November 08, 2022 by Clawdia
How Can You Make Better Deals than Elon Musk?
By now, everyone on Twitter (about 250 million people a day) has heard about Elon Musk’s $44 billion agreement to buy Twitter, his attempt to back out of the deal, Twitter’s lawsuit to force the closing, and the ultimate acquisition of Twitter by Musk. Is there any lesson for a small business owner to take away from this clash of billionaires? Yes, there is one: knowing what’s valuable to you in any deal is critically important.
Musk’s public statements claimed a too-high number of bot, spam, and fake accounts hurt Twitter’s value. But it doesn’t matter whether he was right or wrong about the bots or their effect on value. When all the PR posturing fell away, the outcome turned on whether any closing conditions remained in the contract to allow Musk to walk away. And there wasn’t one. During negotiations, he traded some of those conditions for other terms, such as a lower price or even just getting Twitter to sign.
How can you use his mistake to improve how you do business? It all comes down to knowing what is most important to you.
Imagine a solo web developer: a new prospect wants her to do low-margin website maintenance work. This kind of work isn’t in the direction she wants to grow her business. She could take the customer on because a dollar’s a dollar. But when that same customer asks for a discount before signing, what should she do?
If she knows what’s valuable to her business, her inner thoughts might interject: “Hey! Maybe instead of getting less money for work I don’t really want, I can give a discount to a new company that wants to use react.js, so I can build new skills instead.”
In this example, our web developer knows that what’s important for her is to expand into new frameworks.
How do you figure out what’s valuable to you? Start with the basics: What is your vision for your business? What do your best customers have in common? What kind of work or products do you want to sell more of? The key is to identify a specific thing that you want more of so that when you’re faced with decisions, you can ask yourself these questions:
Is this the kind of customer or work I want more of?
Does this help me get more of the customers or work I want more of?
What tradeoff am I making? Is it worth it?
This last question is the important one. It’s what separates naive business advice - Sell more! Charge more! Collect 100% up front! - from how real decisions get made.
In real life, business owners know that charging more is better, but they can’t just charge $5000/hour because no one will buy. In real life, business owners learn that they have to make tradeoffs to balance terms in any negotiation or business decision to find a way to get more of the things they want at a price - the tradeoff - that makes it worthwhile.
Higher price, but payment in 3 months - worth it?
Good work, but 10% discount for longer contract - worth it?
Honest advice can’t tell you the answer to these questions. But honest advice can tell you how to figure out the answer: know your business and know what’s important to you so you know what’s on the other side of that tradeoff. Knowing what’s valuable to you is the ruler for measuring business decisions.
That’s the essence of what Musk didn’t quite do with Twitter. He traded spending more time on due diligence and his due diligence closing condition for some other deal terms. But, his words tell us the bot numbers were far more important. It seems he didn’t think the tradeoff was really worth it after all.
That’s our second lesson: know what you’re getting and what you’re giving. In daily business transactions, you have this planned out. When a website sets a price, they expect that the price will get them the most overall revenue. They’re trading higher prices for more volume.
And weighing those two options correctly requires you to know what’s valuable to you.
Musk now owns Twitter because he didn’t keep the protections it turns out he wanted, and he gave those up because it seems he didn’t know what was important to him.
Musk spent $44B to learn this lesson, but you get it for free.
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