Teaching Entrepreneurial Negotiation

Successful entrepreneurship is predicated upon the ability to cultivate relationships. Simply put, successful entrepreneurs must convince others to buy into their idea and to commit a considerable amount of time, money, resources, and/or expertise to their venture. In addition to the challenge of negotiating with potential external stakeholders, entrepreneurs must simultaneously negotiate with each other around the culture, routines, norms, and expectations within their partnership or organization. The ability to negotiate successfully is vital. As Lawrence Susskind has noted, “If you can’t negotiate, you can’t be a successful entrepreneur” (Susskind 2016).

Despite the importance of negotiation for entrepreneurs, entrepreneurship education within business schools has focused primarily on improving strategic and technical capabilities such as opportunity recognition and invention commercialization, developing unique value propositions, and explaining core concepts such as the entrepreneurial mindset (Kuratko, Fisher, and Audretsch 2020). In some programs, negotiations are covered briefly in a single class within a course that focuses on other subjects. In other programs, courses in negotiation are available to entrepreneurship students. However, these courses are aimed primarily at students interested in pursuing corporate jobs and thus are designed to meet the challenges that arise in stable corporate structures.

This is not to say that the negotiation education traditionally offered to entrepreneurial students is without value. However, it is clear that entrepreneurial negotiation education needs to address concepts beyond those taught in traditional negotiation classes. It is important for entrepreneurship students to understand the nuances of negotiating in an entrepreneurial environment. In addition, as traditional corporations routinely negotiate with entrepreneurial ventures, it is also critical that students preparing to enter the corporate world learn how to negotiate with entrepreneurs.

This article seeks to assist educators in designing, developing, and delivering negotiation content with an entrepreneurial focus. We explain why entrepreneurial negotiation education is needed and how it fills current gaps in entrepreneurship education. The article outlines a continuum of entrepreneurial negotiation, identifies the unique challenges faced by entrepreneurship students, unpacks the critical learning objectives in an entrepreneurial negotiation course, discusses how to reinforce core entrepreneurship concepts, and lays out a guide for teaching entrepreneurial negotiation by providing sample syllabi, role‐playing exercises, cases, and online simulations that address the key learning objectives.

In considering the entrepreneurial context, it is important to think of negotiation as a continuum. Within this continuum, negotiations are more (or less) bounded, relying more (or less) on a shared expectation of economic maximization.

At one extreme, negotiators take on a bounded mentality. Using the language of institutional logics, bounded negotiators demonstrate a reliance on a market logic (Thornton and Ocasio 1999). According to Thornton and Ocasio (1999: 804), institutional logics are “the socially constructed, historical pattern of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to social reality.” Put more simply, institutional logics provide the rules for how to proceed, giving guidance on which issues should be attended to, which solutions are contemplated, and the process for solving the decision‐making dilemma (March and Olsen 1976). That is, institutional logics define the goals of the negotiation, what issues are normally negotiated, and how the negotiation should proceed. They are the overarching set of interests—combined with a perspective (or frame) for interpreting and manifesting this set of interests—that serves to guide how a negotiator thinks about a particular negotiation. When relying on a market logic—the dominant logic in a bounded corporate setting—a negotiator’s attention is focused on economic solutions (Ocasio 1995; 1997). This is not to say that noneconomic issues are ignored; rather, they are deprioritized and the primary issues to be resolved are economic (Dinnar and Susskind 2019). As Simons (2013) noted, an entrepreneurial venture utilizing a market logic “might solve a social problem—but if it’s profitable and doesn’t fix the problem, that’s okay, too.” Negotiators with a bounded mentality are therefore more likely to constrain their solutions to those that maximize economic outcomes, rather than find solutions where economic outcomes are minimized or even ignored.

At the other extreme, negotiators take on an unbounded mentality. In this case, there is not a single, shared, dominant institutional logic at work. A negotiator’s actions may be shaped by priorities related to family, autonomy, societal values, or religion, or even to a desire to engage in antisocial behavior (Foo, Vissa, and Wu 2020; Guidant Financial 2021). At this extreme, a negotiator’s attention will be focused on the issues most relevant to the logic (if they can be surfaced). Because the market logic is less likely to be dominant in these situations, negotiators are more likely to prioritize noneconomic issues, allowing greater opportunity for creative solutions unconnected to past practice. Notably, according to Foo, Vissa, and Wu (2020), entrepreneurs in emerging economies are more likely to rely on nonmarket logics, which is reflected in frugal resource mobilization activities (Agarwal et al. 2020).

All entrepreneurial negotiations fall somewhere along this continuum. In negotiations with venture capitalists (VCs) in the tech industry, for example, reliance on the market logic (where VCs seek an exit within a limited time horizon) results in entrepreneurial negotiations that are more similar to traditional corporate negotiations, where negotiators may be encouraged to downplay noneconomic issues (Dinnar and Susskind 2019) and focus on maximizing economic outcomes (e.g., valuation of a firm). At the other extreme, entrepreneurial negotiations within a family business or a cooperative undertaking, or involving social entrepreneurs, will not replicate corporate negotiations. In this case, negotiators are more apt to prioritize idiosyncratic issues that do not conform to economic rationality (Simons 2013), where utility is not determined by profit maximation. That is, many social entrepreneurship ventures are not motivated by a return on investment, but rather a return to society (Lingane and Olsen 2004), wherein the goal is to be a net addition to society at large rather than find any economic returns. For example, Veronica Khosa started Tateni Home Care Services to teach family members and friends of those stricken with HIV/Aids in South Africa to treat the ailing patient at home, rather than struggle through an overburdened and ineffective health care system (Bornstein 2004). Making a return on investment was not a consideration for Khosa—all that mattered was helping those suffering from a deadly disease in a situation in which sick individuals were being sent home without any guidance (and were frequently just locked in a room to die). With social entrepreneurship, negotiators are more interested in “mak[ing] a difference for someone in particular” (Martin and Osberg 2015: 115) as opposed to providing general value, by focusing on the direct social benefit. For many, the allure of a family‐owned business is that “no outsider can force you to value earnings growth more highly than, say, providing family members with employment, or can insist that you pursue opportunities that clash with your beliefs” (Baron and Lachenauer 2021: 118). Thus, an entrepreneur’s logic(s) may differ greatly depending upon the setting.

In order to train students to negotiate as or with entrepreneurs, we must teach them critical entrepreneurship concepts and motivations—how to think, feel, and act like an entrepreneur (Kuratko, Fisher, and Audretsch 2020). Beyond this, however, it is important to consider that, even in bounded negotiations (such as VC backed, fast‐growth ventures), many entrepreneurs will still prioritize nonmarket logics more than negotiators in traditional corporate settings. For example, Wayne McVicker, in discussing the ramp‐up of his firm Neoforma, noted the tension between maximizing profit and building a desirable corporate culture (McVicker 2005).

It is important to clarify that the continuum presented above is actually negotiator‐specific (i.e., the negotiator shapes the framing). Each negotiator enters the negotiation with expectations about how it should proceed, relying upon the logic most salient to him or her. Certain situations are more likely to cue a specific logic (e.g., corporate negotiations are very likely to cue the market logic). However, within entrepreneurial negotiations, the parties may use different logics, and it is therefore important to consider the scope and sequence of the negotiation before even reaching the negotiation table (see Lax and Sebenius 2003). For example, entrepreneurs negotiating to sell their products to Walmart may rely on a market logic (the same logic employed by Walmart’s negotiator), or they may alternately prioritize maximizing social welfare—that is, different entrepreneurs may use different logics, depending upon their own biases or preferences. It is important to note that the ways in which many entrepreneurs interpret the world (i.e., nonmarket logics) may make it difficult to understand why their negotiation counterparts are prioritizing financial outcomes. When faced with making a decision on the introduction of a new product, a social entrepreneur may view it as unethical and irresponsible to even consider a decision that will increase profits at the potential risk of harming the customer, outright rejecting the premise that profit maximization should enter into a discussion (Chen, Treviño, and Humphrey 2020). In this case, negotiation pedagogy cannot rely solely on teaching students how to reconcile different interests (which is the common frame within traditional business school negotiation classes). Rather, we must acknowledge that many entrepreneurs have a fundamentally different frame for interpreting the world and negotiation‐specific information. The recognition of a mismatch between logics, the need for perspective‐taking that enables one to interpret different logics, and the ability to negotiate in situations with different logics are all fundamental issues that must be addressed in entrepreneurial negotiation pedagogy.

Because entrepreneurs may utilize both bounded and unbounded logics throughout their ventures (or, at a minimum, negotiate with others using different logics), entrepreneurial negotiation pedagogy requires capabilities that are developed in a traditional negotiation class (i.e., the prioritization of the market logic) as well as capabilities unique to unbounded entrepreneurial negotiations (i.e., the prioritization of nonmarket logics). In the following section, we identify the learning objectives that should be addressed within an entrepreneurial negotiation class and the pedagogical solutions for meeting such objectives.

Based upon our experiences teaching entrepreneurial negotiation, as well as our assessment of current entrepreneurial pedagogy, we introduce a course design that identifies the learning objectives we see as particularly beneficial to entrepreneurship students (see Table One). Specifically, unlike a typical negotiation course that focuses solely on more generalized negotiation lessons such as distributive versus integrative negotiation, anchoring, and the complexity of negotiating with multiple parties, we expand the focus to package together both general negotiation skills and those issues that are unique to entrepreneurs. First, our course design highlights how the learning objectives must encompass the skills needed in both bounded and unbounded negotiations in order to provide comprehensive coverage of negotiation competencies. Second, our course design highlights the importance of temporally situating the learning objectives in terms of the unique negotiation stages that entrepreneurs experience. (Please see the Appendix  One for a description of all role‐plays, simulations, and cases and where they may be found.)

As noted above, a successful entrepreneurial negotiation class must teach students how to succeed in both bounded and unbounded contexts. We suggest that instructors begin their course by using the logics perspective as the organizing frame for designing and delivering course content. In the first class, a version of the bounded model is presented to students, including a representation of Figure One. Students are introduced to the idea that entrepreneurial negotiators may hold different logics, and thus negotiating with an entrepreneur requires an awareness and acknowledgment of the logic that takes precedence for that entrepreneur.

Beginning with the left side of the figure, we introduce the idea of bounded negotiations through the perspective of the market logic. For students with business backgrounds, or those who have preconceived ideas about how business negotiations proceed, the market logic is both intuitive and logical. As we move to the right side of the figure, however, we loosen the constraints, suggesting that entrepreneurial negotiations may exist in a less bounded (or unbounded) situation, where other logics may hold precedence. Starting with the socio‐value logic, we introduce students to social entrepreneurship, a concept usually familiar to students and one that many are interested in pursuing. In this context, we highlight social entrepreneurs’ valuation of social good over profit maximization, directly contrasting the market and socio‐value logics. Moving next to the idealism logic, we highlight how the ideals and values of founders can permeate an organization, leading to negotiation outcomes that correspond to such ideals and values even when they negatively impact firm profitability (see Clifford and Dixon 2006). Next, we shift to the idea of the action logic, whereby entrepreneurs are driven to proceed, act, or accomplish work (Frese 2009). With this logic, entrepreneurs are expected to prioritize continual movement forward, with the idea that an impasse is a negative (undesirable) outcome. We then present the autonomy/control logics, where entrepreneurs are driven primarily by maintaining control over their own lives or organizations and thus are prioritizing autonomy (see Ryff 2019). Next, we discuss identity, community, and kinship logics, whereby entrepreneurs are motivated by promoting or maintaining connection with collectives such as their family or community (see Foo, Vissa, and Wu 2020). We conclude by having the students reflect upon their own personal motivations, and how each of these logics may (or may not) be relevant to their ventures.

Once students have learned this framework, instructors can reinforce it through the learning objectives outlined in Table One. Critical to this process is embedding the learning objectives in engaged activity. Through our extensive review of the existing pedagogy, we have selected the cases, exercises, and simulations that effectively address the most critical learning objectives. Because students have different learning styles (Kolb 1984), it is important to develop a curriculum that utilizes different types of teaching methods, such as role‐play exercises, online simulations, and case discussions.

Importantly, across each of the weeks, the bounded versus unbounded mentality is revisited regularly. At the end of each week, students are presented with a “bounded versus unbounded” lesson for the topic, summarizing how the skill developed that week can be interpreted and/or applied differently depending upon the mentalities of the negotiator and counterpart.

As shown in Table One, these learning objectives can be broken up into four sections. First, Section 1 contains several of the core learning objectives embedded in any traditional business negotiation course. These core concepts include eliciting information and doing research, differentiating between interests (why you want something) and positions (concrete and explicit statements about what you want), trading off issues that are less important to you for those that are more important (logrolling), negotiating creative agreements when there is a negative settlement zone, and deal structuring more generally.

As an example of the autonomy/control logic versus market logic discussed in the introductory section, consider the Ocean Business Services role‐playing exercise. Students either play the role of the founder of a company who needs capital to scale his or her business or a venture capitalist who is looking to acquire equity in the founder’s start‐up. Although it appears that it is a two‐issue negotiation (amount of capital and level of equity), the negotiators soon find that they both agree on the amount of capital needed for the business, providing an opportunity for the students to practice distributive exchanges and to learn the effectiveness of strategies such as anchoring to maximize their return. This exercise also serves to highlight how the same outcome (maximizing equity) can be driven by different logics. From the perspective of the venture capitalist, maximizing equity provides a route for producing higher returns, thus reflecting the market logic that dominates this negotiator’s perspective. From the perspective of the founder, however, giving up equity means the loss of control over the business. The exercise’s preparatory material makes clear that one of the founder’s motivations for starting a business is the desire for decision‐making autonomy. To the founder, giving up equity means losing some control—and could even be seen as “having a boss”—which goes against the founder’s autonomy/control logic. Thus, this negotiation serves both to deliver upon specific learning objectives (distributive strategies and effective anchoring) and to highlight differences in negotiators’ logics.

Sections 2 to 4 focus on negotiation challenges unique to entrepreneurs. The second section focuses on the important considerations for entrepreneurs when they are in the early stages of their ventures. For example, founders must negotiate equity splits, pitch their ideas in ways that can secure external funding (e.g., Shark Tank‐type VC settings), and negotiate both tangible (financial) and intangible (relational) issues when developing joint ventures. Here, we highlight Smart Health. Similar to the Ocean Business Services negotiation, this is a negotiation between a venture capital firm and the founder of a business. However, whereas Ocean Business Services was an introductory negotiation focused primarily on a single issue, Smart Health is a multi‐issue negotiation with the added twist that the founder is driven by a socio‐value logic. In this role‐playing exercise, the founder is cognizant of opportunities to maximize investment in his business. However, despite the venture capital firms’ focus on the development of the highest‐profit products, the founder clearly wants to prioritize social value over pure market growth.

The third section focuses on the negotiation challenges entrepreneurs face when they have passed the inception phase of their venture. Entrepreneurs in this stage must not only be adept at ensuring that their organizational culture stays intact, but must also be able to manage complex, multi‐party negotiations. Moreover, it is important for them to understand how to manage conflict—both within their organization and externally with their key partners. This may include negotiating in the face of unrealistic expectations from the other side. Finally, entrepreneurs can learn how to manage biases that may be implicit in their decision‐making processes.

Here, we present the Lovely Braids role‐playing exercise as an example of meeting multiple learning objectives within a single negotiation. Lovely Braids is a three‐party negotiation taking place at a hair salon between a part‐time employee, the manager, and the director of operations for the multiple salons that comprise this small business. At its core, this negotiation serves as an introduction to multiparty negotiations, an important transition for all negotiation students. Moreover, this negotiation teaches lessons about handling conflict between a manager and a subordinate, coupled with cross‐level power dynamics (represented by an emergent third party who is the director of operations). The conflict also highlights a common challenge faced by entrepreneurial firms looking to scale: when attempting to standardize uncodified organizational practices, there is often a mismatch between managers’ and subordinates’ expectations. Importantly, the conflict often stems from the mismatch between the market logic held by the manager and the identity logic held by the subordinate. Because this negotiation takes place in an African American hair salon, it also provides an opportunity for the instructor to highlight issues related to diversity and inclusion, particularly through a discussion of the Creating a Respectful and Open World for Natural Hair (CROWN) Act.

In addition to role‐playing exercises, we suggest utilizing the case‐based teaching method to provide greater depth and nuance in understanding and meeting the core learning objectives. One case that we use—Sarah Talley and Frey Farms Produce: Negotiating with Wal‐Mart—follows a produce entrepreneur trying to establish a long‐term relationship with Wal‐Mart. This case allows entrepreneurship students to consider effective nonmarket strategies such as highlighting identity logics when negotiating with powerful players who are driven primarily by market logics.

Our fourth and final set of learning objectives includes several topics that are prevalent within entrepreneurial contexts, such as managing exits and understanding the dynamics of negotiating within a family business. As an example, consider the Zephyr negotiation, in which one party is looking to sell a luxury car business that the other party wants to purchase. Business exits are a common consideration for entrepreneurs, as many entrepreneurs are focused at the outset on getting to the exit through a sale or an IPO. Thus, giving students hands‐on experience in this context is important. Moreover, this negotiation directly highlights the differences in logics (market versus kinship) employed by the two parties, with most of the failed negotiations stemming from a lack of recognition of these differences.

Following each negotiation, we encourage instructors to engage in multiple feedback paths and provide opportunities for self‐reflection and growth. We have students record some (or all) of their negotiations and share these notes with their classmates. For each recorded negotiation, before formal feedback from the class, we require students to choose (at random) another negotiation in the class and provide feedback to the negotiators using structured questions we provide that are related to the week’s learning objective. This activity primes the students to think of these issues prior to the structured feedback session with the instructor.

We also encourage students to reflect upon the negotiation from an alternate perspective, relying on a different logic. That is, students are asked to provide a short (one page) reevaluation of the negotiation after we have changed the negotiator’s underlying logic. They are asked to reconsider how the negotiation would be structured and to identify the tactics that may be employed, given this shift in logic. This helps reinforce the learning objectives for the week, as well as encourage perspective taking by students so that they may be more flexible and insightful negotiators.

The primary goal of these self‐reflection and growth opportunities is to enable students to move from tacit to explicit knowledge (see Freeman 1991). Most students fail to reflect upon why their negotiations have succeeded or failed. Yet, they already have developed negotiation styles based upon their past interactions (particularly the more experienced negotiators among them). Encouraging the students to make their strategies and motivations explicit helps them to make sense of why they undertook certain actions. When coupled with other students’ feedback, such activity shows them how to take corrective action (i.e., “do X instead of Y”) or reinforces positive behaviors.

We note that although our list of negotiation exercises is finite, new educational content is continuously being developed. When preparing any entrepreneurship‐based content, it is possible to highlight the entrepreneurial perspective in the background information for the exercise, as well as in debrief. This will allow the instructor to add new, timely content to their class while simultaneously highlighting the nonmarket logics that matter to the entrepreneur.

Entrepreneurial education has failed to teach students the negotiation skills that are critical to becoming successful entrepreneurs. This article provides a framework, a set of learning objectives, and a syllabus that can be used to develop entrepreneurship‐specific negotiation content and begin to fill this gap in entrepreneurial education.

The pedagogy of entrepreneurial education is still in its infancy; the content available to instructors interested in developing an entrepreneurial negotiation class is limited. Three types of teaching materials are needed. First, more content that highlights the importance of the motivations of entrepreneurs and their nonmarket logics and strategies is essential for the development of entrepreneurial negotiation pedagogy.

Second, we need more content that examines entrepreneurship outside of fast‐growth, VC‐backed technology companies. Although this area is important (and particularly relevant to many MBAs), it does not reflect the majority of new ventures being created (Guidant Financial 2021). This means that we need to develop educational content focused on industries outside of the technology space. Relatedly, there needs to be an increased educational focus on family businesses, nonprofits, and social entrepreneurship, further highlighting the nonmarket logics employed by many within those spaces.

Third, we believe that entrepreneurial negotiation education must include more exercises focused on negotiations between traditional corporations and entrepreneurial ventures. Although many students who take an entrepreneurial negotiation class will not found their own new venture, they will likely engage in negotiations with new ventures throughout their career. With most educational content assuming that the market logic is held by all participants, students will be unprepared for real‐life negotiations.

Finally, although this article is focused on developing entrepreneurial negotiation pedagogy, we believe that applying the institutional logics perspective to teaching negotiation may be valuable in traditional negotiation classes in addition to entrepreneurial negotiation classes. Thus, we encourage instructors who teach traditional negotiation classes to think deeply about the context within which students are embedded (or will transfer into) and consider integrating these ideas more broadly into their classes.