Co-Opetition - Adam M. Brandenburger [30]
What if you’re in a Texas Shoot-Out and you don’t have a good idea of how your partner perceives the venture? In this case, you really can’t predict what he’ll do. You could go back to the original approach: if you value the venture at $100 million, state a price of $50 million and thereby guarantee yourself $50 million regardless of whether your partner buys or sells. But there’s another option to consider. Encourage your partner to shoot first. That way, you get the choice of whether to buy or sell. If your partner states a price below $50 million, buy; if he states a price above $50 million, sell. Either way, you net more than $50 million. If your partner happens to hit $50 million right on, you’re no worse off than if you go first and state a price of $50 million. So in a case where you don’t feel confident in your assessment of your partner’s valuation, try to go second: there’s no downside and a potential upside.
In the Texas Shoot-Out, the right strategy all depends on your perceptions. That’s true in every game. Perceptions are always part of the picture. Sometimes they have a starring role.
Artistic Differences Midway through production of a certain big-budget action thriller, the director and the multimillion-dollar star had some “artistic differences.” The director quit, and the studio scrambled to come up with a replacement. None of the obvious candidates was available, and with the production schedule slipping badly, the studio became desperate. It was prepared to spend whatever it took to hire a new director.
Meanwhile, the film’s writer had proposed himself for the director’s job. He’d never directed a major feature film before, but he had directed several episodes of a TV series. Most important, the star seemed to like him. The studio decided it was willing to take a chance on the writer as director. In fact, it didn’t really see another option.
The writer didn’t know that the production company had already tried to hire every director on the block. He was desperate to move into directing. He instructed his agent to get the best deal he could from the studio, but not to lose the deal over salary. If push came to shove, the writer was prepared to do the job for nothing.
The agent made the first move. He said his client would do the job for $300,000. The studio’s lawyer had been instructed to see if he could hire the writer for $750,000 and was authorized to go up to $2 million. He was very pleasantly surprised by the agent’s low figure but kept a poker face. Although he would have been delighted to agree to $300,000 immediately, he didn’t want the agent to realize that he’d asked for too little and feel bad. He countered with $200,000, and after a little back-and-forth, the two parties settled at $250,000.
The agent was pleased to have landed the directing job for his client, and at a salary close to his initial offer. He had no idea how much money he’d left on the table. The studio’s lawyer reported back that he’d saved the studio a half million, almost enough to justify his salary in one swoop. So everyone was happy?
Not quite. The studio head was happy that the movie was back on track. But when he was told how little the writer would be getting, he was horrified. He knew that once the star discovered what the studio was paying for a replacement director, the star would protest that he was being surrounded by second-rate talent. The studio head ordered that the directing fee be raised to $750,000. He also made clear that a certain lawyer wasn’t going to be allowed to handle this kind of deal in the future. When the writer heard about his new fee, he was naturally thrilled; but he also decided his agent had been incompetent, and he fired him.
The story had a happy ending for the star, the studio, and the writer. Not so for