Twisted by Knaves to Make A Trap For Fools

As an entrepreneur, you are probably deluged with requests from people who are “offering to help” your company. The problem is, particularly early on, it’s extremely difficult to tell these individuals apart early in the process of getting to know one another. I’m going to give you some quick heuristics that I have learned to rely on over time. First you need to judge their intentions (quickly qualify out those whose intentions you don’t trust.) Then, you can determine how to prioritize your time.

I’m going to break people in to two groups – Samaritans and Randians. Samaritans being those who are generally pre-disposed to help because they enjoy it, or want to make deposits into their karma bank. Randians (after the heroes of Ayn Rand novels) being those who are not necessarily bad people, but who are self interested and seek to maximize their individual advantage in any circumstance (see: objectivism.) It’s not really that Samaritans aren’t self-interested, but they tend to take a much longer view of life and career, willingly sacrificing tactical leverage at times for a belief in reciprocity and the karmic justice of the universe.

These things aren’t always consistent. People will adopt different personas in different situations, and I don’t mind doing business deals with Randians (although I do prefer to work with Samaritans.)

It’s critical, as an entrepreneur, to quickly identify your counterparty as one or the other and talk with them differently. The challenge is that Randians will often times try to come off as Samaritans (because it generates trust and thus increases their leverage) which can often times result in terrible relationships as their true colors emerge (the proverbial “wolf in sheep’s clothing.”)

To borrow another cliché, actions speak louder than words, and by examining their actions in context, you can quickly get a better idea of someone’s motives. One important note – I firmly believe that these structures hold regardless of someone’s position.

Introductions: One of the first things entrepreneurs often hear is how much value someone they can get from a person’s network. These may be local connections, or in another market (“I’m incredibly well respected in the Bay area.”) Samaritans will offer to make qualified introductions without any sort of compensation request – connecting good people creates value and the Samaritan is happy to do that as simply a component of doing business. Perhaps the greatest early sign of a Randian (and an unsophisticated one at that) is any attempt to extract compensation for making introductions. The ironic thing is that Samaritans will likely have far more robust and powerful networks because of their propensity to “pay it forward.”

Advice: Ironically, Samaritans will often come across as “meaner” than the Randian when asked for advice. Samaritans will often times give extremely blunt and candid feedback in the interest of providing the best information available whereas the Randian will flatter the entrepreneur with compliments with the goal of building personal rapport they can later leverage. Look for a willingness of your advisor to give the kind of blunt, honest feedback that might hurt to hear, but will help you grow.

Commitments: Samaritans will do what they say they’ll do, in the time they committed to. They value their word and integrity over the terms of any particular deal and fiercely defend those principles. Randians are always stalling, looking for angles to maintain optionality and extract short term leverage. They are famous for revising agreements in due diligence, long after terms have been agreed to in principle – something Samaritans find abhorrent.

Focus of Information Updates: Samaritans will worry about long term strategic issues – how they can help you acquire customers or solve sticky product issues. They’ll often hone in on thoughtful, non-obvious metrics to discuss. Randians, in contrast, are looking for superficial metrics, trying to find opportunity to trade/arbitrage information for advantage. They will focus maniacally on your liquidity and funding situation in hopes of finding unique buy-low situations.

Negotiations: When negotiating a deal, Samaritans will look for the longer term. They will regularly leave cash obviously on the table, preferring to build social capital than extract every possible concession and will call out the ramifications of any proposals. They will often try to bring value first as a show of good faith and practice an integrative negotiation style. They are usually willing to put their money where their mouth is, and be compensated only when they perform, confident in their ability to prove their value. Samaritans will often times look for uncapped plans, confident that if interests aligned and they are growing the overall value, they should be richly rewarded. Randians, in contrast, will look to extract value from the possibility that they will perform, hopeful that they can fake their way into vesting equity or extracting cash. They will regularly change terms in the fine print, perhaps without calling them out, in hopes of sneaking advantage in without true agreement. They may also downplay the impact of their changes, or promise to never or rarely invoke provisions they try to force you to agree to.

Conflict: When you come to loggerheads, Samaritans will typically try to understand your issues, be transparent in their goals and desires, and work collaboratively to get you comfortable with the ultimate result. They understand that there will be far more value to an agreement if both parties are comfortable. Randians will bluster, posture, suggest walking away from the deal, and otherwise try to force your hand. They want to “win” a conflict by forcing you into submission rather than solving the underlying problem.

How to Leverage: Once you have a sense of whether you’re dealing with a Samaritan or a Randian, you should adjust how you interact with the individual. While I try to approach most situations from the perspective of a Samaritan, when I realize I’m dealing with a Randian I quickly switch out of my default mode – I become far more guarded and careful (dealing with Bankers, VCs, and other “finance types” generally puts me on guard and makes me much more careful.) On the other hand, approaching a situation with the trepidation of a Randian and dealing with a Samaritan can turn them off and destroy the rapport.

If the person is a Samaritan: Be honest about your motives and constraints – work together to align interests. Find creative solutions to problems, and work to a solution that maximizes benefit for everyone. Be creative on how to maximize the total opportunity space. Try hard to do things that show good faith, and don’t be shy to force the other party to prove their value before they get compensation (that’s a great way to force someone to show their true colors.)

If the person is a Randian: Try to figure out a way to deal with someone else. If you don’t have that option, work to maximize your own short term leverage. Understand that they will work to use every piece of information to their own advantage and be more guarded. Recognize that they will only execute on something out of Fear or Greed, not out of goodwill or reciprocity. Don’t assume goodwill, ensure every component of your agreement is documented and acknowledged by your counterparty. Be creative on how to generate leverage and know that they will generally respect strength rather than appeals to goodwill or values (they have values – those values are just different.)

In Summary – Three Key Points:

First – get a sense of whether your counterparty is a Samaritan or Randian. Inquire with others about their reputation, ask for a demonstrable show of good faith, etc.

Second – Adjust your approach based on your counterparty. If the person on the other side of the table is focused on the short term, be wary of giving away anything that could be leveraged. Conversely, if they seem to be thinking longer term, it can often times work to your benefit to start with a show of good faith.

Third – Always be creative in how you approach negotiations. Try to avoid the trap of distributive negotiations, always be looking for ways to put more issues on the table and find a better negotiated agreement.

I hope this is useful – it’s a distillation of thousands of interactions over years in entrepreneurship.