When Staples started, the founder proved the concept of an office-oriented superstore meticulously with a single store in the northeast. He picked a neighborhood, mapped every business around it, knew exactly how many accountants and offices were around his area through a survey, you get the idea. With the evidence, he talked to a number of investors. One investor gave him a pretty high valuation. In a meeting with another investor soon after, the investor asked a number of questions, hmm-ed the answers and escorted the founder out the door. In investor then promptly returned to his desk, opened up his rolodex and called the best retail exec on the list to start what is now Office Depot - in a different part of the country, to avoid a direct clash, because chains such as these expand geographically.
While this is an extreme case, it is not uncommon. Many investors who like a business idea from one startup, look up and talk to every competitor in order to pick their best bet for the race to that market. If the research surfaces a better competitor, the firm doesn't invest or choses the competitor. If it didn't it is useful as "market research" to help the startup. Either way, the entrepreneurs share plenty of information to appear attractive, and probably feel good about the VC attention they are getting. The "ideas are worth nothing" mantra is out there for a reason - execution is everything at the end of the entrepreneurial race.
The really sleazy negotiations happen when the competing firm starts applying "cloning" tactics to misinform or undercut its opponent. For example, having multiple uninterested parties call the seller with really low prices to create the impression the item for sale is worth little. Then the actual buyer comes in with a low offer that looks lush in comparison. Prepare for the worst and do your due diligence thoroughly if you are worried about this kind of stuff.
"And companies selling their securities are required to disclose important adverse facts about their business to prospective buyers."
Does this include prospective employee stock options? It would be great to know that startups seeking to hire me have a legal obligation to tell me about financial troubles.
It's a red flag if the person making you an offer stumbles if you ask to see the cap table, or can't express the ISO part of the offer as a percentage.
Wow, I learned something valuable here: that it would be illegal to use negotiation solely to harvest ideas.
I remember the story of a script writer who pitched his script, but then the studios rejected him. One studio just had their own similar script written. He never sold the script, and when the movie actually came out no one was interested because it was too similar to the (essentially stolen) version that had been produced. Could he have sued the studio if he could prove it was his idea? How similar would it have to be? Would he have to prove that they entered into negotiations just to get his idea?
---
I wonder because I've had an idea brewing in my mind for the last 5+ years, but I have nowhere near the millions in capital required to get it going. The price tag is so high that I don't expect any ownership, but I just want to be involved and to make a fair amount if it succeeds.
A law class once taught me that "ideas cannot be patented," so I completely shleved the hope. I couldn't patent the implementation because it would be easy to implement the same idea a hundred different ways. I bring nothing more than an idea to the table, and then I'd be easy to cut out.
I'll talk to a lawyer before I do anything, but it sounds like I could take my idea into negotiations with a larger company. As long as I can prove that the idea was mine, they can't just take it and copy it. Maybe?
I'm feeling a glimmer of hope that my idea could someday get off the ground, but I worry that the modification loopholes that have held me back in the past are too large.
Could he have sued the studio if he could prove it was his idea?
It's been done before and is the reason why studios do not read unsolicited scripts. Art Buchwald sued Paramount when Eddie Murphy was given sole story credit for a movie he unsuccessfully pitched. Art won the lawsuit, but instead of appealing, paramount settled for $900k and in exchange the ruling was vacated.
If the studio had pre-emptively given copies of all its scripts in production to some third party authority, it could avoid the negotiations issue. I'd imagine it doesn't come up enough to warrant this, though.
If I recall correctly, this was over Eddie Murphy's "Coming To America." Art Buchwald wrote and pitched a script that was passed on, yet later produced almost identically.
What I'm curious about is where the legal line lands on social proof arbitrage.
For example, lying about competing offers-- for jobs or funding-- is generally considered ethical, insofar as social status inflation and self-promotion fall into the "everyone does it, and most people have to" bucket. (Is it legal? No idea. But few consider it unethical.) If you know an employer does a lot of back-channel reference checks, you absolutely should use a fake competing offer (if you don't have a real one) to put time pressure on them.
On the other hand, the article cites cases in which lying about a competing offer is illegal (and also, for those cases, unethical).
The weird, queasy line is that it seems to be illegal (and generally considered unethical) to lie about a product, whereas lying about yourself (i.e. "you are the product") is ethical, legal, garden-variety social status inflation-- except surrounding official, factual credentials where higher standards must be imposed (e.g., as in law and medicine).
This is important to always consider, as a reason that having someone with a legal background can sometimes contradict entrepreneurship:
"Note that such lies are not always illegal. Rather, the law is content to leave the ultimate question of liability to a jury, with all the expense and risk of a full trial. Of course, victims of such conduct may decide that litigation is not worth the trouble."
The reason is is that this is not strictly a legal question but also a strategy questions as well as probabilities. Also the dollar amount comes into play. A large negotiation by Boeing is the not same as a small startup or even 500 person business with a $100,000 transaction.
Another pattern I found is that CEOs with legal background tend to see contact negociations as an exercise in writing legally correct text (down to writing it themselves, even if they are not expert in that part of the law), which ends up taking far more time than negociating on the important facts and then having external lawyers formulate that out.
You can also break the law while telling the truth in negotiations.
For example, if you condition a lawful but harmful action on an unrelated demand (and "unrelated" is very subjective here) from another party you are, in many jurisdictions, committing extortion. (If the adverse action and condition are related, e.g. "I'll sue you if you wrong me", then it's not extortion. "I'll expose your affair unless you give me $100,000" is extortion because there's no connection between the affair and demand for payment, and because the extortionist derives no benefit from exposing the affair.) It's not illegal to write bad reviews of a restaurant, but if you demand a price discount and threaten a bad review, you can be found guilty of extortion. So "I'll write a bad review if you don't give me a discount" might be truthful-- you can lawfully do so, and even have this intent (intent being impossible to prove)-- but you still can't say it.
This comes up in severance negotiations. If you say, "I'll [legal adverse action X, such as disparaging the company] unless given $Y", it's very easy to end up on the wrong side of the law. You probably won't end up in jail, but you lose all leverage as soon as you make a mistake, which is easy to do. If you're negotiating for severance, you should always let a lawyer do it. It's also a lot easier to get "soft" terms (positive reference, right to represent oneself as employed, possibly without pay) because those are connected to adverse actions. If you're getting a bad reference, you do have cause to get out in front of the smear and disparage the company. ("We have to get our stories straight. It's best for both of us. Here's what I want, and here's what you get.") But if it's about cash severance, the payment and your disparagement are unrelated enough that it's best avoided.
Might be because I blocked their cookie but this is what I get clicking your link: "This is a summary of the full article. To enjoy the full article sign in, create an account, or buy this article."
[+] [-] dzink|11 years ago|reply
When Staples started, the founder proved the concept of an office-oriented superstore meticulously with a single store in the northeast. He picked a neighborhood, mapped every business around it, knew exactly how many accountants and offices were around his area through a survey, you get the idea. With the evidence, he talked to a number of investors. One investor gave him a pretty high valuation. In a meeting with another investor soon after, the investor asked a number of questions, hmm-ed the answers and escorted the founder out the door. In investor then promptly returned to his desk, opened up his rolodex and called the best retail exec on the list to start what is now Office Depot - in a different part of the country, to avoid a direct clash, because chains such as these expand geographically.
While this is an extreme case, it is not uncommon. Many investors who like a business idea from one startup, look up and talk to every competitor in order to pick their best bet for the race to that market. If the research surfaces a better competitor, the firm doesn't invest or choses the competitor. If it didn't it is useful as "market research" to help the startup. Either way, the entrepreneurs share plenty of information to appear attractive, and probably feel good about the VC attention they are getting. The "ideas are worth nothing" mantra is out there for a reason - execution is everything at the end of the entrepreneurial race.
The really sleazy negotiations happen when the competing firm starts applying "cloning" tactics to misinform or undercut its opponent. For example, having multiple uninterested parties call the seller with really low prices to create the impression the item for sale is worth little. Then the actual buyer comes in with a low offer that looks lush in comparison. Prepare for the worst and do your due diligence thoroughly if you are worried about this kind of stuff.
[+] [-] YokoZar|11 years ago|reply
Does this include prospective employee stock options? It would be great to know that startups seeking to hire me have a legal obligation to tell me about financial troubles.
[+] [-] Zigurd|11 years ago|reply
[+] [-] ignostic|11 years ago|reply
I remember the story of a script writer who pitched his script, but then the studios rejected him. One studio just had their own similar script written. He never sold the script, and when the movie actually came out no one was interested because it was too similar to the (essentially stolen) version that had been produced. Could he have sued the studio if he could prove it was his idea? How similar would it have to be? Would he have to prove that they entered into negotiations just to get his idea?
---
I wonder because I've had an idea brewing in my mind for the last 5+ years, but I have nowhere near the millions in capital required to get it going. The price tag is so high that I don't expect any ownership, but I just want to be involved and to make a fair amount if it succeeds.
A law class once taught me that "ideas cannot be patented," so I completely shleved the hope. I couldn't patent the implementation because it would be easy to implement the same idea a hundred different ways. I bring nothing more than an idea to the table, and then I'd be easy to cut out.
I'll talk to a lawyer before I do anything, but it sounds like I could take my idea into negotiations with a larger company. As long as I can prove that the idea was mine, they can't just take it and copy it. Maybe?
I'm feeling a glimmer of hope that my idea could someday get off the ground, but I worry that the modification loopholes that have held me back in the past are too large.
[+] [-] MadMoogle|11 years ago|reply
It's been done before and is the reason why studios do not read unsolicited scripts. Art Buchwald sued Paramount when Eddie Murphy was given sole story credit for a movie he unsuccessfully pitched. Art won the lawsuit, but instead of appealing, paramount settled for $900k and in exchange the ruling was vacated.
[+] [-] rasz_pl|11 years ago|reply
https://www.techdirt.com/articles/20140331/11334226752/anima...
[+] [-] xvedejas|11 years ago|reply
[+] [-] greedo|11 years ago|reply
[+] [-] michaelochurch|11 years ago|reply
For example, lying about competing offers-- for jobs or funding-- is generally considered ethical, insofar as social status inflation and self-promotion fall into the "everyone does it, and most people have to" bucket. (Is it legal? No idea. But few consider it unethical.) If you know an employer does a lot of back-channel reference checks, you absolutely should use a fake competing offer (if you don't have a real one) to put time pressure on them.
On the other hand, the article cites cases in which lying about a competing offer is illegal (and also, for those cases, unethical).
The weird, queasy line is that it seems to be illegal (and generally considered unethical) to lie about a product, whereas lying about yourself (i.e. "you are the product") is ethical, legal, garden-variety social status inflation-- except surrounding official, factual credentials where higher standards must be imposed (e.g., as in law and medicine).
[+] [-] lukeholder|11 years ago|reply
[+] [-] larrys|11 years ago|reply
"Note that such lies are not always illegal. Rather, the law is content to leave the ultimate question of liability to a jury, with all the expense and risk of a full trial. Of course, victims of such conduct may decide that litigation is not worth the trouble."
The reason is is that this is not strictly a legal question but also a strategy questions as well as probabilities. Also the dollar amount comes into play. A large negotiation by Boeing is the not same as a small startup or even 500 person business with a $100,000 transaction.
[+] [-] Argorak|11 years ago|reply
[+] [-] ForHackernews|11 years ago|reply
[+] [-] davidu|11 years ago|reply
[+] [-] unknown|11 years ago|reply
[deleted]
[+] [-] cowpig|11 years ago|reply
[+] [-] michaelochurch|11 years ago|reply
For example, if you condition a lawful but harmful action on an unrelated demand (and "unrelated" is very subjective here) from another party you are, in many jurisdictions, committing extortion. (If the adverse action and condition are related, e.g. "I'll sue you if you wrong me", then it's not extortion. "I'll expose your affair unless you give me $100,000" is extortion because there's no connection between the affair and demand for payment, and because the extortionist derives no benefit from exposing the affair.) It's not illegal to write bad reviews of a restaurant, but if you demand a price discount and threaten a bad review, you can be found guilty of extortion. So "I'll write a bad review if you don't give me a discount" might be truthful-- you can lawfully do so, and even have this intent (intent being impossible to prove)-- but you still can't say it.
This comes up in severance negotiations. If you say, "I'll [legal adverse action X, such as disparaging the company] unless given $Y", it's very easy to end up on the wrong side of the law. You probably won't end up in jail, but you lose all leverage as soon as you make a mistake, which is easy to do. If you're negotiating for severance, you should always let a lawyer do it. It's also a lot easier to get "soft" terms (positive reference, right to represent oneself as employed, possibly without pay) because those are connected to adverse actions. If you're getting a bad reference, you do have cause to get out in front of the smear and disparage the company. ("We have to get our stories straight. It's best for both of us. Here's what I want, and here's what you get.") But if it's about cash severance, the payment and your disparagement are unrelated enough that it's best avoided.
[+] [-] larrys|11 years ago|reply
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd...
(Or Google "when is it legal to lie in negotiations")
[+] [-] teachingaway|11 years ago|reply
[+] [-] esbonsa|11 years ago|reply
[+] [-] zentiggr|11 years ago|reply