Rodley’s Law of Negotiation

My post about technical co-founders handing over contacts from their network for business development generated a fair amount of offline pushback, most of it being some variation of “well you obviously didn’t have a trusting relationship with your CEOs”. All of which put me in mind of Godwin’s Law.

Godwin’s law states that as an online discussion continues, the probability of someone introducing a Nazi analogy approaches 1. This is usually extended to mean that the first person to introduce a Nazi analogy has lost the argument and the Nazi analogy is an acknowledgement of that loss.

I’m here today to not-so-humbly introduce Rodley’s Law of Negotiation which states:

As a negotiation continues, the probability that one side will use the word “trust” approaches 1 and the first person to use the word “trust” has lost the argument if not the negotiation.

Hypothetical example 1 – you’re a technical co-founder negotiating an agreement to join a venture that’s already incorporated:

YOU: I need a clause that exempts vested stock from penny-per-share buyback on voluntary departure.

CEO: Why would you need that?

YOU: Because it could happen.

CEO: We’re friends. We’d talk about it and come to some reasonable arrangement.

YOU: I want it in writing.

CEO: Why would you need it in writing – don’t you trust me?

ingodwetrustAhhh .. the T word. Now, you’re close to a deal (be honest, you’re probably already working with them gratis) and you want to join this outfit but your prospective partner just played the trust card. Rodley’s Law says that you’re screwed here and that it’s pretty much guaranteed that your prospective CEO will buyback all your stock for a penny a share if you leave for any reason.

The example clawback-clause negotiating point here is not hypothetical at all. Read this to see how Skype did exactly this and turned a bunch of people who should be startup-fucking-rich to older-but-wiser-poor.

But there’s an important thing to realize about our example. If you’re dumb enough to “trust” this guy, and you do get into a voluntary departure situation, it’s his job to screw you in that situation. A CEO’s responsibility is to the corporation, not to YOU. And the bigger the stakes, the more obligated he is to screw you.

Now I’m not saying to never trust anyone. What I’m saying is that you’re worrying about the wrong guy. As a techie negotiating a co-founder agreement the person you really can’t trust is yourself. You don’t negotiate stuff for a living, legalese is harder to understand than bad Objective-C, and you really, really, really just want this agreement to be done so you can go back to writing the damned code. You know this and it’s scary. You need help. What do rich people do when they need help? They hire it.

The real problem is not that suits are untrustworthy. It’s that guys like me are too lazy to find a decent lawyer and too cheap to pay him. Which leads us to Rodley’s Second Law of Negotiation:

If you’re struggling with a founders agreement, shut up about the shady suits, find a fucking lawyer and pay him his fucking money or go be a W2 slave like everyone else.

Once you engage that help, it turns the issue from an emotional issue of who to trust and how much, to a technical execution issue of finding the right lawyer and paying him his fucking money. And if there’s one thing us code monkeys are good at, it’s execution.

About JR
Software guy, startup guy, non-fiction glutton, south shore inhabitant

2 Responses to Rodley’s Law of Negotiation

  1. liftoph says:

    Hahaha… I got one for you: Non-voluntary departure. At a company which “shall not be named” I was fired on December 31st and re-hired on January 1st to get around my 1% in the company. Wanting to continue feeding my family, He had me! Ugh! Now I have to work for a living. Luckily, I had the last laugh. His valuation after 10 years was 1/5 the valuation after 3 years. He worked very hard for 7 years to lose a lot of money!!

  2. JR says:

    Sounds sue-able to me, but I’d have to pay my lawyer 200$ for the answer and I’m too cheap. 🙂

    So you were fired, had your equity bought out for strike price, then hired back? Okay, that’s a new one. Was the company struggling, or was it a greedhead move when the company was doing well and it looked like there’d be an exit?

    There’s always that stratification in a startup between the founders and everyone else and they react differently when things get ugly. I’ve been part of “everyone else” and in that cohort, when the going gets rough you’re making decisions every day about how much you can take, but it’s a little easier than being a founder because it’s a clear equation. Options are worth nada so it’s working environment and salary. If they missed payroll and made me miserable, I walked.

    Let’s assume the company was struggling and the CEO was not just being a dick. It’s REALLY easy to screw up a cap table to the point where it can’t be fixed. A company that looks like a going concern can be in desperate trouble if it needs more runway and can’t sell a piece of itself to get more money. In that case, stealing your 1% might actually give the company more runway by giving it something it can sell without diluting the existing shareholders.

    Now having said that, I really assume that your CEO was just being a dick. Comes with the territory.

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