Co-Opetition - Adam M. Brandenburger [103]
However, there was another consideration. Just as important as communicating our confidence and optimism to the publisher was that the publisher communicate its commitment to us. We needed to know how hard the publisher planned to work at publicizing and marketing the book.
A royalty-only deal takes away a lot of the risk, especially downside risk, for a publisher. So a publisher who agrees to this type of contract says very little about its level of commitment. In contrast, a publisher who agrees to pay a large advance demonstrates confidence in the book. And when it comes to selling a book, confidence can be a self-fulfilling prophecy.
An advance doesn’t just convey the publisher’s confidence, it changes the publisher’s incentives. If the publisher pays a 30 percent royalty, but no advance, its incentive to market the book is diluted by 30 percent. Even the standard 15 percent royalty dilutes the publisher’s incentive. But if the publisher pays an advance, it keeps 100 percent of the revenue until the advance is earned out. This way, the publisher has all the right incentives to invest in marketing the book.
There’s one more reason why a large advance is good for authors. With a royalty-only deal, the acquiring editor has little personal credibility vested in the project. When the editor has paid a large advance to acquire a book, it’s in the editor’s interest to make sure that the publisher aggressively promotes the book. That way, the book is more likely to succeed, and the editor is less likely to find his judgment being called into question. A large advance is, in effect, a commitment to the authors that the book won’t fail for lack of effort on the publisher’s part. That’s why we, as authors, decided to focus on the advance, after all.
Similar considerations arise in salary negotiations between job candidates and recruiters. When a candidate agrees to bonus-driven compensation, he may be demonstrating that he’s prepared to bet on himself, but the recruiter isn’t taking much of a risk in return. If, on the other hand, the recruiter goes out on a limb and hires the candidate at a high base salary, he demonstrates a real commitment. Moreover, with his judgment now on the line, the recruiter has an incentive to see that the new hire works out. Because the new person’s success or failure reflects back on the recruiter, the recruiter will help the new hire get experience and opportunities, perhaps even help him get promoted. The recruiter becomes the new hire’s guardian angel.9
The message of this discussion is that betting on yourself is a display of confidence. So if you really can deliver the goods, bet on it.
Federal Express Should Pony Up Federal Express doesn’t make many mistakes. It delivers on its promise of “The World On Time.” More precisely, it delivers almost every time.
On those rare occasions when FedEx fails to deliver a package as promised, it offers the customer his money back. But when you consider the reason that people send packages via FedEx, that’s not much of a guarantee. Often the cost of the postage doesn’t come close to compensating someone for the consequences of a late package. FedEx would have a real guarantee if it were prepared to pony up a couple of hundred dollars to the customer whenever it fails to deliver.10
Almost all the time, FedEx does deliver packages as promised, so the cost of offering a more generous guarantee would be small. The real cost to FedEx comes from not offering a more generous guarantee. It’s a missed opportunity to emphasize the superiority of its service over the post office’s Express Mail.
Let’s try some suggestive arithmetic: Say Express Mail delivers on time 99 percent of the time, while FedEx has a 99.9 percent success rate. Expressed that way, the difference in performance doesn’t sound that big, less than 1 percent. But turn it around and look at failures rather