You are a start up entrepreneur in the initial stages of your business and you find that you are falling short of money. When you are strapped for cash and you have nothing to fall back on but the leveraging power of your business idea, what do you do? In such cases the traditional rules of negotiation with investors will not apply. Here are some tips for start-ups facing such a situation on how to negotiate with investors, employees, vendors and suppliers during the start-up stage.
Dealing with employees
You are in the startup stage and you most definitely cannot afford to pay your employees the market level wages. But your employees and consultants will expect higher wages since they have their families and personal lives to take care of. It is you that they look up to, to provide a solution or negotiate a better deal. At such a time, the situation needs tactful handling. First of all you must be sensitive and receptive to the personal needs of the employees. In small start ups, employees’ personal lives and professional lives are not very much separated. You need not consider a raise as soon as it is asked, but you need to be a bit more more flexible with time. You could tell them gently that it is not possible to consider their raise at that time but it would considered at a more opportune moment. It is better to link employee pay with company performance rather than individual performance during the start-up stage. In fact, giving them gift vouchers for a dinner out, or a small trip is a better proposition than giving cash incentives to them.
Handling various types of investors
Negotiating with investors for a small business is quite different from handling normal investor negotiations, because here, the business owner has no other choice. Thus it needs a totally different and tactful approach. Here are some tips for negotiating with investors when you are on the verge of closing shop because of lack of funds.
Don’t let the investor sense your nervousness
It is but natural that investors will be willing to invest in a company that has reasonably good future prospects and the entrepreneur is confident about success. They may be aware of your alternative financing options but since your company is a start up company they may overlook that. Feel and act confident, for that counts a lot and shows your confidence.
Make a draft of the investment terms before meeting the investor
You may think it is bold but it is important to have your investment terms properly spelt out, at least in your personal agenda, before you meet the investor. If you are pitching to Venture capitalists, have a ‘term sheet’ ready. If it’s to family, relatives or angel investors, have your terms clearly stated and noted down.
Inform investors that your terms are standard and non negotiable
Do not let investors change your terms unless they are willing to take on the entire round of funding. Usually, business investors prefer standard terms so that they can concentrate on the project in hand rather than on the investment terms. Do not make the mistake of negotiating on individual terms with each investor. This will lead to innumerable problems in the future.
How to be on best terms with your suppliers
There is a great similarity in negotiating with suppliers as you do with your investors. Give them the confidence that you are a reliable and confident business owner and make them believe in the future growth of your company. You may give your suppliers a vision that you will grow to be their most valuable customer. Suppliers will be more than willing to co-operate with you if they get the impression that you will be a long-term customer. To achieve this you have to extend the duration of your order rather than just negotiate the price, and for safety also add a termination provision to the contract.
Follow these tips and you might just land yourself a fresh round of funding. You may be in a position to retain your employees and also be on good terms with your vendors and be able to sustain your business.
When you are an entrepreneur in the first stages of your business, you may sometimes find that you are short of capital and would need to take in additional financing. You will have to look for a new source of funds or go back to your investors. When you are suffering from a financial crunch you also need to negotiate with your employees for lower salaries, and also with your vendors for easier terms. In this article the author gives you tips on how to handle these aspects.