What I Learned Negotiating With Steve Jobs [Heidi Roizen]

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 that’s 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 world’s attention on his new startup, how would it look to have NeXT’s 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 Steve’s 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,

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 don’t 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.

Dan’l 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.) Dan’l had been working with me in background over the last few weeks and we’d 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. Dan’l put his arm around my shoulder, and said one sentence, which I will never forget.

“I get that you can’t afford to pay fifty percent of gross,” said Dan’l, “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.”

For Steve, this contract wasn’t 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 couldn’t 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!

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.

Don’t 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 can’t tell you how many times the entrepreneur wants to do a deal simply because it would be a great press release. Don’t do it!

Have allies inside the other organization: During my preparation process I had gotten to know Dan’l 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 Steve’s 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.

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 ...

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.

He could have had the success of Microsoft and beyond much earlier, because he had a superior product.

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.

There’s many other who built bigger fortunes far more quietly and effectively, and quickly.

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.

… Gates seized the opportunity…

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.

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.

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?).

I wish Jobs had had that business savvy early on.

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.

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.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.