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BONUS for Final Assignment

Turn in the following to DROPBOX (by the deadline in the assignment due date sheet):

– Provide your summary of the case situation (5 – 6 sentences)

– What are the major issues in the case? List 2 – 3 issues.

– Explain 3 “best practices” or ideas about good negotiation that would be helpful for the

negotiators in the case.

** Be sure to label the sections in the paper you turn in and also explain the best practices you

select for part three of the assignment.

** Bonus credit will be awarded is from 5 – 20 points based on completeness of information

provided.

Deadline to earn BONUS Points: Post to DROPBOX (near mid-term – see CONTENT

Assignment Due Dates for specific deadline.)

Can Friendship Stand the Heat? Negotiating Funding
for a New Restaurant

Case

Author: Matthew Cronin

Online Pub Date: January 02, 2019 | Original Pub. Date: 2019

Subject: Small Business/Entrepreneurship, Talent Management, Negotiation

Level: Intermediate | Type: Experience case | Length: 2282 words

Copyright: © Matthew Cronin 2019

Organization: | Organization size:

Region: Northern America | State:

Industry: Food and beverage service activities

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: http://dx.doi.org/10.4135/9781526475367 | Online ISBN: 9781526475367

© Matthew Cronin 2019

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion
or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein
shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use
only within your university, and cannot be forwarded outside the university or used for other commercial
purposes. 2019 SAGE Publications Ltd. All Rights Reserved.

This content may only be distributed for use within Middle Tennessee State Univers.
http://dx.doi.org/10.4135/9781526475367

SAGE
© Matthew Cronin 2019

SAGE Business Cases

Page 2 of 7
Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

Abstract

Stephen Marltonali is on the verge of securing funding for his newest restaurant venture, Fresh.
He just won the pop-up restaurant challenge funded by famed restauranteur and innovator Jose
Guerrez’s reality TV show Pop-up Start-up, and with this exposure and Guerrez’s connections,
Marltonali could make the comeback he has so desperately wanted since he was forced to close
his last restaurant to fight a custody battle for his son. Yet the decision to accept Guerrez’s fund-
ing comes with a serious personal cost: he will need to cut his partner and best friend out of the
deal. This case uses this common entrepreneurial situation to illustrate the utility of systematic
decision making rubrics in negotiation, even for highly emotional and personal decisions. Stu-
dents must identify the appropriate tangible and intangible interests of the parties involved, and
then reconcile these, as well as differing perspectives, into the PrOACT decision framework so
that they can select a maximally effective deal. They must also revise their initial framework in
response to new information that is revealed in the second part of the case. Ultimately, this is
a case about situational construal and clear decision making in the context of entrepreneurial
negotiations with close associates.

Case

Learning Outcomes

Students should use this case to:

• understand how to apply systematic decision frameworks to a negotiation problem, even one that is
personal and sensitive, in order to select courses of action;

• be able to shift perspectives between parties in order to form the most complete understanding of a
negotiation situation, even when sympathies may squarely rest with some parties over the others;

• understand how preparation (planning and research) is crucial for the successful management of the
negotiation process; and

• understand how negotiators must continue to manage the deals they negotiate, even after hands
have been shaken.

Introduction

“If you want to make a deal with me, you gotta get rid of him,” Jose said to Stephen as he looked across the
table at Ed, Stephen’s business partner. Stephen Marltonali’s work was amazing; Stephen was clearly gifted.
Not only did 100% of the people who came to the pop-up like the food, but Stephen was able to do this in
spite of Ed’s bungling and incompetence.

The negotiation with Stephen and Ed was the crescendo in Jose’s reality TV show Pop-up Start-up. Jose
gives hopefuls a short amount of time to make a pop-up restaurant, then invites people from the restaurant
industry to try out the food and say what they think. If all goes well, Jose negotiates a deal.

Part 1

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© Matthew Cronin 2019

SAGE Business Cases

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Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

Jose’s Deal

Jose Guerrez is a food industry magnate who provides start-up funds for innovative restaurants. Stephen
Marltonali and Ed Fageaux (pronounced Fa – joe) are the creators of a restaurant concept called Fresh—a
restaurant specializing in raw/natural food preparation (e.g., crudité and steak tartare). They have also been
best friends for the past 30 years.

Jose was putting Stephen in a tough spot, basically asking the man to cut his best friend out of a potentially
lucrative restaurant deal. But this was business. And, as Jose told Stephen at the outset, Ed needed to prove
himself. Ed was a high school history teacher with no restaurant experience. He was a nice guy, sure, but
Jose had seen this before: all these mid-life crisis types who had never worked in a restaurant and all of a
sudden wanted to live the entrepreneurial dream of owning one.

“Can I say something?” Ed asked.

“No,” Jose said. “You had your chance. Restaurants are serious business, and I don’t waste time with people
who think anyone can run a restaurant.”

“Please, with all due respect, I…” Ed tried to continue but Jose cut him off.

“Let’s review, shall we? Stephen shows me his menu and it’s fabulous. I agree to let him try his food in my
pop-up restaurant, and you agree to make it so that he can do that. He agrees to manage the kitchen, and
you say you will take care of the finances and the front of the house. But it turns out you can do neither.

“It takes you forever to do the food cost averages, and this is even with Stephen’s help. These are essential
for accurate revenue estimations. When I came to look at the menu food costs, you had numbers that cannot
be right. Rather than throw you out, I just let it go.

“Then I saw how you were a hindrance in the kitchen as Stephen was trying to prepare the food. I knew it
meant you would be a hindrance when it comes to actually managing the wait staff. So I brought some of my
people in to help. I saved your hide, but I didn’t make a big deal of this either.

“Then when we opened the pop-up, it became clear you know absolutely nothing about management. You
have no plan for table service, table sharing, or plate sharing. In fact, you can’t even clear a table properly.
This whole operation would have been a disaster no matter how good the food was if I had to rely on you for
anything.

“About the only good decision I have seen you make is to shave that stupid braided goatee off your chin.”
Jose picked up his appointment book and spat, “If I bought the book of Stephen, this is the page of Ed,” as
he tore out a page, crumpled it, and threw it away into the darkness.

The three men sat in stony silence.

All of what Jose had said was true, and they knew it. Ed had messed up pretty much everything he was asked
to do. Ed had burned mushrooms, he almost ruined an expensive piece of fish by storing it improperly, and he
cut tomatoes at a glacial pace. Ed had come to meet Jose with a braided goatee that was about three inches
long which Jose had commented on at that first meeting. Ed had gotten the hint and shaved it off.

“So Stephen, are you putting your friend before a business deal?” Jose finally asked.

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© Matthew Cronin 2019

SAGE Business Cases

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Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

Ed’s Deal

“We need a minute,” Stephen said to Jose after receiving the ultimatum. Stephen and Ed got up from the
table and walked into the next room.

Before Stephen could say anything, Ed spoke: “Steve, we’ve been friends for 30 years. And this guy is a tool.
What does he know about me or how we work together? Look, I know I have a lot to learn. But it is not like
this is rocket science. I can get better. Not for nothing but that was my marinade recipe that everyone loved
on the hangar steak. It was also my design for the logo. We can find managers and waiters. Ultimately what
you need in me is someone you can trust. Can you trust him? You know I am there when you need to be
mellowed out. Is he going to do that for you? You know the answer to that.”

Finally, Stephen spoke. “I don’t see how he is going to give me money with you as part of this deal.”

Ed said, “So fire me, take the deal, and then rehire me for equity.”

“That does not sound like a sensible strategy. Besides I can’t just give away equity,” Stephen replied.

“Then forget this guy,” Ed said. “All the local news outlets have covered our story. Jose is gonna put this
episode on TV, I am sure of it. So we have more press material than we know what to do with. That can be
the promotional tool for our business. We won this challenge, everyone liked the food, and he wants to give
you money. If he wants to, other people will as well.”

Ed was a long-time friend and had stood by Stephen through the good times and the bad for the past 30
years. Stephen could get frustrated easily, and Ed always had a cool head. Many times, Ed had supported
Stephen through tough personal struggles, especially during his divorce. When Stephen called Ed and asked
him to drop everything and spend two weeks to help in this competition, Ed said “yes,” no questions asked.
Even though he had a family with four kids and responsibilities at the high school where he had been teaching
for close to 15 years, Ed found a way.

Stephen’s Deal

Stephen knew he had a tough choice. Stephen could run the restaurant with or without Ed, and 10% was not
a big piece of the pie for Ed, so what the hell did Jose care? Was this some power play? At the same time,
Ed really did fail spectacularly. Stephen had wondered if bringing Ed along was a mistake.

The strain was mounting for Stephen. He knew Jose was very influential in the restaurant world, so would
he get another chance like this? What’s more, as a man in his mid-forties, Stephen was already viewed with
skepticism by many investors who see restaurant start-ups as a younger person’s game.

In addition, he had his son to think about. Stephen’s most important goal in life was to be a good father. It was
why he left his old restaurant in the first place. If he hadn’t, he would never have been able to get custody of
him after his divorce. Stephen knew he needed to be able to provide for his son, but that was not the main
concern here. Stephen wanted his son to see him as he really was, a gifted chef with the drive and passion
to manage and run a restaurant that he, himself, conceived. That was the kind of role model he wanted to be.
Of course, what kind of role model would he be if he threw his best friend under the bus for money?

Discussion Questions Part 1

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© Matthew Cronin 2019

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Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

This is a very personal and important decision for Stephen. Nonetheless, it can be useful to apply a systematic
decision framework for what to do. One of the better ones is Hammond, Keeny and Raffia’s (2015) PrOACT
decision framework. It can be used to help make the choice for Stephen by thinking through the following
steps.

1. What is the best way to characterize this problem? Identify Jose’s, Ed’s, and Stephen’s
interests, and include the tangible and intangible.

2. Identify the situational constraints—the aspects of this situation that will not change, no
matter how the problem is framed.

3. List the objectives Stephen should seek to satisfy in this situation, given the way you have
framed the problem. The objectives should satisfy as many interests as possible, giving
precedence to Stephen’s.

4. What alternatives can you conceive for how the negotiation could play out? These are the
different courses of action Stephen might take. What are the consequences of each alter-
native? You should think about these with respect to anything and anyone Stephen cares
about. Keep speculation to a minimum.

5. Make a table of alternatives by consequences and think about the tradeoffs. Reconcile
which alternative is optimal through a systematic analysis of the costs and benefits of
each tradeoff.

6. There are a great many resources for PrOACT on the Internet; feel free to use these
frameworks to help structure the decision framework that you will use to guide Stephen.

Additional Discussion Questions

1. Is there an ethical component to this decision? If so, how would you characterize this?
2. What does Stephen “owe” Ed? What does Ed “owe” Stephen?
3. Suppose you decide to let Ed go. How will you manage that discussion?
4. Suppose you decide to keep Ed. What will you demand of him so that this does not hap-

pen next time?

Part 2: The Way Things Went

For the initial purpose of the exercise, there were a few liberties taken in retelling this case. For this latter half,
what actually happened needs to be clarified.

In actuality, Ed never needed a moment with Stephen. As the men sat in silence after Jose’s harsh dismissal
of Ed, it was Ed who spoke up and said, “You know what. I don’t need to be part of this deal. Ant, we’ve been
friends for a long time. I know you can do this, and I don’t want to get in the way of that. I’m out.”

There was also another potential investor, Jim Felicity, who is a celebrity chef. Jim had been silent for most of
Jose’s diatribe about Ed. But, after Ed’s graceful exit, Jim had to speak: “The fact that you would do that—that
you would give up your chance to see Stephen succeed—it speaks volumes.” Even Jose was moved by Ed’s
selflessness.

Closing the Deal

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© Matthew Cronin 2019

SAGE Business Cases

Page 6 of 7
Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

Both Jose and Jim liked the concept of Fresh, and both made offers to Stephen. Here is what they were:

• Jim puts in USD 500,000 for 85% ownership of the business, Stephen gets a salary of USD 45,000
per year, and after Jim makes his money back, Stephen can buy back ownership percentage points
up to 50% at a cost of USD 10,000 per point.

• Jose puts in USD 500,000 for 85% ownership of the business, Stephen gets a salary of USD 62,000
per year, plus is entitled to 50% of the growth in the valuation of the company should it be sold. After
Jose makes his money back, Stephen can buy back ownership percentage points up to 50% at a
cost of USD 15,000 per point.

Stephen also had to consider that Jim had a smaller reputation and empire in the restaurant world, but Jose
was clearly more Machiavellian.

Discussion Questions Part 2

1. How should the two deals be integrated into your decision framework? Does the frame-
work need to be adjusted?

2. What should Stephen do and why?
3. Why would Ed simply back out of this deal? Note that while the conversation between Ed

and Stephen in the section “Ed’s Deal” never took place, it nonetheless is an accurate
account of the issues that were on both Ed’s and Stephen’s minds.

Here are three options which you should consider.

• Ed is just a nice and noble guy.
• Ed realized that this was somewhat like an ultimatum game—if he rejects the

deal, everyone gets nothing.
• Ed never really wanted to be in the restaurant business in the first place.

Review the first part of the case to find evidence for and against each conjecture. Consid-
er how your answer to this question might cause further revision to your decision scheme.

References
Hammond, J. S., Keeney, R. L., & Raiffa, H. (2015). Smart choices: A practical guide to making better deci-
sions. Cambridge, MA: Harvard Business Review Press.
http://dx.doi.org/10.4135/9781526475367

SAGE
© Matthew Cronin 2019

SAGE Business Cases

Page 7 of 7
Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant

  • Can Friendship Stand the Heat? Negotiating Funding for a New Restaurant
    • Case
      • Abstract