June 29, 2006
Negotiating Tactics
This has been a really big year for me in terms of negotiation. Specifically, I've negotiated a book packager, ownership, partnership, and multiple work-for-hire agreements.
When I negotiate, my goal is to get the best deal that I possibly can on terms that will motivate the entity that I'm working with for the short- and long-term. When I think about a negotiation, I see the following chart in my head:
Each party has their lower limit on how far they're willing to be pushed. If they go below that limit, it often means that they entered into a bad deal that will not motivate them, or they didn't really have a choice. The area in between the lower limits is where the potential for mutually-beneficial, voluntary exchange exists. Below are some of the best practices I've gathered from the mistakes I've made this year:
- Always Introduce Competition. Once you find a company or individual that seems like a good partner, it's tempting to be lazy and just start negotiating with them. It is critical to bring in their competitors so that:
- You know what your other options are.
- They know that they can't push on certain points.
- They have an added threat if they do not work with you.
- They have an added incentive to work quickly and not drag you along.
I used to think that I would hurt people's feelings if I did this, but I think that this is just how business works and most professionals understand this.
- Know Your F-You Point. Being able to walk away from a deal gives you extraordinary power.
- Build Trust By Being Honest. Trust is key. If you don't trust the other party, you will spend a lot more time negotiating and with legal fees. Furthermore, as a small business person, a contract only protects you so much. When you have a negative net worth, it is often too expensive to enforce a contract of someone who cheated you.
- Understand Everything. As a young entrepreneur, it is tempting to get stars in your eyes when you're working with a big company. When somebody says this is "typical in this industry", I think the worst thing you can say is, "ok". When you say that, you essentially bypass your own logic. It is important to understand ALL the parts of a deal and enter into an agreement that makes sense to you. The second you bypass your own logic is the second you open yourself up to being taken advantage of or entering into a deal that doesn't make sense. The devil is in the details!
Posted at June 29, 2006 12:44 PM
All fair and useful points. I can think of just two things....
A) Are you sure that your mental "chart" is labelled correctly
and....
B) I have found it very interesting to negotiate with friends that I have entered deals with. For example, one of my friends runs a design firm, my company used him. Negotiating with friends of price and terms is VERY different from standard negotiations. Any thoughts / advice on this one?
Great chart, Michael! What tool do you use to make those?
1. I use powerpoint :)
2. Thanks for pointing out the mislabeling. I fixed it.
3. Negotiating with Friends - You bring up a really good point here. Negotiating with friends, especially by bringing in competition, is a whole different ball game. In my experience, the most important aspects of building deep, long-term relationships in business or outside of it are:
- Common Vision
- Constant Communication
- Trust
- Dedication
I think that if you're upfront with people about what you intend to do and you explain why you're thinking that way, than the other person will either agree or at least disagree, but know where you're coming from. Granted there might be disagreement, but as long as you're sincere you can work through it and be the stronger for it.
That's my opinion. What do you think?
Great post. Indeed, honesty builds credibility, and in logic would somehow mean having good credit. This wins business.
Oh, I failed in my first venture did you know that? I'll give you the link of that article in my blog http://entreprestuff.blogspot.com/2006/06/failing-in-my-first-business-venture.html
I do agree that sincerity in negotiations is a key factor when negotiating with "friends", though in my experience the "constant communication" is even more important. Within this, the importance of agreeing a written agreement cannot be overstressed. Whether you are hacking out a partnership that turned sour, or paying for a service that you have employed a friend to do, if you haven't got a structured, agreed and signed framework (or contract) that you can both refer to, you are destined for nothing but awkwardness and dissatisfaction. If everything is laid out in writing BEFORE you embark on any kind of business, then you can really bypass any negotiations when it comes to payment. I think that is the key.
With friends, I think it affects your first two points in the following ways:
1. Always introduce competition – This is unlikely to be a good idea when dealing with friends. Your friendship is the magic ingredient that will spur people to give you a fair deal.
2. Know your F-You point. True, sometimes you will realise that just because you’re friends doesn’t mean you HAVE to do business, just be prepared to make the F-You point more of a “Thank you but no” point.
Dealing with friends has been the best and worst experience for me in business, knowing how to do it properly has been the hardest.
