Invited to Become a Design Partner?
Design management consultant Ted Leonhardt advises, prepare to negotiate.
By Ted Leonhardt
What designer hasn’t dreamed of creating his/her own product that would wow the market and make tons of money? Think James Dyson. For several clients, this possibility recently presented itself in the form of an equity partnership. Here’s one scenario:
Bob has 15 years’ experience as a design firm owner. Previously, he worked in Paris, for a grand luxury brand, then moved to a great U.S. packaging house to lead their luxury effort. Recently, one of Bob’s long-time clients said, “We want to create a luxury brand and we want you to do the design work for a piece of the action.” That is to say, Bob would do the work for a percentage of the equity and potential profits. It would be a four-way partnership—Bob, his client, a lawyer and an investor. They offered Bob $50k to cover out-of-pocket costs involved in creating a new premium brand. The three original partners each held 25%, and they offered him 10%. He accepted on the spot. Bob approached me because he regretted his decision. He had been in a good bargaining position, but failed to negotiate a larger share. Why?
1. Bob feels needy. Business is steady, but clients keep pressing him to reduce costs. He feels under the gun to grow and perform better.
2. Bob is afraid. He knows luxury is the place to be, but with increasing competition and resulting price pressures, he is feeling the heat and is afraid that his top talent may start looking elsewhere.
3. Bob has always dreamed of owning his own brand. He has longed for the opportunity to design without the pressure of billable hours and client demands. Bob envies the power of his wealthy luxury clients. This is his chance to join the club.
So, when Bob was offered 10%, he was thinking about his vulnerabilities on the one hand, and path to glory on the other.
He should have been thinking:
- They threw out both 10 and 25%. That means they are telling me the range.
- If I don’t ask for more than 25%, I’ll never get 25.
- I need to be at least an equal partner to have their respect going forward.
- Their schedule doesn’t give them enough time to find another design firm.
- Only I have the luxury experience they need to make this successful.
So, how could Bob have saved himself?
Planning and preparing for negotiation:
1. Examine your feelings. Being in control of one’s emotions is critical to negotiating any deal. Talk with your most trusted confidante about your feelings and what may be driving them. Make a list of all the pros and cons in advance.
Bob knew this opportunity was coming and should have examined his feelings about the upcoming meeting. Instead, he focused on his weaknesses, rather than the strength of his position. He felt he needed the job, instead of “I am the best person for the job, and they know it.” And, he dreamed of glory, rather than evaluating the real possibility that his investment might come to naught.
2. Learn the language of negotiation. Bob was afraid to ask questions, thinking it might sink the deal. Most of us avoid confrontation—this is what the guys on the other side of the table count on—but learning to use non-confrontational language to explore the options is always appropriate. The most important question is, “Help me understand why… (why you get 25% and I’m getting 10%?) ” or, fill in the blank.
3. Never make a deal on the spot. Always take time to think about it. When you are negotiating you must remember that you have all the time in the world.
I’ll work with Bob to renegotiate this deal. Anything can be renegotiated. Right now, he feels used, and knows he won’t be able to do his best work under these circumstances. It will be better to challenge the deal now, and maybe even walk away from it, rather than have the work, and their future relationship, soured by bad feelings.
Stay tuned for chapter two.
About the Author: Ted Leonhardt, who cofounded the brand design firm The Leonhardt Group (TLG) in 1985, with his wife and partner Carolyn Leonhardt, sold the company in 1999, when it had reached $10 million in annual sales. Clients included Microsoft, Nissan, Charles Schwab, Nordstrom, Washington Mutual, Electronic Arts, Apple, XO Communications, Boeing and Weyerhaeuser. TLG became part of Cordiant Communications Group, in 2000. Ted and Carolyn moved to Europe where Ted served Cordiant’s design and branding group –Fitch:Worldwide– as Chief Creative Officer/Global in 2001 and 2002. In 2003 Ted joined Schawk, Inc., as President, Anthem Worldwide, through early 2005, a brand packaging consultancy with eight offices in the US, UK, Canada and Singapore. The Anthem assignment included building a management team and acquisitions in the US and UK, which saw revenues grow more than 20% in 2004 and nearly double in 2005.