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How can you trust the negotiators to work in your best interest? Make their cut percentage-based.
by samb 19y ago
How can you trust the negotiators to work in your best interest? Make their cut percentage-based.
- byrneseyeview 19y agoNot necessarily. Getting 1% more for you means 1% more for them, which means they may have a bias towards a low price that guarantees a deal. Instead, you could try a larger commission of any sale price above X, where X is your low estimate of what your company is worth. Edit: On the other hand, this tilts their incentive towards pursuing low-probability, high-payout situations. If someone is working with ten different companies, and they all compensate with this structure, getting one good sale and ignoring the other nine might be the most rewarding option. On the other hand, if there are nine companies with the "percentage of sale price" structure and one with "higher percentage of price-minus-threshold," compensation, the latter will get all the attention. So this boils down to a brutal, Darwinian struggle to pay your sales guy the right way. At some point, structuring compensation might waste more time and effort than just selling the company yourself.
- yagibear 19y agoA related issue is timescales: Negotiators may sacrifice a reduced commission through reduced sale price if it means expediting the process and allowing them to get onto other deals. Founders don't have the same rate of turnover and so have more interest in spending time to raise the sale price.
- aswanson 19y agoI think this line of thought is related to Leavitt's "Freakonomics", particularly in his observation of real estate dealers leaving their homes on the market for longer periods of time and getting better prices than those for their clients.
- pg 19y agoIt usually is, for investment bankers. But that doesn't guarantee they'll work in your interest. Investment bankers selling a small co to Microsoft might sell it super cheap, in the hope of earning good will with Microsoft that could be cashed in later in much bigger deals.
- aswanson 19y agoThis opens up a level of intrigue I didn't initially consider. How low can they go?
- epi0Bauqu 19y agoThey can go as low as the seller is willing to accept, who ultimately has to sign off on the deal. However, the broker can essentially make stuff up to make the seller think they should take the deal.
- aswanson 19y agoI meant 'low' in a slimeball, backstabbing rhetorical sense but I see what you are saying.
- mattmaroon 19y agoAlso if it's anything like real estate, their incentive is more to close the deal than to get the highest price, freeing them to move on to the next. A difference of a few percent to you the seller is huge, to the banker its a small percentage of that few percent. He'd rather just get it over with and move on.