Sometimes it feels like life is just a series of negotiations - from big deals you are negotiating in your business, to salary negotiations, to office politics with coworkers, to negotiating over responsibilities with your spouse, even getting the kids to do chores.
It can feel like we are always negotiating something somewhere. Negotiating is one of those skills that can always use more sharpening no matter how long you have been at it.
Last month at New Orleans Entrepreneur Week, we caught a great presentation on negotiating, The King of the Compromise: Distinguished Negotiation Strategies for Entrepreneurs. The presentation was full of great tips on business negotiations.
We know from conversations with our clients that negotiations big and large are taking up more and more of the work week for many people. We contacted the presenters Benjamin Castoriano and Everett Fineran from Frilot Forward to ask if we could share their presentation with our readers.
Frilot Forward is a program by the Frilot L.L.C. law firm, that provides customized legal services to entrepreneurs and early-stage businesses. Frilot Forward pairs entrepreneurs with lawyers who uniquely share and relate to the entrepreneurial mindset.
Every person has different styles and every situation is different. Ben and Everett started their presentation off by emphasizing that there are many ways to reach a great result in a negotiation.
One of the top keys to good negotiating is to be aware of the top negotiating principles and review them before you enter into a negotiation. They compare this mental exercise to warming up before sports.
The first key to successful outcomes is often to avoid negotiating until you truly believe it is possible for an agreement to be reached. Castoriano also pointed out that unsuccessful negotiations can have psychological consequences on the parties.
Another key to good negotiating is understanding the "Three Es" of Negotiation. While most business negotiations might seem economic, Castoriano points out that often a party has interests far beyond economic interests.
Emotions often run high in negotiations and are often about more than the negotiations itself. Understanding the emotions at play on both sides can help you get better results. For example, company founders may have very strong emotional attachments to aspects of their business. Castoriano says there is even a name for that "Founder's Syndrome." Understanding who each party is trying to please can be used to your advantage in negotiations.
The extrinsic can include, according to Castoriano, the setting of the negotiation, social considerations, and how third parties will view the negotiation or face-saving. One tip that he gives to help with extrinsic factors is to use confidentiality agreements and provisions to lower or eliminate external face-saving concerns.
The psychology of negotiations - avoiding emotional traps
- Anchoring - Anchoring is a tactic that relies on the tendency of people to rely on the first piece of information offered (the "anchor") when making decisions. This initial piece of information biases our expectations subconsciously.
- Loss Aversion - Losses are felt more painfully than equivalent gains are relished. Create panic about not doing the deal. Use visual depictions of what could be lost by not doing anything.
- Reactive Devaluation - Don’t automatically assume that any deal is a bad deal, be a methodical in your evaluation.
- Entrepreneurial Idealism or Founders Syndrome - Many founders have difficulty making changes in the operations of their company or over-value their position in negotiating. One tip in avoiding this trap is to refer to THE company NOT YOUR company.
Competitive vs Cooperative Negotiation - tactics to recognize or employ when you enter negotiations.
There are two types of negotiating strategies you can choose to employ - cooperative or competitive. Competitive negotiating strategy is a style where you strive to get as much info as possible out of the other parties and simultaneously give up as little as possible from your side. While this approach sounds great at first glance, you often lose the ability for synergies.
A cooperative negotiating strategy is a style where you work together to make the pie bigger and then figure out how to split the pie between the interested parties. This approach often leads to bigger wins says Castoriano.
Competitive Negotiation Tactics:
Good Cop/Bad Cop - If you encounter a good cop/bad cop tactic in negotiating two options to counter are to respond in a similar fashion or to raise the issue and then ask to negotiate with just one of them.
Nibbling or Fait Accompli - These are last-minute ways for one party to get what he/she wants. This happens when one party asks for new terms after it seems like the negotiation has been settled. With this tactic, one party is hoping that the other will not want to get into another debate or that final edits will not be challenged. Combat this tactic by having everyone agree up front that this will not be used.
- The Red Herring - In this tactic, one party pretends to want something that he/she doesn’t really want. He/she also knows that the other party cannot give that thing . Since they can’t give it to them. The party then says he/she at least wants "x" which is what he/she wanted all along anyway. The best way to combat this is with lots of research and preparation to know what the other party truly wants before you walk into the negotiation.
- The Walk-Out - This tactic involves one party storming out of a negotiation or issuing ultimatums or exploding offers. Two ways you can combat this tactic are to respond by pretending that it didn't happen which allows the other party to save face. Or you can respond to exploding offers with a "why" to get the other party to explain. Either way, don't be weak or aggressive back. Just let them save face and start moving the negotiation forward on another note.
- Saying you don't have authority - This tactic is used when one party wants to get the other to show all of their cards without showing their own. They will have one person enter the negotiation to do the fact finding and then have another person come back once they know what is truly negotiable. To combat this tactic, start by confirming up front that each party has the authority to finalize the deal without going to anyone else and if not, insist that someone who does be involved.
- Withdrawing the Offer - Some parties use this tactic to create psychological effect of increasing value of what is offered. You can respond to it by agreeing up front that parties will not withdraw offers, while this is not technically legally enforceable according to Fineran, it does set a stage for a better outcome.
Cooperative Negotiation Tactics:
1. Separate the people from the problem
2. Focus on interests, not positions
3. Invent options for mutual gain
4. Insist on objective criteria
5. Know your BATNA - a BATNA is the best alternative to a negotiated agreement. Fineran says you should know both yours and your opponent's.
- Write down your BATNA. This will keep it fresh in your mind and will give it “life”
- There is a natural psychological tendency to want to do a deal with the person you are physically looking at. Having a written BATNA will keep you focused on your business priorities.
- Take any steps to keep your BATNA as “real” and “living” as the deal in front of you.
The first offer:
While most research will tell you not to make the first offer because to the anchoring effect, there are sometimes advantages to making the first offer:
- Anchoring the deal to your number.
- You get the first chance to frame the issues covered in the negotiation.
- A reasonable offer can speed up a negotiation.
However, Fineran says that you should not make the first offer unless you feel like you have all of the information. If there are gaps in your knowledge you should try to get a first offer out of the other party.
If you feel like you do have enough information to make an offer, be sure that you stay optimistic in your terms but not outlandish.
How to make concessions:
As the negotiation moves forward, how you handle concessions is important.
- Always explain why you change a position and accept an offer that is different that your first offer.
- When you concede something - ask for something in return to keep the tables balanced.
- Never negotiate or bid against yourself wait for the other party to ask for something.
Other negotiating tips:
- Start with the less controversial points to create a positive dynamic between the two parties
- Voluntarily reveal small negative things along the way, the fact that you don't have to do this creates a sense of trust once you start on the bigger points.
- Never forget the power of silence. If a long pause goes on and on, the other side is likely to fill it and offer more information.
- Don’t negotiate impromptu. Also, don't informalize the process. Have a formal agenda.
- Location matters in negotiations, consider the best setting for your discussions.
- Include contractual provisions that tie you to the parties in the future - has a waterfall effect because now you are tied together and have joint goals.
- As much as possible, do not discuss deal points with your partners in front of the other side. Discuss privately, even if it means frequent breaks from the negotiation.
- Never attend a negotiation alone if the other side will have multiple reps. This is sometimes referred to as negotiation bullying. Psychologically it is better to have even representation.
- Get preliminary agreement in writing in a email etc to solidify the final agreement with no surprises. Use the terms outlined in this preliminary agreement to draft your final documents.