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.
“I never heard of her, T/Maker company or her software.”
Success is relative. He could have had the success of Microsoft and beyond much earlier, because he had a superior product. But because of ego, he didn’t structure things to grab market share, and his numbers didn’t add up. He unnecessarily limited himself.
Gates wasn’t so limited, and even though he had a vastly inferior product, he worked the numbers to give Microsoft a huge advantage. Yes, later Jobs got smarter and had his measure of success, but it was 2nd prize as to What Could Have Been. Not to mention a whole different computer world would exist today.
It’s sort of funny to hear this kind of thing because the overwhelming and vast majority of people could only dream of any kind of success like this. Let’s go beyond that ... the vast and overwhelming majority of the “successful business people” could only dream of any kind of success like this.
And here we’re listening to someone saying, “Jobs wasn’t successful enough!
Do you see how ridiculous that sounds? ... LOL ...
I don’t much about what’s going on now, but there is a Wikipedia link up above.
When I have a difficult clienr or stupid engineer I will preface my question with, “now here is the answer you will give me to the question I am about to ask you or you need to break out your wallet.”
It is amzing how agreeable people are.
Depends on what you’re talking about, are you talking about dollars or are we talking about legacy? Jobs was successful in dollar terms, but he doesn’t deserve half the attention he gets as some kind of business genius. And half the attention he does get is because he got finally got business smart later in life.
There’s many other who built bigger fortunes far more quietly and effectively, and quickly. So in terms of legacy, attention, and emulation, I’d rather make them the object of study and news articles than Steve Jobs. The media of course doesn’t do that because Steve had the cool hippie vibe about him and that in their eyes makes him ooo-ahhh sexy.
Sorry, but I have far more respect for a guy who makes a million being business smart and maxing his opportunities than a guy who makes a billion in spite of his own business ignorance (especially when it’s ego driven) and missed opportunities.
And what would that product be? The problem is, he wasn't the only person running Apple. There was a board that conflicted with him, and ousted him. In the early days, Steve Wozniak wasn't delivering on creating a full floating-point BASIC language for the Apple II. So they let Bill Gates and his Microsoft in the door, thereby funding Microsoft. If not for Apple funding them, Microsoft might have gone under (a situation in reverse many years later). A company's success is derived from more than one person. I think Jobs learned that lesson after being ousted, and from his difficulties at Next. He certainly learned that at Pixar, where he intended to focus on hardware for the film industry but allowed the staff to run with a more superior product which was their creative talent to create films.
Much is made of him being a jerk in the early days. He lightened up somewhat later on and was then far more successful with far more products than his earlier days.
My point exactly. He got smarter when he finally realized it wasn’t all about him. When it became about the business plan, the numbers, and seizing opportunities, like at Pixar, he had much more success.
Early on though, he had a very elitist tack in his positioning of Apple, and rejected alot of opportunities because of it. It allowed Gates, subsidized early on or not, to eventually eat Jobs lunch, because Gates seized the opportunity, did the numbers, structured it right, and made it work by going after the huge but bread-and-butter office market and eventually, home computing.
Ah, but having a fortune is not the same thing as leaving a legacy. It is said that Thomas Edison changed the world in three areas impacting humans. Steve Jobs changed the world in five areas. Jobs' legacy includes changing the computing industry, telephone industry, music industry, film industry and retail industry. He led a mobile-computing revolution, upended the music industry with iTunes and, at Pixar, changed the way movies are made. Even the way he sold products by creating Apple stores (do you see any cash registers inside?), and moved products from creation to consumer were genius. Other men may make money, but have they necessarily changed the world?
And yet Jobs legacy is completely dwarfed by Bill Gates, Google and others in the computing industry alone, primarily because it took him nearly 20 years to figure out it wasn’t all about him. When he removed the ego and stuck with the numbers - that’s when his real success began.
Bill Gates is definitely a ruthless jerk. He destroyed his competitors. How many people remember Visicalc and Lotus 1-2-3? He didn't invent anything, wasn't first in providing a product, but was very business savvy and took advantage of every opportunity to rip off his competition. And got very rich in the process.
Exactly. I wish Jobs had had that business savvy early on. We would be looking at a different world, as he had bot has superior product, and once he learned how to harness it, superior marketing creativity and acumen.
That is where I differ with you. Jobs' legacy dwarfs that of Bill Gates. Jobs altered the course of humanity in ways that Gates did not. One hundred years from now, very few will take note of what Gates accomplished, but Jobs will be seen as a pioneer akin to Edison. Gates has accomplished very little other than making tons of money. And regarding Gates, he also had a huge ego (how much do you hear about Paul Allen in regards to Microsoft?).
That's a point where I can agree with you. At times he wanted to price products extremely low but was overridden by the board. Other times he focused on cosmetic perfection rather than get products out the door. He made mistakes.
steve jobs is no Edison.
If you compare how society honored each person’s death, it’s no competition.
When Edison died, the country considered observing a moment of silence for him by temporarily shutting down one of his greatest inventions: the electrical grid.
But they decided against it because doing so would endanger many lives that relied on electricity, such as those in hospitals.
In other words, lives depend on Edison’s inventions, even until this day, nearly a century later.
It you consider doing the same with any of steve’s inventions in honor of his death, it would only be worth a shoulder shrug. The only ones who would suffer are some vapid 14-year old girls who couldn’t post to instagram via their toy iphones.
“very few will note”
No doubt they will giving the leftist domination of education and media. Gates opened the door to a practical computing system from which all else was spawned. He basically helped put a computer with an icon based operating system into nearly every home. Something that was affordable and usable by non-techies. Once practical computing was everyone’s fingertips, everything else followed from that - the internet, mobile computing, social media, you name it.
Like Henry Ford, none of that would have happened if you wouldn’t have created the mass market. Jobs may be a marketing genius, but Gates was the logistical brain child that was a key player in being the catalyst for many things to happen.
Just wait till Windows 9 comes out!
History in the making!! : )
I was thinking on more of personal level...dumping his girlfriend after knocking her up, blaming her, denying paternity, for years refusing to see His daughter.
Sounds like jerk. He founded a big company and made lots of money so I guess that made him rich jerk.
That’s the way it goes in life ... jerks at work can be jerks at home. It’s a good thing we don’t buy our products in this country according to how the executives live or else we would never buy anything from any company ... LOL ...
The only reason you’ve not heard of Roizen is that you’re either too young or too far outside the Mac market from the mid-80’s to the mid-90’s.
For those of us who have been around Macs (and computers in general) since the early 80’s, we remember Roizen. She was a great voice for getting Apple to recognize developer issues throughout the latter 80’s.
You give Edison credit where none is deserved. He did not invent the electrical grid. He was a proponent of DC, which at the time was not viable for long distances. George Westinghouse was a proponent of AC, largely invented by Nicolas Tesla. Westinghouse' plan for an AC electrical grid was chosen over Edison's plan for a DC grid. You can't get this fact right, that lives depended on Westinghouse, not Edison. Your other statements are similarly suspect.
Not so. All else was already in play. All Gates did was to jump on the bandwagon. That was his modus operandi. He would watch someone else develop something, then he would obtain it and put his own spin on it, often squashing the competition who first developed it. Practical computing systems already existed before Gates. He took DOS from someone else and sold it to IBM. Computers with icon base computing were in homes long before Gates copied the Mac OS and engineered it into Windows (Steve Jobs gave access to the Mac OS source code over the protests of his engineers). Everything else that followed, was not due to Gates.
I personally worked on many platforms since the 1970s, and there was a lot of competition and activity having nothing to do with Windows. I supported applications and networks where Windows wasn't even mentioned. For example, a few of them being IVPhase, Wang and Novell. I worked on Unix platforms, with GUI interfaces, no Gates stuff there. As I said, few will note Gates a hundred years from now.
She says nothing of the sort. She says that she learned what Jobs needed, and what he did not need. And, with the help of inspiration from a Jobs confidant, she was able to give Jobs what he needed - the appearance of 50% margin - in a way that, in her terms, was actually 15% I LOLd at the story, because it reminded of the matrix organization system at my job. The matrix organization gave you two bosses to please - the project manager and the department manager. The departments" were organized around each of the particular specialties/disciplines being used by the project. So you had two bosses to please. Not always a problem, not always not a problem, either.Her 50 percent story gives the impression that Steve was stupid, she was smart.
In one particular case we were working a project, and we constructed a plan which sailed right through project management. We asked for approval from the department manager, and it was no go. We put our head together, and we were stymied - what wed done was the obvious and apparently only approach to the job. Finally I came up with a way to reformat the same plan so that it looked different - but under the hood it was in reality exactly the same plan. And it worked.
Not at all, to me. Just that there was method in his madness."
Edison conceived of the first electrical grid, not for its own sake, but to sell his other invention, the incandescent light bulb.
Yes, he used dc, which came before Tesla’s ac, which came after. So Edison beat Tesla to the punch on the invention of the electrical grid, no matter whose flavor eventually won the market.
Also, the fact stands that none of steve job’s inventions are as critical to human survival as any of Edison’s. Especially when you consider that none of his inventions were ever able to sustain anything more than a third of the share of their respective markets.
You're wrong again. The first electrical grids were in use in Europe and the U.S. long before Edison was pushing his light bulbs. Even the Edison company acknowledged this fact. Later on, after Westinghouse won rights to built electrical grids in the U.S., a deal was struck to allow Edison's G.E. to build out some of the transmission lines after Edison paid for Tesla and Westinghouse patents. So even though Edison was allowed to build some of the grid, he was using Tesla's invention to do so. That is hardly beating Tesla to the punch, when Edison had to pay Tesla for the right to do so. Get yer facts right next time.
At one time I worked under matrix management. It was driving me nuts. Not only did I have two bosses to please, but they were often at odds with each other and lower level managers such as myself were caught in the crossfire. As you say, we had to learn to please both with different narratives for each. It was a two-year experiment that was abandoned, thereby pleasing everyone.
Are you saying you had to look her up in wikipedia to find out about her?
Yes, I had heard about her, having gone to MacWorld Expo for 20 years. One heard about many Apple employees, and many of them departed after a pretty short stay as she did.
I was making light basically of her putting herself on a par with the man who stood alone in silicon valley.
For decades we all heard how Apple was going under “in the near future.” I’m sure you’d agree that that got to be pretty tiresome.
Dozens of wannabe’s never really measured up to the man’s contribution which we all benefit from today.
I’m not so sure I buy into the “Steve and I were clever together implication” so he could fool the others within earshot.
I’m not young and I have owned Macs since the first one, which I bought in 1985.
Yes I’ve heard of her.
I don’t buy into the idea that she and Steve worked together to basically fool the other employees.
Who were the fools? Steve for not seeing the hidden 50%, her for thinking she worked with him in fooling the other employees, or the employees for mindlessly accepting her skewed numbers.
I have read volumes about how detail oriented Steve Jobs was.
Would even you not have been able to see 15% turned into 50%? As far as I know, no multiplication required.
Story of what was considered the U.S. first “grid”, a 14-mile DC system built by Edward Eastman in 1889. He switched to AC in 1890 using Westinghouse/Tesla equipment. Link refers to the “war” going on between DC and AC at the time.
You linked to a story of a commercial power plant, powering a few hundred lamps in the immediate neighborhood. Hardly an electrical grid. The above story suggests that prior to this 14-mile grid, DC was restricted to a couple miles. As I stated, there were numerous electric grids in the world before Edison made his light bulbs. He wasn’t even the first to invent the light bulb, but he made a better one. There were numerous attempts by Edison to rewrite history, favoring himself as a technical giant. Truth is, he was an egotistical opportunist, building on the achievements of others (similar to what Bill Gates did).
In the late 19th century, people were desiring a way to effectively transmit electricity long distances to power industry. Tesla changed everything, by effectively inventing a three-phase AC system that enabled AC to win out over DC. Yes, small DC grids competed alongside AC grids. But AC (Westinghouse/Tesla) created what we use today, and DC was relegated to small neighborhood systems in the U.S. (some of which survived late into the 20th century).
We’re digressing away from the primary topic of this thread, so this is my last comment.