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Thursday, February 16, 2006

Interrogation as a special case of negotiation (or vice versa)

Some years ago I read an account of interrogation techniques used to garner signed "confessions", primarily in P.O.W. camps, which alienate the confessor from his peers. I forget the source and the specifics but the process amounts to gaining a series of small concessions and a signed statement at the end of each of 10-100 day-long sessions. At each step, the statement is signed in sort-of-good faith in that it doesn't contain any assertions that are terribly offensive to the subject and, gee, dinner and some rest is looking pretty good right about now... The author's claim was that, over time and with a developing of rapport with the interrogator, the subject will end up in a situation where, through the making of serial concessions, his viewpoint has actually shifted, perhaps not to one of complete agreement with his captor, but at least to the extent where his signed statements - each of which he more or less agrees with (or at, doesn't disagree with enough to loudly decry them to his peers) - are grossly offensive to his peers who, upon being shown what he's signed will shun him. Presumably once this has occurred, recruitment of the subject and thereby obtaining his betrayal of his peers through the disclosure of confidential information is much simplified.

This is not a post about interrogation though, it's about negotiating price with the buyer of a startup. I couldn't help thinking about the incremental concessions element of the interrogation procedure when I read Lorne Groe's description of how he proceeds when confronted with a CEO who wishes to price on the basis of discounted cash flows:
When we meet I suggest that we make any changes (I put your projections back to their original form for the meeting) in real-time using my laptop and a projector. During the meeting I attack your projections, assumption by assumption, making small, subtle changes, as I know which areas to hit and how far to hit them. But it's most important that I get you to agree with the changes (since most CEOs know that the projections are BS this isn't that hard). You can't see the impact because Excel isn't recalculating the formulas. If you inquire about this strange phenomena, I simply say that there is something wrong with my Excel, and we'll I have to recalculate all the formulas at the end. When that happens, F9 is not your friend.
It's a little brutal, but there's a certain poetic justice to it in that it is only effective against CEOs whose spiel isn't informed by reality but is, instead, built on figures pulled out of the air.