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You Negotiate Commodities, but You Seize Opportunities

It took losing something important to understand the difference between a commodity and an opportunity. Along the way I also learned yet another way entrepreneurs see the world differently from their investors.

It took losing something important to understand the difference between a commodity and an opportunity. Along the way I also learned yet another way entrepreneurs see the world differently from their investors.

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Advisory Board
In the early days of Rocket Science I realized that we needed high-level advice on multiple fronts; technology, game development, video game distribution, etc. At one of our initial board meetings we had agreed on the general principle of an advisory board and put together an overall stock budget to compensate advisors.

One of the first potential advisors I reached out to was someone who 10 years earlier tried to hire me as the VP of Marketing of his new division at Sun Microsystems. For lots of reasons that never worked out, but I liked him so much that the following year I tried to hire him as the VP of Engineering of Ardent. (He was having too much fun at Sun and turned me down.)

Now a decade later, we caught up over lunch and I found that he was in the middle of taking a new job inside his company and had some time on his hands. Chatting with him just reinforced my earlier opinion that he was an extraordinary combination of sheer technical talent, great business and common sense and a level-headed decision maker. I knew he would bring immense value to me and the company.

Over the next week we exchanged emails over advisory board stock. I made him an offer and he countered with one I thought was still reasonable (but I didn’t tell him that.) The timing was perfect, my board meeting was in two days. I could get him the stock he asked for approved at my board meeting and then reply.

Death by Spreadsheet
I was so excited to break the news to the board that I put this new advisor on as the first agenda item. Even back then the advisor was a well-known name in Silicon Valley. The conversation went great and everyone agreed he’d teach us a lot–until one of the board members asked, “How much stock do we have to give him?” I threw out the number of shares I had offered and he had requested, naively thinking everyone would see what a no-brainer this was. Instead what I got was, “Wait a minute. He’s asking for one-third of our advisory board stock budget. We had agreed we were going to get 5 to 6 advisors with that amount of stock.” At first I wasn’t sure I was hearing this correctly. The advisor was a world-class guy, in my judgment he was worth more than all the other advisors I was going to get.

Then the other VC’s piled on. “You need to live on the budget we gave you. Go back to him and offer him less stock.”

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As a first-time CEO getting beaten up my board I thought this wasn’t a fight worth having. (I couldn’t have been more wrong.) So I agreed to go back to my potential advisor and tell him the best I could do was my first offer.

I was about to get a few lessons that have lasted for a long time.

Thanks But No Thanks
Putting my best marketing spin on it, I sent our potential advisor a message that essentially said, “I’m not sure I can meet your request, but here’s another offer.” I dressed it up as best as I could, making some of the other terms more palatable, but it still wasn’t what he asked for.

I guess I shouldn’t have been surprised when he sent me a very polite note back that said, “Thanks but no thanks. I’m now getting more involved in my new job as CTO and I’m too busy to go back and forth negotiating this.” But I was crushed. I knew my company had just lost something important. Something that I couldn’t just go out and replace. And I realized I screwed up in at least two major ways.

You Negotiate Commodities, But You Seize Opportunities
I hadn’t just lost a potential advisor I had lost an irreplaceable opportunity. We lost him not just over a stock offer. We lost him because we had treated him as a commodity–something that was readily available from multiple sources–and that you could negotiate its price.

In reality what I had in front of me was an opportunity – a favorable combination of circumstances that rarely occurs and if seized upon would have given me an advantage.

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You treat commodities and opportunities radically differently.

Founding CEO’s are supposed to search for a repeatable business model, not just blindly execute their original plan. That requires you to identify opportunities and seize the day. Opportunities are not just about sales, marketing or product. In this case it was about a resource I had in my hands and let go of.

I had acted like an employee, not as a founder and certainly not as the CEO of a startup. I had let my board tell me that the opportunity I saw was a commodity that could be managed by a spreadsheet. And I didn’t stand up for what I had believed in.

It would never happen again.

Lessons Learned

  • Great entrepreneurs see opportunities before others do.
  • Ask, “Is it a commodity or an opportunity?”
  • If it’s a one-of-a-kind that give you an advantage, it’s an opportunity.
  • Grab opportunities with both hands and don’t let go.
  • It’s better to beg for forgiveness than ask for permission.
  • Carpe Diem

Reprinted from SteveBlank.com

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Steve Blank is a prolific educator, thought leader and writer on Customer Development for Startups, the retired serial entrepreneur teaches, refines, writes and blogs on “Customer Development,” a rigorous methodology he developed to bring the “scientific method” to the typically chaotic, seemingly disorganized startup process. Now teaching Entrepreneurship at three major Universities, Blank is the author of Four Steps to the Epiphany. Follow him on Twitter @sgblank.

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About the author

When it comes to helping startups succeed, Steve Blank is where entrepreneurs often start up. A prolific educator, thought leader and writer on Customer Development for Startups, the retired serial entrepreneur teaches, refines, writes and blogs on “Customer Development,” a rigorous methodology he developed to bring the “scientific method” to the typically chaotic, seemingly disorganized startup process

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