Speaker 1I'm Ted Seides, and this is Capital Allocators. For the second year, our summer series will share some of the best episodes of the past, curated from our favorites and yours. You can pull down many of the great ones on our Spotify playlists. This series pushes them to your regular listening feed. Our 2026 summer series focuses on improving the investment process. Over the next six weeks, we'll share 10 gems from interdisciplinary skill sets that will help you level up your investing across decision-making, interviewing, storytelling, negotiations, and habit formation. This week's summer series is another twofer, this time on negotiations. The first is with legendary former FBI hostage negotiator Chris Voss. The author of Never Split the Difference and founder of the Black Swan Group, where he teaches tactical empathy in negotiations. The second is with Yale professor Dalian Kane, who opened my eyes to the importance of walking away.
Speaker 2Before we get to the interview, we're excited to introduce the next chapter of Capital Allocators University, an online on-demand curriculum with an annual in-person gathering for investment professionals committed to continuous learning. One of the great ironies of investing, is that the skills that matter most over a long career are often the ones least formally taught. Things like decision-making, communication, leadership, time management, interviewing, and building relationships. That's why we've evolved Capital Allocators University into an online on-demand experience, making those lessons accessible to investment professionals everywhere. The best careers don't compound through knowledge alone. They compound through knowledge and relationships. If you'd like to explore the curriculum or someone on your team, visit the link in our show notes or the university page on our website. Thanks so much for spreading the word about the next chapter of Capital Allocators University.
Speaker 1Capital Allocators is brought to you by AlphaSense. Here's something for you. Most AI tools today are very good at sounding right. But can you actually trace it back to a filing, transcript, or specific passage that drove the answer? Or are you just trusting your brain? Trusting the confidence of the output. For allocators, that's not a minor concern. A missed filing, incorrect source, or context that gets lost somewhere in a retrieval chain aren't edge cases. They're how decisions go wrong. AlphaSense is the AI platform built specifically for this. They own the content. Over 500 million curated documents from broker research and expert transcripts to filings and earnings calls. And they own the retrieval layer on top of it. That means every answer can link back to an exact, verifiable source. Because the answer is only as good as what's underneath it. And with AlphaSense, you know exactly what that is. See it for yourself. Try a free trial at alpha-sense.com slash capital. That's alpha-sense.com with a hyphen in the middle slash capital. Capital Allocators is also brought to you by Morningstar. In a sea of data, you need to know what you can trust. Morningstar's data, analytics, and research helps bring clarity across public and private markets. Connecting independent research and data into the tools and AI platforms you use every day. So insights are easier to spot and act on. Morningstar. Nothing in your way. Visit morningstar.com slash game on to learn more. Capital Allocators is also brought to you by Juniper Square, the operations partner trusted by the leading private market GPs. One theme that keeps coming up on the show is GPs that build the strongest and most durable relationships with LPs are the ones that have both strong returns and strong operations. AI raises the stakes on operations. And having Juniper Square as your operations partner helps ensure your data is organized, accurate, and accessible so you can unlock all of your data. Unlock Operational Alpha. That's why thousands of GPs trust Juniper Square. Learn more at junipersquare.com slash capital allocators. Please enjoy my conversations with Chris Voss from 2022 and Dalian Kane from 2020. Dalian, thanks for doing this. Thanks, Ted. Why don't we just quickly go through your background and how you got into this line of work?
Speaker 3I've been teaching business. I've been teaching at Yale since 2007 full-time. I co-teach with Barry Nailbuff, the core negotiations class that all MBAs have to take. And he's like the game theorist entrepreneur. And I come with a psychology sales side. And we co-teach it. And Yale does this insane thing which we videotape all students negotiating the entire incoming class. And he coaches half of them. And I meet in my office and coach the other half. So, I meet in January 180 some odd students in my office. It's insane. And so we watch their videos and see what they do right and give them coaching what they do wrong. And I teach my own stuff. I have some advanced electives. I do sales workshops. I've been doing this for a while now. How'd you initially get into it? I studied decision-making. I like to say I study why smart people do dumb things. And it turned out that one of my advisors, Max Bazerman, was one of the people that kind of invented or at least, pioneered taking experiments to negotiations. In other words, there was an old-school tried in the streets. Here's what works in sales. And he said, "Well, let's just test this stuff." So, 500 people do it this way. 500 people do it that way. And let's use experimental techniques in judgment decision-making behavioral economics. Kind of like Kahneman meets negotiations. And so, it's a lot. It's just the subject that a lot of us were drawn to. Because of people like that. And I'd already had a sales and negotiation background. And so, I love it. It's my favorite thing to teach. I teach a bunch of stuff. But negotiations, it's such a mix of psychology. But it's so practical. Even if someone's been doing it for years or something. And I love this.
Speaker 1If you're starting a course or starting a negotiation, what are the first set of principles that people need to think about?
Speaker 3I should be more of a framework person. But I'm not. And so, I don't know in what order are the top three things. But I can tell you somewhere in the top ten, there's a few things. People don't learn enough about the person sitting across from them before they meet them. And it's not sexy. It's not rocket science. A lot of it is just elbow grease. Like, before I meet you three weeks ahead of time, if you and I are negotiating, I want to know what do you want, why, in what order. And I do. Ideally, I want to know what you'll pay for those things. But that might be a bit too much to ask from the information game. But I just kind of want to know, like, at least, what are your top priorities? What's easy for you? What's hard for you? And the way I do that is I call people who know you or know people like you. I just spend a lot of time on the phone. And if I've gotten to you, if you are a gatekeeper of some sort. For example, for my students, if they're dealing with a vice president of HR, it's only because they've done seven rounds of interviews with that same company. And every single person has to like you, or else you don't make it to the gatekeeper. So I often say, like, pick up the phone with one of those people you had rapport with, and pick their brain two weeks ahead of time. They're not going to give you the keys to the kingdom. They might not know them. But even if they have them, they're not going to sell out their firm and tell you what to ask for exactly. Here's the safe. Go get it. But you can ask in terms of, let's say they have to negotiate against Shelly in a month. Don't ask, "Where's Shelly flexible?" Ask, "Where's she leaving?" If she's the least flexible, what shouldn't I ask for because I don't ask for too much? That kind of thing. And so you're trying to figure out what are the right trees to bark up. And that's a lot of. I say that negotiation is investigation. My colleague, Deepak Malhotra at HBS, says it much more suavely. Negotiation is learning.
Speaker 1So that first step is learning as much as you can about the person. Depending on the type of negotiation, what else do you need to think about before you even get started?
Speaker 3You've got to turn that lens inward, right? What are your priorities? What do you want and why? And there's a bunch of things that are important, but I don't focus on them because I focus on the things that people aren't doing. So people generally know what they want. So I don't say, "Figure out what you want." They can do that already without me. But what they don't do a good job at is figuring out what they would choose if they couldn't have everything. In other words, what do you want with constraints? So like simple in a pedestrian example, you're buying a house, you want a short commute, but you want a big kitchen. Okay. But when you have to trade those off, the question you need to know before you go into that negotiation or before you go into that decision is how many extra minutes are you willing to spend in traffic to get a kitchen from an eight out of 10 on your scale to a nine out of 10 on your scale? And there's no book that has the answer to that. You got to get in your car and drive a commute. Oh, that would be my house. there it goes. How do I feel about driving another 15 miles? minutes twice a day two weeks a year in a car just to get a nicer kitchen is there some other thing i should be doing and so in a negotiation it might not be about kitchens and commutes but it'll be about how different issues trade off against each other and you want to know your exchange rate for those trade-offs before you go into the negotiation people hate this when i teach a lot about developing a score sheet and putting values on your intangibles and people feel like it's inhuman to quantify or put a price on relationship work-life balance commuting like they know they don't like commuting but they don't want to put a number on it and they feel like i'll just kind of seat in my pants and the problem with that is your decision will put a number on and in other words if you accept the deal i guess it was good enough and if you walk away it wasn't good enough and so you're actions imply a price on your values and i just think you should be thoughtful ahead of time so it's not reducing everything to money or points but it's the world will reduce things for you and so you should be more thoughtful about that exchange two weeks ahead of time you don't want to be thinking about your value of commutes or relationships while a person has his hand extended to you that's the worst time to be putting a value on your relationships because you'll either pay too much or even worse too little so be thoughtful ahead of time about the intangibles what are the other things you need to think about in preparation well you want to know what you want why in what order and exactly the exchange rate you want to figure out in their side what they want in what order and why and you can only hope to estimate their exchange rate one thing that people do wrong is when i look at their planning documents that i make them write up their plan is more of a victory any good business person will kind of resonate like an inexperienced planner it's just like i'm going to do this and then that then i'm going to dunk on this person and posterize that person and or they spend too much time predicting what will happen during the negotiation so when thoughtful people prepare one of the things that my colleague paul bracken at yale nicely points out is that people spend far too long predicting what will happen in an exchange and so in other words you and i are negotiating in two weeks and it could go x y or z way and people will sit there and try to plan and think like is it going to be x is it going to be y and rather than predict which of the many possibilities will realize just plan for like what will you do if x happens what will you do if y happens so kind of contingency planning and they have cliches they hope for the best prepare for the worst and all of that but just having a few medium high low plans of how things could go and if you're really good at this then some of my favorite teachers so nick barbarus behavioral finance legend at yale one of the things it wasn't a negotiation thing but it was a speaking thing he welcomed me when i joined at 2007 and he's kind of a shy mild-mannered person but he's extremely brilliant in his field he's a rock star professor rock star and i just kind of asked like what are you he just said i practice this stuff to my closet the night ahead of time two weeks ahead of time the transitions the segues the start the end the pauses so it's what most people do when they're going to have a conversation is at best they might have an outline for what they're going to say but the master class people like actually word it and say it to their closet ahead of time with a critical lens like they'll say so if ted asked me this tough question during our negotiation i'm going to answer it this way and then you say it out loud and you kind of hear critically how it sounds how could this tick him off how could this underrepresent what i'm selling to him how could this steer the conversation the wrong way in other words what are three things wrong with the way i said it so really scripting and practicing your answers to tough questions how
Speaker 1much of the variability of outcome can get driven just by the preparation
Speaker 3i don't know what the right number is but anecdotally it seems like a lot of it i should run the data but it'd be so confounded with massive co-correlated variables it's always the case that the person who's voted most prepared is also has one of the highest performance case ratings as well and they just out plan it and they talk to me and they get advice ahead of time i'm shocked at how few students do that hey dalien get this case coming up in your class any advice you know i'm not supposed to give too much advice but yeah oh geez i've opened up a can of worms now maybe edit that out but the people who prepare thoughtfully ahead of time just crush it and one of the things i talk about in the class on day one i have to give kind of a speech on not lying to classmates on a case that's not even graded right like even a smart sociopath wouldn't do that because the grade doesn't matter and the network does and so don't reveal yourself yet the stakes are too low and so i talk about how people can crush this negotiation with integrity and they don't have to misrepresent their interest they don't have to lay them out on the table either they can be honest when they talk to their partner but if you ask me what is your budget dalien i will say go pound sand i'm not telling you that no misleading there so you can be honest with this but usually it's the people who are prepared to answer tough questions in an honest way they don't have to be revealing but they kind of know their answer ahead of time and those people are always in the top five of my
Speaker 1class all right so now we've hopefully gotten this preparation done and we're entering into the beginning of a negotiation how should someone sort of think about what those first steps should be to present themselves in the right way so it's not
Speaker 3a very sexy metaphor and the answer is so obvious it's basically a rhetorical question but it turns out to be a powerful moment for many of my students one of the very first thing i do before i teach anything is i just give them a page to read so half get buyer half get seller and they're buying a gas station or a convenience store or whatever hypothetically and the way the class goes is they're going to go out in the hallway and you've been in classes like these you negotiate and get coaching and see how you do before i teach them anything what i say is i'll pick someone randomly let's call her susie i say this is basically rhetorical but if susie cheats please don't but if susie cheats and reads mark's sheet and mark doesn't know who's gonna win everyone points and looks at susie and what's interesting about that is and we don't have to know anything about susie we don't have to know she's an introvert an extrovert if she's a slick talker how firm her handshake is all these useful things that would be probably good to have in a personality for a negotiator will pale in comparison to what she has which is so clear massive information advantage and so that silly little example very pedestrian example i say is i want you to see negotiation this way as figuring out their sheet and that simple metaphor can be a guiding light for how you approach you've prepared you've got your sheet you've tried to estimate theirs but if negotiation is figuring out their sheet i asked should you be talking and listening it's listening but none of them do it the first 10 minutes of their negotiation is they go into a big sales pitch and they talk about money too much and they offer some persuasive deal and here's why i got to get you in shanghai and all of this and i like you never found out what they wanted why they wanted it so it's kind of more of a learning lens and that's why i got to get you in shanghai and all of this and i like you never found out what they wanted why they wanted it so it's kind of more of a learning lens and if they have the right mental model i think a lot of the right and if they have the right mental model i think a lot of the right strategies and tactics will flow
Speaker 1strategies and tactics will flow strategies and tactics will flow is there a preferred approach i mean is there a preferred approach i mean is there a preferred approach i mean there's listening there's asking there's listening there's asking there's listening there's asking questions of questions of questions of when someone makes an initial overture does when someone makes an initial overture does when someone makes an initial overture does anchoring matter or all the behavioral anchoring matter or all the behavioral anchoring matter or all the behavioral things we know about things we know about
Speaker 3things we know about yeah this is a contested question in the yeah this is a contested question in the yeah this is a contested question in the literature and amongst the experts literature and amongst the experts literature and amongst the experts it's interesting the data is mixed so it's interesting the data is mixed so it's interesting the data is mixed so picking up in your question for example picking up in your question for example picking up in your question for example do you go first or do you let them go do you go first or do you let them go do you go first or do you let them go first the old schoolers say go first and first the old schoolers say go first and first the old schoolers say go first and lose lose lose let them go first so that you get let them go first so that you get let them go first so that you get information information let them go first so that you get information and the new schoolers based on and the new schoolers based on and the new schoolers based on behavioral economics research and behavioral economics research and behavioral economics research and anchoring and this idea of putting ideas anchoring and this idea of putting ideas anchoring and this idea of putting ideas and framing gaining the initiative and and framing gaining the initiative and and framing gaining the initiative and putting numbers in people's heads that putting numbers in people's heads that putting numbers in people's heads that stick stick stick say you should go first and a lot of the say you should go first and a lot of the say you should go first and a lot of the research bears that out research bears that out research bears that out but i think it's actually mixed i think but i think it's actually mixed i think but i think it's actually mixed i think you should have a idea for you should have a idea for you should have a idea for is the information you get when you let is the information you get when you let is the information you get when you let them go first them go first them go first worth the initiative you lose worth the initiative you lose worth the initiative you lose in other words if you let them go first in other words if you let them go first in other words if you let them go first what are you gaining how reliable is what are you gaining how reliable is what are you gaining how reliable is that information and in most that information and in most that information and in most negotiations where the zone of negotiations where the zone of negotiations where the zone of agreement is really wide your first agreement is really wide your first agreement is really wide your first offer basically tells me nothing about offer basically tells me nothing about offer basically tells me nothing about your budget your budget your budget in math speak your first offers and my in math speak your first offers and my in math speak your first offers and my data are data are data are very poorly correlated to budgets very poorly correlated to budgets very poorly correlated to budgets because we have 400 people doing the because we have 400 people doing the because we have 400 people doing the same case with the same budget on the same case with the same budget on the same case with the same budget on the same darn sugar bowl same darn sugar bowl same darn sugar bowl and the offers are from 300 to 3300 so and the offers are from 300 to 3300 so and the offers are from 300 to 3300 so like what have you really learned by like what have you really learned by like what have you really learned by letting them go first letting them go first letting them go first at the same time people who go first at the same time people who go first at the same time people who go first the old schoolers say haha we're right the old schoolers say haha we're right the old schoolers say haha we're right because they're not doing so well either And what it looks like in the data is that the people who go first, who don't ask questions beforehand and don't do a good job of estimating the bargaining zone, if the bargaining zone is wide, they can go first and shoot themselves in the foot with not an ambitious enough offer. So you don't come into the room and say, hey, Ted, how about 800? You say, hey, Ted, you talk about the weather, you talk about the Steelers, then you talk about the deal. What does he want? Why? Once you have a good estimate of the bargaining zone, then you go first and you go for the whole thing. In other words, a good first offer as an anchor is usually the way to go, but that doesn't mean that you come in guns blazing. But if there's an offer to be made, the research tends to say, go first. But ironically, I tell my graduates often if they're negotiating with McKinsey, they shouldn't go first. Why? Because McKinsey is going to give them a contract with a signature. So get that before you start haggling. And it's another example of what are you losing when you let them go first? Well, if they're going to give you a contract, then let them go. If they're just going to give you some random number, then maybe you should go first yourself.
Speaker 1As you get into the back and forth of a negotiation, there's usually an asymmetric bargaining power. And then other times there are people who are just really good. Personality wise of making it at least seem like they have all the power and then others personality wise who are not as good at negotiating. How does that play out?
Speaker 3The core thing we teach with Barry Nailbuff, who has done this, I'm drinking honesty, or a company that he and a Yale student invented and sold off to Coca-Cola. And he's a serial entrepreneur. He's taken many companies to market. And one of the things he's really made me appreciate is this theory of the pie. Everyone knows. Expand the pie. Have some pie. All of this. He's defined it as the unique synergies of the deal that we can't get without each other. Okay. So what is that doing for you? Here's what it does. Let's say you have 3x market cap as I do. And you have 10x more supply suitors than I do. In other words, you have all the power. It's not just slick talk. You have better alternatives than me. You have better distribution lines than me. You have the power. There's nothing I can do about it. There's nothing I can do about that. Here's what we teach our students. What your power does to the situation is it shrinks the pie. It shrinks my value add to you. Because you can go to other suppliers. And so I'm not offering you $8 million in unique synergies now. Your power suggests that I'm offering you $2 million unique synergies. That's all I offer you that you can't get anywhere else. My synergies are less unique. The theory of the pie says that once you've correctly identified your unique synergies. No matter how small they are, they need you just as much as you need them. For example, market cap and market power shrinks the pie. But it doesn't give you proportional advantage to claim the pie. One of the biggest mistakes that MBAs will do is they see themselves perhaps correctly as the small player early on in their career. But they give the power player double counting. They say you shrink the pie and you get 90% of it. So they're giving the proportional player an ever-increasing share of an ever-shrinking pie. It's terrible. So when two of the world's largest mining companies merged, Barry was one of the negotiation consultants. And they were going to create $30 billion of synergies with this merger. $30 billion. It's so much synergies, it's hard to even come up with that kind of bag of cash to split. And so they had to decide how we're going to split these synergies. Over the next few years, if we realize them. And the number one answer is by market cap. And so $30 billion here and I'm $3 billion to $2 billion. So let's do $18 billion to me and $12 billion to you. If these synergies are unique to this deal and the two companies can't get them without each other, the smaller company absolutely has to fight for half of them. And that is a $3 billion gain if they pull this off. I'm not saying you're going to get it, but it's kind of like out of my cold, dead hands. If I have to give it up, I will, but I'm fighting hard for half of that pie. Once I've correctly identified it. Now, for many of my students, if they feel like they're a replaceable cog or a widget, and I think they overly feel this, they think I'm Ivy League educated, but there's a lot of Ivy League universities and Stanford's and MIT's. And so they were like, what do I bring a firm? And I say, you know, I think you're not appreciating the, the backend process by the time you get the deal. Do you know how many hours and how much resources they poured into this process? They have a lot riding on you now, and they don't want to go to the next. Even if you have a twin sister at Stanford, who's just like you in every way, she's not in their target right now. You are. And so often what you bring is the now. In other words, if they secure you, they can go on and fry those bigger fish. They just want this deal done. And will they throw you an extra five or 10% to be done often? Yes. If it doesn't upset the apple cart. And so sometimes the pie, if you're a very weak, low power player, and you're dealing with someone who's a zillion options, the pie is just, you're the one they're staring at and their powers, ironically, the reason they can afford to pay you so much because they want to go on and do other stuff. You're just a small player.
Speaker 1So if you take either one of those examples, let's just take the mining example. If you are the smaller company and there's this recognized 30 billion of synergies and the other company has other, now maybe a 30 billion is unique to the deal, but maybe 20 something isn't. How do you go about thinking, okay, I want to try to capture the 3 billion extra in that negotiation, but I know that they can walk away and pick up 20 billion, but they can't get 20 billion in without me or something.
Speaker 3Yeah. So then the pie is really 10 because I create 30, but you can get 20 without me. And then we have to look at my alternatives and then transaction costs of getting out of this deal and going chasing the other deal. And is it a certain 20 or an uncertain 20 and is it a painless 20 or a painful 20? And so all those things should be quantified and hopefully in your favor. But let's say net of everything. There's you offer a $10.2 billion unique premium. Well, you know what you have to get half of that and they're not going to like this, but you can draw a line in the sand and stick to it. It's not the theory of the pie that convinces them. It's the pie itself.
Speaker 1I'm going to take an example that is probably common to a lot of people listening. So the relationship with an allocator investing in a fund, so it could be private equity. Fund, you have a lot of situations where the negotiating power can vary. And if it's an early stage fund, it might have a lot of negotiating power. If you're one of the few investors and take to the other extreme, you have some hot venture capital fund where you can barely get in. How should someone think about creating that sheet and entering that negotiation cross if that's one key term is fees and then you have sometimes there's other. Duration and other things that are on the table before I answer that.
Speaker 3Let me ask you how many terms do you think are non monetary in deals like this? Like if I was coaching someone on either side of this, let's say the low power player, especially do they come up with just money terms like you talked about relationship and and so before I go on this dialogue of finding non monetary terms from your experience, how many deals are built? On the non monetary and what kind of non monetaries do you think seal deals because like they can make deals with anyone and they can get money from anyone. But why them? So give me a sense of is it realistic to look for non monetary things in this?
Speaker 1It depends on the situation in some situations it's a price taking model and but there are things like in certain instances transparency sometimes duration sometimes scaling so it's monetary. But there are a lot of flexible founder in there.
Speaker 3Advantage yeah yeah what role the founder will have as different takeovers happen yeah transparency is huge also risk profiles or risk tolerances maybe the founder just needs to pay her mortgage but the venture person is looking for home runs in other words if this is a two million dollar deal the founder can have all of it but if it's a two billion dollar deal the venture cap person wants all of it and so it's there's different preferences for different levels of the business. So what I'm getting at is what I see most people make a mistake about especially the low power person is they're in there fighting over the things like money what's bad about money in a negotiation you have to deal with money you have to talk about it it's the thing but what's bad about focusing on it first is it's a win lose what I mean is it's valuable to both of us so I'm not about to launch into some cheesy you gotta go for the win win like you're a smart guy if you see a win win. We're going to figure that out. out ideally the books talk about win-wins and the negotiators focus too much on the win-loss i would say the vast middle what i would coach especially the low power person what i mean by the middle is it's a big win for one side and it's a small loss for the other and so it's a smart trade to make it less sexy sounding imagine an issue is worth 20 000 to you and it's worth 2 000 to me 100 you should win that and just pay me pay me in money or in some other terms 11 grand would be about halfway i want to get as much as i can you want to pay me as little as i can we'll just haggle it out but the right answer is you should 100 win on that issue and so the number one phrase i try to teach is and people already know the front half but they miss the second half which is you got to find something valuable to you no kidding but cheap to the other side and transparency or whether the founder stays on longer or leaves gets out of the way earlier or these kind of things can be super valuable to one side or the other often negotiators when i see entrepreneurs do entrepreneur buyouts and spin outs through yale a lot and they fight on every issue like if it's a low success a medium success a high success they grab at each level even though one level is super valuable to them and the other level is super valuable to the funder and i want to kind of say like you take all the guarantees and give them most of the upside because they'll give you amazing guarantees if you give them amazing upside or it could be vice versa but so yeah looking for the smart trades easier said than done but it's amazing that people don't even have that goal often
Speaker 1and once they frame out some of sort of what you're trying to accomplish that's when you get into the emotions and how people behave in the context of the negotiation and so how do you coach that aspect
Speaker 3of it i don't have a recipe there i mean it usually depends on the emotions and the context i usually end up saying something like well they're not all wrong right trying to figure out where the other side is coming from without demonizing them you disagree with them but like they're not entirely where are they right they're right about something when you're dealing with difficult people who see the world massively different from each other an old school technique is called contingent agreements and anyone listening will know what a contingent contract is so if you sell more of this you get more salary or something in other words my payoffs are based on different futures but what a good negotiator does is if you and i disagree dearly and it gets emotional about say the future value of this company so the founder might be overconfident it's often right and the venture people might have more experience more a sense of what base rate is we might not do 300 million next year just saying so when you have different opinions and it gets really heated about different futures it's similar to an earlier comment i made about not trying to predict the future just planning for it so a contingent agreement what you do is it's not you think we're gonna be this and i think we're gonna be that and let's fight about who's right it's instead let's structure a contract with two parts what happens if we do this what happens if we do that what's really great about the contingent agreement is it can cool the emotions thusly we don't have to fight about the future we just agree on what happens if you're right and we agree on happens if i'm right and if you structure the contract sensibly now we don't have i'm happy to lose now and so you can structure a lot of emotions out of smart contracts we're going to take a quick
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Speaker 3is a million ways it could go with that question let me go this way a lot of people ask me for negotiation advice and i give it freely i just ask for two weeks warning and often they face a decision between it's not quite the three-party dynamic you envision but it's they face a choice between two parties and they're wondering what to do and it's a hard decision it could be their dream job in boston strategy consulting but they live in darien and have kids in private school and they have to uproot their family and what should they do and they're upset about this and excited about that and it's just a mixed bag they're torn it's like an apples and oranges and maybe the apple's a little shinier and newer or something and i often say like can you negotiate a hard decision into a no-brainer and that sounds kind of like cheesy fluff talk but i'll give you some examples it's really helped a lot of mid-career executives who get an offer let's say from boston it's a vp level offer they're really excited but they're sincerely hesitating what i like to say to them is you tell that other offer you say this is amazing this is my dream job i went with you in grad school i'd love to work with you ted i'm so excited how long do i have to decide they really need to know by september then what you want to signal is you don't tell them your sob story or that you are love your kids private school or anything you don't signal any distaste for the new offer but you just signal a little sincere hesitation like you've given me something amazing ted let me think about it and then the negotiation thing is but if you made it i don't even know if i deserve this but if you gave it somehow this could be an evp offer i'd sign yesterday i'd sign right now now that sounds like oh yeah is that really going to work just because you use that language a few things on this the cheesy descriptor of it is i like to say sell the deal makers not the deal breakers in other words you don't say give me evp or i'm not coming ted there's always some bargaining zone where there's the high end there's the low end there's the high end there's the high end it and the low end of it and people often focus on the low end and say what do they need to give me at minimum for me to go to boston you need to know that but let's not talk about that let's talk about the high end but the problem they'll face is they'll say well dalian i don't want to shoot too high and make the deal go away so the question is like how do you mention what a reasonable you're not asking for ceo evp should have come up it should have been out there but how do i ask for a reasonable but optimistic thing without making it a threat and what i say is talk about the deal makers not the deal breakers and so you say is evp isn't maybe necessary in the cards but i've got a lot to think about but if it was an evp deal i wouldn't even have to think i don't even talk to my kids i'll buy them a trampoline a pony i'm in the reason that works and when it works it often they'll come back and say no to this yes to that maybe to some other thing you don't say give me x and y and z you'll say give me x or y or z and they'll come back and say yeah we can do x and we'll look into y and z it's not that you get those things it allows you to put them out there in a friendly non-threatening way you're saying i would sign right now versus i'll never sign and the last thing on this is it's not the words the friendly wording of it allows people to actually say the thing it's not a nuclear threat it's a very friendly offer and so it allows people to actually say it they might say it's a nuclear threat but it's not a nuclear threat it's a very friendly they might say look i'm not saying i need evp i'm just saying is it possible is it in the cards would i be wasting my time talking to ted about an evp deal or should i be talking about something else and they'll tell you are you wasting your time or will they talk about it and say because if we could talk about that man i'm 100 in anyway the real thing they are offering with this when you're trying to decide between two parties is the now it's you give me this i won't even talk to the other people you give me this you can go on with your life it's not because you're so important that you get this thing it's ironically it's they have bigger fish to fry and often what happens when you ask for a lot and i've seen these meetings internally is 90 of the people in the room don't think you deserve it they don't because you're asking for a lot here but someone in the room your champion is saying she's awesome i went to school with her if we can just get her this we've got her please my team needs her do it for me and you need a champion like that to get some amazing deal and what you're offering your champion is the security a very important security that if she burns her social capital get this for you oh my goodness don't say no because that's the worst is if we give you a great deal and all you're doing with a deal shopping around to the other players like a bargaining chip and so i'm sure many people up there i've had that happen to me yale's gotten burned and people who used us as a bargaining chip to get a higher offer that they didn't intend to take and so making a promise of a deal maker that you will honorably sign and live out and fulfill you , and last thing on this is you can also go to your current employer or the current player your current relationship and say i'll make up numbers you're currently providing 1.2 million dollars of business they're offering 1.4 it's not all about money ted you were my first supplier we've known each other for 30 years now i want to do business with you so you don't have to match them because of course if i make you match them it's this never ending of matching and it's no good it's bad for you to set a precedent of matching but i say look ted you don't have to match them just like this is a lot of money i got to feed my family here i've got suppliers meet it halfway if you meet me halfway to 1.3 i'll never talk to them ever again and you have to have some leverage i'm not saying you'll get the 1.3 but you can do it in a friendly way and not gouge and say i am putting a value on a relationship and i'm not trying to gouge it's not all about money it's just that the delta in money has given me reason to pause can we do something to unpause me give me xyz and i'll
Speaker 1sound right now what are the common mistakes that people make at the stage of the game i see two
Speaker 3they're ironically young and experienced negotiators don't walk away enough and so sometimes eo puts me in front of very successful audiences and literally coaching billionaires i went to beijing i'm coaching billionaires on how to negotiate i'm kind of wondering like wow y'all could teach me something right now and they do they are very successful people and experienced negotiators are very comfortable walking away they'll walk away no problem and it's something i'm trying to teach my students and it's a fact i think it's my biggest failure as an educator i can't get them to do it cannot and the only thing i can do is tell them how much i'm pleading so i once made a mistake and i'm not going to tell them how much i'm pleading but i made it a requirement to get a grade in my course that you had to walk away and i was teaching a seven-week course you had to walk away at least once and the other person just had to verify that you walked away you don't have to walk away forever you don't have to get no deal just leave the room be thoughtful and i would give them coaching like this is not nuclear i'm not saying you don't have to say you're a jerk i'm out i'm never coming back just saying i don't know if i can do those numbers let me go think about it have a kit kat break think about it and as the class progressed i'd say sure i'm not going to do that i'm not going to do that i'm not going to do that show of hands who's walked away nobody one or two people one of the two like super nerds i'll do everything you say it's in the syllabus walk away and then the penultimate class who's walked away 90 of the class hadn't walked away on the last day of class i said you've put me up against the wall i can't give you a grade here you all have to walk away now and it's going to be strange because everyone's going to know you're just walking away because i said so and then even then walk away i can't fail half my class and i just buckled and said you know i don't understand this if a few of you didn't do it i'd be mad at you but since so many of you are doing it i know that it's got to be on me because the 50 smart people aren't doing something that i'm teaching that i'm teaching it wrong so i just dropped the requirement and i've been thinking carefully about how to bring it back i can't get young people to walk away they get in there they feel pressure to do deals that aren't good enough or even worse ironically they need 20 000 in some hypothetical deal they were hoping for 30 000 and the partner comes out right out the gate and offers them 52 000 and they're like how i walk away from that that's better than i was going to ask for you know well what did you just learn about them if their first offer is 52 000 what do you think their budget is you've clearly totally underestimated their budget you have no sense of the bargaining zone you didn't ask the questions you're totally unprepared you need to leave the room and rethink things and i asked them a few questions at the end of those questions i just i don't reveal what the other person's budget is i just say now that i've asked you those things you've thought about it you've got out of the room so to speak what do you think her budget was i'm like yeah i guess around 90 or so but yeah that's right actually it's dead on it was 92.5 what do you think of 52 now and so just leaving the room and collecting your thoughts and negotiation is learning but also being thoughtful about what you've learned and thinking about what to ask next now the upside is a very experienced people they walk away just i'll do a case and they're just like walking away and turning down amazing offers i had to plead with the billionaire i won't reveal which company he owns but he's literally a billionaire and he had secured in my course i was doing a workshop for him and others the best deal on a case i wrote i had ever seen in real life he had secured it number one thousands of students he's number one and he was walking away i was like you can't even do better theoretically like i couldn't get this deal like you did you crush the case he's a world record leader please don't walk away please please please i will make fun of you and so on one end are people who don't walk away enough and then the other end are people who they're walking away but it's more of a stalemate and an insult it's like i don't need you it's not a thoughtful walk away with a path to coming back to make the deal so what i often say is walk away but when you do you have to pave a path for a graceful re-entry so a pedestrian example would be i don't say three hundred dollars for a cashmere sweater i don't have that kind of money i'm out of here and then you look to see if the seller is following you out on the sidewalk because then if he doesn't follow you how do you save face and come back and buy that sweater so it's walking away with a graceful re-entry and that's what the successful people need to learn it's the graceful re-entry paving and the young people need to just know where the exit door is is that top three negotiation techniques no but that's top three on tactics my students have had trouble with what are some of the other ones they make it about money way too fast we've talked about that everyone has their own dragons they're battling but a lot of the people i coach at a young age the young ones don't take enough risk with their careers and so you're a master of the markets when you're young go long on equities i hear because you have time to recover and as you get a little old older maybe bonds because it's not just that they're safer it's that if something goes bad if we have a 2007 you don't have time to recover from that kind of event but a 20 year old does and likewise in the career i say the big mistakes that my students are making is they're a little too risk averse and i don't mean as a personality or as a person these are brave intelligent creative people i don't mean that they're boring risk averse personalities i just mean often they're asking me to help them negotiate the first job that came along and they already have a job they have a job that they have on hold because it was grinding them and they wanted to get their mba because they want to get away from the grind and they'll sell a grind to go join a startup and you want to tell them like this is just the first startup to hit your face like there's a zillion startups why this one go for it but what if i lose it yeah i know you're young go and how about
Speaker 1as someone you know different in mid-career
Speaker 3or later career those people are usually in the middle of their career and they're like oh i'm in job crafting mode like they can write their own ticket especially if they get headhunted or poached by another firm as you know if another hedge fund approaches you wow you can really write your own ticket and that's when the xyz technique i was talking about earlier like it's not naming your minimum price that's not what i mean it's naming your dream job which is probably should be less about price and more about roles and responsibilities and progression through the org chart in fact for mid-career people even young people with startups when there's org chart flight flexibility like if you're doing an internship there's one place for you in the org chart but as you progress through your career or as you deal with young flexible startups i think that the people i coach focus way too much on money and then sad at the end of the conversation there's like you know right daily and i shouldn't focus on salary it's signing bonus right no no no that's not what i meant you're looking for things that are valuable to you and cheap to them and where you are and even if the deal is not negotiable at all you should understand what the roadmap is and you're looking for things that are valuable to you and cheap to them success looks like and set yourself up in a position down the road so title i find that mid-career people people negotiating the title is the number one thing I've seen. So if you're EVP and you want an extra 40K, it's sometimes harder to be the highest paid EVP in the room because that upsets the Alpacart. Easier to be the least experienced managing director in the room. And if you're a champion can get you that role. And if we just get you that role, you'll sign right now. And it's semi-reasonable. So long story short, it's all about titles and work charts and work-life balance. And it's usually for successful people. I often say like, even if money's number one to you, I'm not saying money can't buy happiness. I'm not saying any of that. If you're a smart shopper, you can buy a lot of happiness. It's that often for successful people, even if all you care about is money, there's money in both paths. And the delta in the money between option A and option B isn't pivotal. And so even though money might be your number one priority, the thing that's pivotal could be way deep on your priority list. Like it's the number four issue that these two offers differ a lot on work-life balance, commuting time or stress. And so a lot of people just go for what's important to them and not thinking about the interaction between what's important to them and what the other side is offering. What's valuable to you, cheap to them is a two-sided equation. People make it one-sided too much.
Speaker 1What is at the forefront of your research on negotiations? We got a lot of data on who should go first.
Speaker 3We're trying to figure that out. Some interesting research on gender negotiations right now and some research showing that, can I tell you a story about someone else's experiment? And then, okay. So very clever experiment, Linda Babcock and colleagues at Carnegie Mellon. And so they did this clever experiment where, allow me to butcher the details for brevity. So the kids go past a poster and it says, come down to the lab. We'll pay you seven to $11. You'll do 20 minutes of market research. And everyone does the market research, a bunch of surveys. They're just a filler task and everyone gets paid seven. And the question is who negotiates for 11? If anyone does, you get paid 11 immediately. There's no like, do they negotiate well, poorly, medium? It's just if they lean in at all, they're going to get paid 11. And so they're going to get paid 11 immediately. They're going to get paid 11 at all and say, dude, why don't I get paid seven? Who do I got to talk to to get 11? They've got paid immediately 11. But then the demographic data that the survey is collected are used to predict who asks. And there's this interesting book called Women Don't Ask, which the conclusion was that the gender was some of the biggest predictors. And it's not an estrogen testosterone thing. If you train your daughters to negotiate from a young age, they will negotiate better than you. And so they're going to get paid 11. And so they're going to I'm training him too, though. And I doubt if we did a hormone check midlife that their hormones had changed. It's more of a culture and expectation thing. And the problem, though, is a new set of experiments hired actors and actresses to reenact the first experiment and show people like you. So you, Ted, one sees a video of a gal negotiate. And so she sees this experiment seven to eleven dollars. She gets paid seven. She asks for 11. And she's like, she does it pretty well, too. Respectful, courteous, assertive. Ted, rate this woman on a scale of one to seven. Where do you think she went to school? Would you hire her? Do you want her on your team? Do you think she's friendly? Do you like her? Do you want her on the pod? And then another group of people see a male actor do the exact same thing with the same script and the same body language. He gets paid seven, asks for 11 on a scale of one to seven, whatever. Do you like him? Do you want him on the pod? And you know where this is going. The female negotiator gets ranked lower than the male negotiator. And women raters do this, too. Female raters rate women worse. Now, if you saw both videos, only a card-carrying sexist would rate them differently because there's nothing else to differ them. So what I like to explain, the way the bias works is if both negotiators were insulting and terrible, they would both get zeros. You wouldn't bump the guy up. And if both were perfect, they would both get tens. You wouldn't penalize the female for wearing a dress or something. It's where bias happens is when the video shows someone doing something pretty well, but not perfectly, like an eight out of 10, seven or eight, somewhere in there. Then the man gets the eight, the female gets the seven. And the biased rater doesn't know you're doing this because it's legit. It is seven. It's assertive, but a little antagonistic. It's not perfect. You wouldn't think you're a racist or a sexist giving that person a seven because it's seven or eight. And you don't think you're giving him a bump when you give him an eight because it's seven or eight. It's pretty good, not perfect. And so some of the coolest research coming out now and what I'm teaching and trying to figure out is how female negotiators can do a better job avoiding the sexist backlash. And I'm a consumer of this research more than a producer, but it's something I'm very interested in lately. And by the way, kudos to Barry and I. It looks like that once women have a good sense of the bargaining zone, a lot of these gender effects go away, which seems anecdotally right, right? Like if your niece was in the Carnegie Mellon experiment and got paid seven, but was told this is an experiment, all you have to do is ask and get 11. I mean, she's going to ask, right? So how do we strike a balance? How do we make some of these differences disappear? I think that's where the research is going. That's really cool. Anything else you're excited about? Got an online negotiation course that Yale's putting together coming out in April. Got an alumni, Arjun Reddy, shout out to him. He is a very successful investor and a Charlie Munger disciple, loves Munger and the mental models, which many of your listeners will be familiar with. And he wants, and we've kind of agreed this is very recent, but he wants there to be a more better collected, better curated group. of mental models and what I'm interested in is like I said I'm interested in my smart people do dumb things and so I don't like to drop truths on people like exercise more eat less I want to figure out how do you get people to actually do that so there's all these wisdoms and mental models already out there but I think something needs to be written and curated to how to get normal people to actually do them so it's very new but my goal is to give people some either in a course an EMBA course or a book or podcast or a video I don't know but I want to produce something that parents can give to their 18 year olds on the way to college and say I will pay for the first semester but if you want that second check proof to me you read this compound interest inversion stuff that you already know but like people aren't doing it how do you lose weight exercise more eat less but it's getting people to do that that's the interesting challenge to me that's where teaching is it's taking people from A to B so we'll see and doing a lot of sales workshops and that's a lot of fun all right Dylan
Speaker 1let's turn to a few closing questions what's your favorite hobby or activity outside of work and family I don't have much time
Speaker 3for poker but I love it I love playing no-limit hold'em and being on Candlewood Lake on a boat this is how we met our friend Jed and the dream team being out there on Candlewood Lake with my boat is my favorite thing what's your biggest pet peeve so I can be a bit of a procrastinator but I'm good at game time people who are on my team that don't see that the clock is running up like it's time not just in games in any yeah projects our fault that we let it get this close but it's time now so people who don't respond to game time what do you do for self-growth read a ton well listen listen to books constantly I do a lot of reflecting on my mistakes figuring out why students are learning something I'm teaching constantly these are smart people why didn't it connect I love going through my mistakes how do you get that feedback clip it's not easy teach a seminar on how to create a culture of constructive criticism but I could tell you a quick story that's a pedestrian example but me and another professor at a restaurant I'll leave unnamed and the manager wanted constructive feedback on the food and he asks the terrible question which you all have been asked is everything okay with the meal it's your food all right how do you like it you just don't want to criticize first of all they're a great restaurant they have many chains in New Haven they have a lot of places they're better restauranters and I could ever be they'll figure it out it's week one there's gonna be flaws they don't need me they'll figure it out I don't want to criticize the person who having a meal you're not hiring me as a consultant I just it's fine and so they send way too many matrices to ask because they can see the foods piling up we're not complaining we'll pay for it all we left a great tip but we're just not eating it and there was something wrong with it it was over Chipotle over charred over salted over vinegar over sauce over spiced over overt it was overt and everyone at the table agreed and so we leave the table and the guy comes running up the owner now he's tiptoeing trying to be discreet it's hilarious he's tiptoeing at full speed and he blocks us at the door and he goes gentlemen just one you paid with the Yale card and so you work at Yale that's a big client for us is right how's the food it's great in fact fact we're going to your other restaurant great and that's it and we leave and we're sitting in the parking lot i found this interesting moment i said to the group i said here we are a bunch of management marketing professors we teach feedback stuff and here's feedback that for once someone wanted because we're critical jerks a lot of us right we're critical academics finding flaws all the time i was like here's a guy who wanted our feedback wanted our criticism couldn't get it how could he have asked that question now we don't know we're making up stuff but here's what we came up with he should have interrupted our exit and said this is our first week we hope you love it but it's our first week and we've learned from restaurant business that you can always improve how'd you like the meal it's great give me one thing that i could improve now i don't think he's going to get it that easy i'm going to say oh it's great it's great it's great no please sir please please there's always one thing you can improve consistent with loving the meal consistent with coming back consistent with doing business with me what is one thing i could improve oh my goodness i would have had a list for him in other words making criticism separate from personal opinion like you love the meal but what might someone else say i would have said i love the meal but you know someone else might say too much sauce i don't know just saying so making criticism safe impersonal and consistent with liking and what we do now is we criticize from a position of dislike and that's why no one does that because i don't want to signal that i dislike you or your food so making criticism friendly and i try to do that with my students as best i can what teaching from your parents has most stayed with you got a bunch of step parents so there's a list here stepfather didn't teach me how to cook i didn't teach him how to cook i didn't teach him how to cook he was a teacher but exemplified like it wasn't a jack-of-all-trades but he'd done a lot in his life bush pilot real estate person and i've once found his collection of ex-business cards and just blew my mind as like life is long like you can taste a lot and my mom wouldn't put it this way but i say that my mom taught me to not pay twenty dollars for a twenty dollar bill not even pay nineteen if your deal constraints we're in real estate if you can only do a few deals a year you can't afford to pay nineteen because there's better deals coming along you just got to do them and so she taught me and i mean taught me by i would construct real estate deals that looked amazing and she would say that's amazing good job son we're not going to do that deal though because it's super amazing and my father wouldn't even remember this i doubt shout out to him it was his birthday yesterday he got a speeding ticket i said did you ask did you tell him it was your birthday so i forgot it was like well okay for your birthday i'll pay for it anyway one time we were in the grocery store and there's a long line everywhere everyone was rolling their eyes and humming and huffing and puffing and he said he put his hand on my shoulder he goes look at all these people how unhappy they are he goes why are they so unhappy so i don't know they're sick of waiting maybe some of them have bad news in their family maybe it's a bad back i don't know he's like but most of them are just sick of waiting right he goes yeah he says son you better get out of here get good at waiting because there's a lot of it and it really blew my mind that it doesn't sound so wise but it's not that i'm a patient person i'm just really good at finding my happy place i'm smiling in the line because i'm free to think about whatever the heck i want and you got to get good at the mundane maybe not get good at it you have to make peace with the mundane because most of life is average all right last
Speaker 1one what life lesson have you learned that you wish you knew a lot earlier in life short version
Speaker 3and long version short version is as a former and maybe still procrastinator i still wait for the last moment i just have a much healthier sense of when the last moment is it's not the night before it's two weeks before and i saw this guy i won't name him but he got into every grad school imaginable which was amazing not so amazing he printed up a t-shirt about it and it said princeton on the front and on the back this is gonna sound awful thanks no thanks harvard yale mit stanford okay so okay hate the t-shirt you know he was young it was before bragging was uncool whatever i don't know but i'm glad he did that because i saw that t-shirt and i asked everyone said how did he do this so you are yale harvard educated but you have to understand like i've come from a fishing town where like that's just not normal there's a border in between there's socioeconomic status in between like there's a universe between us and going to those places and so i couldn't believe that he got in and i asked everyone how did he do it is he connected is he a son of a governor was he donating millions no he got straight a pluses last year and that sounds impressive and it is but i was i was like that's it that's all you have to do not everyone out there could get a pluses but here's what was i could but here's what's worse is i didn't i was a kid who didn't apply myself i waited to the last minute the night before i would shoot in a final paper that might get an a but might be incomprehensible and so i made a promise to myself i just did it i just decided i just did it i said you know i'm going to get out of this town and that's the way it's a simple way and i don't know any other way so i just worked my butt off and tried to get as many a pluses as i could i almost got all of them and i learned that to get an a plus you can if you're smart and the class is not rocket science you can do it three days ahead of time but to secure an a plus to guarantee it you got to start 10 days 17 21 days ahead of time and so i just did and so i learned that i waited to the last minute but i had a much healthier sense of when the last minute was and the people when they're planning they plan for everything to go right and what you got to do is kind of unpack all the ways this could go longer than you think the last minute is many nights before so when you prepare for your negotiation person that's why you got to prepare months before you meet them
Speaker 1dalien thanks so much thank
Speaker 3you so much thank you thanks for
Speaker 1listening to the show if you like what you heard hop on our website at capital allocators.com where you can access past shows join our mailing list and sign up for premium content have a good one and see you next time
Speaker 4all opinions expressed by ted and podcast guests are solely their own opinions and do not reflect the opinion of capital allocators or their firms this podcast is for informational purposes only and should not be relied upon as a basis for investment decisions clients of capital allocators or podcast guests may maintain positions and securities discussed on this podcast
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