A version of this article previously appeared in Forbes.
The Beatles’ Manager, Brian Epstein, was a 30-yr old, former furniture salesman when Beatlemania hit America in 1964. When he was approached by savvy Nicky Byrne to license the Beatles’ name and likeness for various novelty products and toys, he firmly stated that he would not accept a penny less than 10%.
Nicky had a difficult time hiding his surprise, as the typical range for such licenses was between 30% to 50% of the product’s price. Mr. Byrne quickly signed dozens agreements with merchandisers that subsequently cost the Beatles approximately $100,000,000 in lost royalties. Mr. Epstein later re-negotiated the Beatles’ share to 45%, but by then, Beatlemania was on the wane and the financial damage had been done.
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Get Out Of The Zone
As shown below, every negotiation entails a buyer and seller comfort zone. In order for a deal to be consummated, an intersection of these zones must exist. In the example below, agreement is achievable between $145 million and $185 million. In general, an agreement cannot occur outside of this range, unless new data, coupled with a persuasive argument, are introduced in order to drive the buyer or seller outside of their initial comfort zone.
Brian Epstein Had No Clue, Let Alone A BATNA
“It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” Mark Twain
In the case of the Beatles merchandizing, the sophisticated Mr. Byrne would have been extremely happy with any percentage below thirty and likely would have accepted any rate below fifty percent.
Yet, because he was afraid to appear unknowledgeable, Mr. Epstein blurted out a percentage that effectively moved the negotiations outside of the expected shared comfort zone, costing the Beatles tens of millions of dollars in the process.
While ignorance may be bliss, it is an awful foundation upon which to negotiate. When in doubt, keep your mouth shut and allow the other party to establish one of the boundaries of the shared comfort zone. If you are unsure of the fairness of their initial proposal, you can then seek additional information to determine where it falls within the expected range.
If a seller names a price at the outset of a negotiation, they effectively establish the upper bound of the negotiations. Once a sale price is communicated, the buyer is then incentivized to negotiate your initial proposal downward.
If you name an outrageously high price, you may scare away the would-be buyer, as they may feel that you do not have a realistic opinion of your venture’s value. If you set an initial price that is too low, you effectively shift the comfort zone in an unfavorable manner.
Despite his frequent business blunders, the Beatles would have remained an obscure bar band if it had not been for Mr. Epstein’s career guidance and tireless promotion, which led to their recording deal with Decca. This reality was recognized by the Beatles, who appreciated Brian’s contribution to their success and excused his inadequacies. As Paul McCartney once said, “British people didn’t know that stuff at that time. I think he looked to his dad for business advice, and his dad really knew how to run a furniture store in Liverpool.”
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Image credit: Associated Press