Tuesday, April 11, 2017

Introducing Abbott Square Part 6: Two Prioritization Techniques We Used to Negotiate a Great Lease

This is the sixth in a series of posts on the Santa Cruz Museum of Art & History (MAH)'s development of Abbott Square, a new creative community plaza in downtown Santa Cruz.

Imagine this situation: you’re about to negotiate a long-term partnership for a massive expansion project. Money is on the table. Values are on the table. Everything’s on the table. How do you decide what to prioritize?

18 months ago, I entered lease negotiations with real estate developer, John McEnery IV, who our board had selected to develop the food component of Abbott Square. John would run Abbott Square Market, a multi-vendor food and drink business, adjacent to the plaza, adjacent to the museum. John would manage the food, the MAH would manage the museum, and we would co-manage the plaza. That’s all we knew going into negotiations.

There were lots of big unresolved questions. How much money would we each bring to the table? How much would John pay for rent and how should we structure it? Who would manage construction? Who would steer the design? Who would pick the food vendors? Who would be responsible for what in the plaza? When would the market be open and under what conditions?

I was overwhelmed and under-confident. I needed a way to focus. I needed a way to get direction from our board and staff on what was inviolate and what was negotiable. I needed the board’s leadership without having all of them involved in every little deal point.

So we did two exercises—with board and staff, separately—to develop our priorities. I suspect these exercises might be useful in any complicated project. It is in that spirit that I share them with you.


Nonprofit folk are familiar with this 2x2 grid, with mission fulfillment on one axis and financial sustainability on the other. Nonprofits use this grid to analyze program performance and to explore ways to shift UP towards higher mission fulfillment and/or RIGHT towards higher profitability.

In the case of the Abbott Square Market negotiation, we used this matrix to get a basic sense of our goals. We'd been leasing the site of the future Market as commercial office space for years: solidly profitable, with no mission impact. That (red) dot was our starting point.

We gave board and staff members this diagram and asked them: when the Abbott Square project is complete, where do you want this dot to go? Do you want us to make the same amount of money but increase the mission impact? Would you sacrifice some money for greater mission impact? Would you sacrifice some mission potential for more money?

They drew their dots, building consensus around the blue dot shown. The project had to increase mission impact. And it had to do as well--or better--than the office building financially.

So we structured the rent in a “base with kicker” format. The museum is guaranteed a monthly base rent that is stable and comparable to what we were receiving when the space was leased for offices. But if the Market does better than a certain threshold, we get more money - a kicker - above the base. That's the dotted line potential for the revenue to increase.


In the months leading up to the lease negotiation, trustees and staff voiced lots of different priorities for the project. Some focused on the need for Abbott Square to be as welcoming and inclusive as the MAH. Others cared about it being clean. Still others wanted local food vendors. And so on.

We couldn’t succeed in negotiations if everything was a top priority. There had to be some things we could trade to get other things that mattered more.

So I wrote up ten distinct priorities we’d heard throughout the process and invited board and staff members to each pick their top three.

We tabulated all the top priorities by votes to generate a ranked list. While trustees and staff had different top priorities, the cumulative priorities were clear. We were able to split the original ten priorities into five “must-haves” and five non-essential preferences. You can see them in this chart. The must-haves on the left, and the negotiable non-essentials on the right.

Unsurprisingly, the five must-haves were the ones that hewed closest to the MAH mission. But they were not the ones people talked about the most in the months leading up to this exercise. Once we had to prioritize, some sexy, much-discussed ideas—like celebrating local food—gave way to core MAH values—like celebrating cultural diversity.

Focusing on five priorities gave me focus and freedom. I could focus on what was important, and I had the freedom to pursue and protect those important elements in whatever way I felt best. In many ways, the five “non-essentials” were even more helpful than the must-haves, because I knew I could deal them away as needed.

In the end, we signed a contract that answered all the big questions about how to manage the project. Any contract would have done that. But the answers hewed to the priorities articulated through these two exercises. No matter how small the deal point, I knew I could use these big priorities as a guiding light. And board and staff knew that I was acting on their collective wisdom and our shared vision for success.

What techniques have you used to set priorities for a big, complicated negotiation?

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