term, happier customer for future repeat business.

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What should you care about in negotiating transportation procurement deals? Typically, these arrangements involve working with a big vendor (such as UPS or Federal Express) using their paper, so you are behind the negotiating “8 ball” from the start. An important issue is to think about the contract clauses on pricing. It’s a good idea to analyze the standard positions transportation vendors take on these issues and formulate your negotiating position in response. If you include along with your price per distance stance your position on escalator clauses, payment schedule, insurance, expenses and liabilities, then you can have a much better idea as to how hard it will be to ultimately strike a deal, and speed up your cycle time to close more savings in your current fiscal quarter. Without such an approach, I’ve routinely seen transportation deals take many months to close after people thought they had concluded price negotiations.

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If you are going to haggle, it’s extremely important to improve your negotiating sophistication when handling a deal.  Too often, people are not aware of where the biggest risks are.  Even lawyers usually miss the key issues (as they tend to be overly focused on the possibility that the parties will sue each other, which is highly unlikely).

So what are the big risks?  Pay close attention to the following:

(1) Description: What are you buying or selling?  Make sure you include a clear, inarguable description of the good or service being sold or purchased.

(2) Price: What’s the cost?  There should be no doubt as to the fee, and, if you are breaking it up into several payments, make sure you clearly indicate the due dates for each installment.

(3) Delivery: When do you get what you want?  Have a clear statement as to when the seller has to supply the good or service at hand.

(4) Exit: How do you get out?  If you are unhappy with an ongoing arrangement (typically a service), you need a termination right that will let you kill the deal and move on to another provider.  The same is true for a seller, who may find a particular customer too unruly to continue to do business with.

Bear these key risks in mind next time you haggle, and you will greatly increase the chances that you will walk away a happy dealmaker.

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We concluded that there are at least 4 key issues faced when trying to implement a global negotiation planning process in an organization:

(1) Gradient: People tend to fall along a gradient, with 1 pole reflecting the idea that everything is new (the “fly by the seat of your pants” approach), vs. the other pole where people tend to think that there is hardly anything new under the sun (the “knowledge management” approach).  Most people are closer to the “everything is new” pole.  This makes implementing a defined process and ensuring compliance quite challenging.

(2) Sales: A very good idea to get people to embrace a negotiating process is to make a business case as to how it would improve sales.

(3) Meme: Another good idea to advance implementation would be to come up with a unique cultural artifact that people can gravitate towards.

(4) Short Term vs. Long Term Efficiency: People naturally put off to tomorrow what they don’t want to focus on today, even if putting things off means more work in the long run.  A major challenge in implementing a negotiation process is overcoming the omnipresent tendency to overvalue this short term efficiency (commonly stated as, “I don’t have time to plan.“).

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Believe it or not, right after our discussion on payment terms, a story on this topic hit the press.  Apparently Anheuser Busch InBev is now paying its bills 120 days after receiving an invoice.  Reportedly, Belgian governmental authorities are investigating the practice to determine its legality.

Since Emerson (Anheuser Busch InBev’s main supplier for brewing appliances), has little bargaining power to resist this change, it has publicly issued an edict that it will no longer serve its huge customer’s beers at any Emerson event.

“We suggest you use Coors, Miller, Modelo (Corona, etc.) or Heineken products,” the memo apparently goes on to say.

What Anheuser Busch InBev is doing, essentially, is turning each of its purchases into a 4 month financing contract.

I wonder how they would feel if their beer distributors tried to do the same?

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We’ve seen dozens of apps that are approved the first time, but later rejected for a seemingly small update. And we’ve seen others that are rejected, make almost no change, yet get in the next time they’re submitted. It would seem the the life or death of an app is entirely in the hands of the App Store inspector who checks it out.

Apple’s App approval process reminds me of a similar application system: applying for a trademark registration from the US Patent and Trademark Office.  When I used to represent clients in prosecuting their applications, I really had little idea what would happen, as trademarks that should have sailed through according to the law were rejected, and others that were “on the fence” might go right through.  For WhichDraft.com, our recent application had been approved, but was then pulled and sat on a supervisor’s desk for 6 months.  They couldn’t give me a reasonable explanation why.

Echoing TechCrunch, it would seem that the life or death of a trademark application is entirely in the hands of the U.S. trademark examining attorney who checks it out.

It’s not a good sign when a for-profit corporation’s performance mimics the quality level of the federal government.

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Another problem is “Self Confirmation,” where we ignore data that does not support our fear, and only embrace data that does back our contentions. A good example would be the failure to think about the greater number of people who die from normal flu outbreaks instead of the swine flu.

Finally, we often engage in “Confirmity,” meaning that we go along with what everyone else is concerned about, following along with the mass hysteria as part of the chain reaction.  Listening to nonstop reports about swine flu is certainly causing this confirmity error.

All 3 of these cognitive errors happen all the time when we contract.  Let’s consider a few examples:

Contrast: We might not care about focusing on the riskiest contract terms, like the goods/services description, and instead focus on less risky terms, like limitation of liability, because in all of your past deals you focused on less risky terms each time.

Self Confirmation: In this vein, we might only think about what kinds of damages the other side might sue us for, so we again only hone in on limiting our liability, even though a dispute is much more likely to occur over whether or not the goods and services met expectations (which can be prevented through an excellent goods/services description in the contract).

Confirmity: Moreover, we might be focusing on the contract’s limitation of liability clause because we were trained to do so.  We are simply following along with how more senior negotiators handle agreements, and, matching their approach, we fail to focus on other issues of greater importance.

Try looking for Contrast, Self Confirmation and Confirmity in your daily life.

Do you see it happening?

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So color me surprised when I noticed one of my large clients insisting that it would only pay a bill within 45 days.  They also pushed back on the seller’s right to terminate the contract for late payments, requiring the seller to give up to 90 days advance notice before it could do so.  Floating your money for this extended time period gives you some great advantages when you’re the customer.  A customer can use its levitating dollars during the extra time to garner interest or invest the money, money which, in the past, the seller would have had.  Presto!  Like magic, the extra time means extra dollars for the customer.

What happens to the seller?  Think about it: 90 + 45 = 135 days to pay a bill.  Most salespeople will tell you that waiting over 4 months for payment will clobber their cash flow and make it very hard for them to pay their own bills.  The solution?  The seller starts doing the same thing to its vendors.  Now, when people negotiate the payment terms in a contract, they’re left in the rather disingenuous position of begging customers to pay within 30 days, then turning around and asking for much more time to pay when it comes to their own creditors.

Besides being a blatant violation of the golden rule (which we all want to follow, right?), the lack of reciprocity makes for an uncomfortable negotiating relationship and hits you with credibility and loyalty costs when it comes to your business partners.

A great example is playing out right now.  Apple appears to be taking longer and longer to pay developers who create iPhone applications.  Here we have a situation where Apple has tremendous power because it’s the gateway to the iPhone platform.  Apple takes all the money users pay for developer’s apps and then relays the developer’s cut to them (minus Apple’s share), per the Apple contract agreed to by every developer.  According to the copy of the Apple contract here, Section 3.5 requires Apple to pay the developer within 45 days after the end of the month that Apple received the developer’s payment from a user.

So if you buy my WhichDraft App (doesn’t exist yet, but I can dream, can’t I?) on March 1, Apple doesn’t have to relay your payment to me, the developer, until mid-May!  While waiting over 70 days for my money is bad enough, according to this report Apple might be taking even longer.  And since Apple controls access to the platform, the developer is left with a difficult choice: keep waiting while her own bills pile up, or threaten to sue Apple, which could provoke Apple into rejecting her apps entirely, effectively shutting the developer out of the entire platform’s market.

The situation makes me imagine Steve Jobs as the Soup Nazi: “No more millions of iPhone users for you!”  Sure, there are laws against this kind of behavior, but if you’re a small developer, do you really have the time and money to litigate this kind of dispute?  For most people, I think not.

That’s the power of a network access agreement.  However, at some point, the pain could be so great that developers just move to a different platform.

Palm Pre, anyone?

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Now, airing this kind of laundry publicly is quite odd.  Normally these kinds of offers are only made after the parties sign a confidentiality agreement which restricts them from disclosing any of their conversations (check out our confidentiality agreements here).

For your information, the type of confidentiality agreement which businesses normally use when they are negotiating mergers and acquisitions (M&A) is a Confidentiality and Standstill Agreement, which we have right here (with all of our legal explanations and question and answer wizard showing all the alternatives).

I don’t know if myYearbook and FunAdvice had a confidentiality agreement in place, but I would be surprised if they did not.

Regardless, when TechCrunch asked the CEO why on earth he would do such a thing, he apparently said:

 “I won’t do that again, I thought techcrunch would find it interesting.”

Breaching confidentiality agreements, or, at the very least, showing bad form by making such an offer public, is not justified by a back handed attempt at garnering some publicity.  Moreover, if you want a major site like TechCrunch to cover you, it’s probably not a good idea to fail to capitalize the capital letters in their site name.  We wouldn’t like that at “whichdraft.com” either.

Very strange all around.

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