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The Messy Marketplace · 10 of 14
The Messy Marketplace
entrepreneurship HIGH

The Negotiation

The Messy Marketplace Brent Beshore
exit-framing batna terms-over-price proof-of-health buyer-discovery

Key Principle

Price is an output of risk allocation, not an input you assert. Negotiation is the act of proving where future risk actually lives, so the seller isn't charged a discount for risk they could have argued away. Every concept here — the exit framing you choose, the way you express the number, your floor, what you sell on, and the questions you ask — is a tool for dividing risk on terms you can live with. Start by revisiting why you're selling: the tactics are downstream of what "winning" was defined as.

Why This Matters

Sellers fixate on the largest number they've ever seen and treat it as the whole game. But "structure and terms are equally important," and a number means nothing until you know how risk is split. If the seller never names what they value, the buyer cannot build a deal around it and defaults to the structure cheapest for the buyer. Worse, formula deals add new ways for the transaction to die (adjustment disputes, closing-date drift), and unproven growth claims invite a discount. Naming the framing, anchoring credibly, knowing your floor, and selling provable strength are how the seller keeps risk-driven discounts off the table.

Good Examples

  • Three exit framings — motivation selects the structure. The seller's stated priority mechanically sets the valuation because it dictates who absorbs future risk:
    • Quick Exit (all cash at close, e.g. grave health): the buyer assumes all liability for future performance and the transition with no seller to bridge it. Risk transferred is maximal, so the discount is largest. Liquidity is bought with price — "the seller chose the discount the moment they demanded all-cash."
    • Market-based Exit: seller anchors a research-backed range, then negotiation moves to structure — earnout percentage, guarantees on key employees and customers. Only comps relevant in scale, leadership depth, and earnings history survive; irrelevant comps are discarded instantly, so bringing them wastes credibility.
    • Bright-Future Exit: some liquidity now plus retained upside; terms vary widely because they are creative risk-sharing structures — variance is a feature, not sloppiness.
  • Formula vs. numerical value. A fixed number ("$18M enterprise value, expected to hold through diligence") is predictable but leaves the most recent strong quarter out of the math. A multiple formula ("4X TTM EBIT") captures recent strength if performance is strong but "introduces far more unknowns that can derail closing." Two landmines: (1) adjustment disputes — the seller plugs in non-business add-backs and discovers the buyer rejects most, leaving parties "millions of dollars apart"; settle adjustment definitions early. (2) Closing-date timing — metrics measured near close mean performance fluctuation can hand the seller worse final figures; reaching diligence is not closing, and closing on the targeted date is even less likely.
  • Walk in the buyer's shoes. "Investors don't buy things to lose money." If the seller cannot argue how the buyer earns a decent return, the price collapses under diligence regardless of what the seller "deserves." For a cyclical business, pre-empt the risk: state the max historical fluctuation, over what period, how the company is positioned against past lows, how it survived prior downturns. Smaller PE funds, search funds, fundless sponsors, and wealthy individuals typically expect 20–35% returns; the price has to leave room for that math.
  • Proof of health over growth projections. Buyers discount unproven growth, "especially when the growth rate is expected to positively deviate from historic performance." So sell provable present strength — consistent margins, durable client relationships, pricing power, market position. Third-party verification (e.g. independently confirmed as largest by volume in your region) "will always carry more weight" because it removes the buyer's discount-for-self-report.
  • BATNA as the floor. Your best alternative — another buyer, an ESOP, or simply continued ownership — is the line you don't cross. Continued ownership of a performing company is a strong alternative, "which is precisely what gives the seller negotiating power." Some buyers knowingly play "second fiddle," holding an offer in reserve while you shop; Permanent Equity admits to doing this ("Sometimes we will, other times we won't").
  • Buyer discovery as negotiation-by-swaps. Interrogate the buyer before you bargain. Ask "Most/least important components?" (the order of the answer approximates a forced ranking — listen to sequence), "What are deal-breakers?", "If the deal falls apart, why?" and "What could diligence surface that kills it?", "Who else is a decision-maker?", and "How much is principal-to-principal vs. through lawyers/accountants?" Then frame each move as a trade ("they take your knight, you want two pawns").

Counterpoints

  • Proof of health buys a fair multiple, not a premium one. "The higher the multiple asked, the more a substantive growth plan is demanded." Present strength earns fairness; a premium still requires a credible growth story.
  • Don't normalize abnormal periods away. Sellers instinctively try to strip out an abnormal stretch (the 2020–21 pandemic), but the attempt itself "will beget questions about what actually happened," and the buyer forms their own view regardless. The company's response to a non-repeating event is signal — leadership, durability, forecasting — so a buyer reads it as a stress test, not noise to erase.
  • Open-minded skepticism, not blind trust. With a qualified buyer, leverage their structuring expertise — but "always approach a proposed solution with open-minded skepticism," because the same expertise that structures creatively can structure self-servingly.

Key Quotes

"Usually the party least willing to budge on price is more willing to negotiate on terms." — Brent Beshore, (The Paperwork)

"You never want to accept a deal that is less favorable than your BATNA." — Brent Beshore, (The Negotiation)

"Every value and formula is negotiable." — Brent Beshore, (Doing a Deal: Selling Your Business)

"All businesses fluctuate. It's not something to hide." — Brent Beshore, (The Negotiation)

"Third-party verification will always carry more weight." — Brent Beshore, (The Negotiation)

Rules of Thumb

  • Name your exit framing first (Quick / Market-based / Bright-Future); it sets the discount before you trade a single term.
  • Treat price rigidity as a signpost, not a wall: when a buyer won't move on price, the negotiable value (timing, structure, guarantees) lives in the terms.
  • Settle adjustment/add-back definitions early — before they become a closing-day chasm millions of dollars wide.
  • Sell what you can prove. Disclose and contextualize known risks early; a disclosed risk is priced, a discovered one kills.
  • Know your BATNA and compare details and time-value of money, not headline numbers — offers rarely compare apples-to-apples.
  • Ask before you bargain: confirm you face the principal, learn deal-breakers, and surface diligence hot-buttons while you can still pre-empt them.

Related References