Today, we announced Red Gate’s purchase of Lutz Roeder’s Reflector. This deal raises obvious questions: what is the future of Reflector? Why did Red Gate buy it? Why did Lutz decide to sell? If you want answers to some of those questions then check out this interview on Simple-Talk, and Lutz’s blog post. I might go into more depth into those in a future blog post (subscribe to my RSS feed) but in this post I’m going to write about several important, but often overlooked, points about deal negotiation.
James (the head of our .net division) first approached Lutz about 4 months ago. James and I flew out to see Lutz at the end of April. We met in a coffee shop near Seattle’s Space Needle and, over the course of several hours, worked out the general terms of the deal. We figured out what was important to Lutz; we negotiated the amount we would pay; we outlined what we were buying.
This was a friendly chat, not a poker game. Negotiating a deal isn’t about winning or losing – it’s about reaching a common ground. Lutz, presumably, had a price he would not go under. Red Gate had a price we would not go over. In other words, there was a range in which it made sense for Red Gate to buy, and Lutz to sell. Within that range, everybody would win.
How did we work out the price that we would pay up to? We based it on how much we thought Reflector would be worth to us. Seems obvious, but – judging by the frequent “I want to sell my technology – how much should I ask for” questions on Joel’s business of software forum, and the answers to those questions – it’s not. If you want to sell something, the price you can get is not determined by how long it took you to write it, or how many lines of code it is, or how much money you’re making from it. It’s determined by the value to the purchaser. How much money will they be able to make from it? Sure, a purchaser will consider whether they could build it themselves, or if there are cheaper alternatives, but that often isn’t the case.
Of course, no deal is just about money. Most people aren’t driven just by cash (are you?). When James and I talked with Lutz, we tried to understand his motivations. No matter how much money we offered him, if we didn’t scratch his non-financial itches then we could not have reached a deal.
Even though we figured out the major points in that coffee shop back in April, it still took over 3 months
to draft a contract we could all sign. That 3 month process was important. In fact, the process is more important than the contract. My favourite contracts are the ones that WORN – write once, read never. I hope that we’ll be able to take Lutz’s contract, file it and forget it. There are a hundred tiny details in a deal this size. Drawing up a contract – with lawyers who had done this many times before – forced us to think about every single one. How would the handover work? At what point would we pay Lutz? When would we get the source code? What obligations would Lutz have after the sale? And so on. It was the thinking that was important, not the documentation of the thinking.
The most important about a deal isn’t the negotiation, or the money, or the contract though. It’s the people. Life is short – too short to sign contracts with assholes, or to fight them if things go sour. Over the past three months James and I have gotten to know Lutz. He’s somebody we trust, and who we get on with. That personal connection is far more important than any contract.
It’s going to be an exciting few days at Red Gate, seeing how people react to our purchase of Reflector. If our past experience is a reliable guide, some people will congratulate Lutz and Red Gate. A few will demonise us, and assume the worst. Most – the thoughtful ones – will give us time and see how events unfold. Once the dust has settled, I’ll write some more and answer some of the questions that emerge. Subscribe to my RSS feed to stay up to date.