As a follow up to our recent blog post, The Power of “No,” in which we pointed out the importance of timing in the context of Facebook’s purchase of Instagram, a subsequent report about the deal also brings to light the importance of creating alternatives as a way to maximize your leverage.
The report claims Instagram CEO, Kevin Systrom “used a pending funding round with Sequoia and Greylock to pressure Twitter to make an offer” but then “did not sign the offer, said to be in the range of ‘hundreds of millions of dollars.’ With the financing round still pending and the Twitter offer in his pocket,” he then “went to Zuckerberg (Facebook’s CEO) to see about a better deal.”
This is a textbook example of improving your leverage by taking concrete steps to create alternatives and turning them into practical possibilities. By having an offer from Twitter on the table, Systrom was in a much stronger bargaining position with Zuckerberg, who obviously didn’t want the app to wind up in the hands of a key competitor. I wonder if Systrom took the Facebook offer back to Twitter to give them a chance to beat it?