Skip to comments.What I Learned Negotiating With Steve Jobs [Heidi Roizen]
Posted on 03/23/2014 11:13:39 AM PDT by Star Traveler
Fresh out of Stanford Business School, I started a software company, T/Maker, with my brother Peter. He was the software architect and I was, well, everything else. Our little company was among the first to ship software for the Macintosh, and we developed a positive reputation among the members of the nascent developer community, which led us to expanding our business by publishing software for other independent developers. Two of our developers, Randy Adams and William Parkhurst, went to work for Steve Jobs at his new company, NeXT, and thats how I ended up head to head with Steve Jobs.
Turns out, Steve had a problem and Randy and William thought I could be the solution. Steve had done an acquihire of the developers who had written the Mac word processor MacAuthor. In order to make the deal economics work, Steve had promised to publish MacAuthor and pay royalties to the developers. But now, with the worlds attention on his new startup, how would it look to have NeXTs first product be a word processor for the Mac? Randy and William suggested to Steve that if I were to be the publisher, the problem would be solved. Steve liked the idea, and invited me in to talk about it.
My first meeting with Steve lasted well over an hour. He grilled me about packaging, channels, distribution, product positioning and the like. I must have passed the test, as he invited me back to negotiate a publishing deal. I spent the next three weeks preparing detailed timelines, package mockups and drafting a very specific contract based on our experience with the other developers we had already published.
On the appointed day, after waiting in the lobby for 45 minutes (this, I would come to learn, was par for the course for meetings with Steve), I was called up to Steves cubicle. I remember to this day how completely nervous I felt. But I had my contract in hand and I knew my numbers cold.
Shortly into my pitch, Steve took the contract from me and scanned down to the key term, the royalty rate. I had pitched 15%, our standard. Steve pointed at it and said,
15%? That is ridiculous. I want 50%.
I was stunned. There was no way I could run my business giving him 50% of my product revenues. I started to defend myself, stammering about the economics of my side of the business. He tore up the contract and handed me the pieces. Come back at 50%, or dont come back, he said.
I slogged down to my car feeling like I had just blown the biggest deal of my life. Lucky for me, someone had followed me out.
Danl Lewin, one of the NeXT co-founders, had a cubicle within earshot of Steve (actually, at that time, every employee was within earshot of Steve.) Danl had been working with me in background over the last few weeks and wed developed a good relationship. If this deal did not get done, it was going to end up being his job to find someone else, so he really wanted me to get the business. Danl put his arm around my shoulder, and said one sentence, which I will never forget.
Make it look like fifty percent, he said.
But I cant afford to pay fifty percent! I complained.
I get that you cant afford to pay fifty percent of gross, said Danl, but Steve wants to see 50% on that contract. So figure out a way to make a contract that you can live with that also says 50% at the bottom.
Thats when the light bulb came on.
For Steve, this contract wasnt that important to the future of NeXT. While we would go on to pay Next about $5 million in royalties over the life of the contract, and were their first source of revenue, we were not central to his mission (Steve later teased me that he made more money collecting interest on his bank account than he made from me.). However, he had promised the developers 50%, he had said the number within earshot of everyone, and he wanted to be able to tell everyone he got what he wanted.
I had to make the business make sense financially. I just needed to make my 15% look like his 50%.
To do so, I reduced the nut to split by first deducting the cost of packaging, of technical support, the salaries for some developers on my side of the business to implement fixes, and when I still couldnt get the math to pencil out, I added a $6 per unit handling fee thanks to some inspiration from an infomercial on the Home Shopping Network. My new Hollywood net number read 50%, but fully-loaded it was pretty close to the 15% of gross I needed to make the deal work. Magic!
Steve was happy with his 50% contract and the deal got inked. T/Maker became the publisher of the renamed WriteNow word processor, which went on to decent success, garnering 25% of the Mac word processing market during its multi-year run and making many millions of dollars for both NeXT and T/Maker. And, I went on to work with Steve for many years but that is a different story!
Here is what I learned:
Know your numbers: I knew my numbers, what I could make money on, and what I could not. I understood which dials I could turn to make the deal work for me and for the other side.
Dont let the bright lights blind you: I did not do a bad deal just because I was dealing with a high-profile person, no matter how tempting the glory was at the time. In my current life as a VC I cant tell you how many times the entrepreneur wants to do a deal simply because it would be a great press release. Dont do it!
Have allies inside the other organization: During my preparation process I had gotten to know Danl Lewin quite well, and he likewise got to know me as a proactive, thoughtful, ethical person that he wanted to do business with. Without him working the background this deal never would have gotten done. For every deal, it is important to cultivate other relationships inside the firm who can help you with perspective and work behind the scenes to move you into the yes position.
Understand the needs of the other person: In business school, I learned that negotiation is the process of finding the maximal intersection of mutual need. At first I did not understand Steves needs, but when I reflected on it after being banished from his cubicle, I came to realize that this deal was not important to NeXT in terms of dollars or future, but important for Steve to get the 50% he promised his developers. Once I got that, it was relatively easy to come up with a contract that met his needs but also met mine. People are not often as clear as Steve was it sometimes takes extra work and lots of iterative communications to find out what the other person truly wants, but the process creates better, more sustainable deals.
Something of interest ...
Watching the movie about Steve Jobs I came to 1 big conclusion; bottom line, he was a real jerk.
It takes that to do something like Apple. I’m sure glad he was, because I love the products ... :-) ...
AND ... I’ve been called a real big jerk, too ... when I’m running a project and I have to get things done and I know how I want it. That just goes with the territory. It takes a special kind of person to be that kind of jerk.
I don’t go for the hand-holding or worry about hurt feelings. “We’re here to get things done. Buck up!”
But he dropped acid and went to an ashram in India so he was, like, cool, doncha know.
Good business lesson.
‘Appearance’ is often if not always the essential clincher to any business deal.
A good Sargent!
Watching "The Social Network" movie, I came to that conclusion about Mark Zuckerberg. Most movies regarding business success stories show the driven men as jerks. People at the top more often than not, have stepped on a lot of toes making it to the top so there is some justification labeling them as jerks. Books tell a more rounded story than a short movie, showing more than a one-dimensional character.
I personally don’t care about that - because whatever happened - I got the Apple products that I wanted. For me, as the consumer, it’s only what I have in my hand that I’m concerned about. I’m typing to you on my iPad now, which I ALWAYS have with me.
I remember reading that Jobs went to Reed College (in Portland, Oregon). I lived only half a mile from campus. Who knows, I might have passed him without knowing it.
I understand he dropped out, but he took some classes he was interested in. Calligraphy was one of them (I took calligraphy, too). He slept on the floor of some friends’ dorm rooms for a while.
Probably half my friends back then were back-packing around, going to Woodstock (I went to Vortex, the rock festival sponsored by the State of Oregon) and you-name-it.
Some of those people are whacked now, some are dead now and some are quite successful now.
It worked for Steve Jobs and I’m glad.
I never heard of her, T/Maker company or her software.
I did hear of NeXT it was a short blip on the radar.
Her 50 percent story gives the impression that Steve was stupid, she was smart.
I have no doubt Jobs knew and understood. It was the others that he made the promise to that he had that in there for.
Here’s some more about her ...
I remember her from the Mac Software that she and her brother marketed, and then from her time at Apple.
Thanks, interesting article.
If you want on or off the Mac Ping List, Freepmail me.
Star Traveler, thanks.
Is she still trying to find her way? she doesn’t stay anywhere for very long...
This is a very important story to give you an insight into politics and taxes..and remember the term Hollywood Net
Playing these games with the number to make profit appear and disappear at will is used all the time ....particularly tax time...the entertainment industry is famous for this hence her term Hollywood net...
You will also find a particular particular political tilt in the practitioners of this that explains the paradox of their odd tax position..because we all know profit is evil and must be taxed..but he say in Hollywood is no one ever made a profit.
You will alse note it all about fault appearances..Jobes want stupid .he knew it was the same bottom line number..
The fault appearances is a sop for almost everybody on the left in business
I think it was a real simple explanation in this case. Jobs had told those other guys “50%” ... so he wanted to show them 50%. Past that point, he didn’t care ... :-) ...
I think you’re making it more complex than it really was.
Jobs was ego driven. Simple as that. Genius at the computer, and till he got some hard knocks - business stupid. That ego often clouded his judgement, as can be seen by this story. To want 50% because you want 50%, and you don’t care how you get it is supreme business ignorance.
There is one rule in business - the numbers must add up. Don’t care about the genius of the product, the marketing, the vision of the entrepreneur, or anything else, but the bottom line is the bottom line - the numbers must add up. It is the Great Force that levels all playing fields.
So many have failed the startup game for that very reason. They had underpants gnome visions of their business, or in the case of Jobs, delusions of grandeur. Had he been business smart he would have been the Bill Gates of the computing world and not Bill Gates.
Well ... I can’t accuse Jobs of business ignorance ... LOL ... not from the success of Apple.
The situation was real simple. See Post #18.
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