“The most critical thing in Negotiating is to get inside your opponent’s head and figure out what he really wants”.
Negotiating Topics: Preparation, Decision-Maker, Questions, Listen, Dynamics, Issues, 1st Offer, Bluff, Conceding, Alternatives, Time, Get Help.
Preparing for the Negotiating .
- Their Business. Review and understand thoroughly the business of the other party by reviewing their website, press releases, articles written about their company, and so forth. Plus do a Google & LinkedIn search.
- Their Bio. Review the background of the person you are negotiating with by reviewing any Bio on the company’s site, the person’s LinkedIn profile, and by doing a Web search
- History. Review what similar deals have been completed by the other side, and the terms.
- Understanding the Competitors offerings & pricings of the party you are negotiating with.
1. Identify who is the “real” Decision-maker. You want to understand what kind of authority the other person that you are negotiating with has. Are they authorized to make decisions & concessions? then s/he is the ultimate decision-maker.
2. Ask the “right” Questions. Don’t be afraid to ask the other party many questions. The answers can be informative in the Negotiating . Depending on the type of deal, you could ask:
- Is this the best pricing or offer you can give me?
- What assurances do I get that your product or solution will actually work for me?
- How do your products / services compare to your competitors?
- What else can you throw in to the deal without cost to us?
- What is your desired timing for the deal?
- How does our deal benefit you?
- We want to avoid unreasonable forms of contracts or unreasonable lawyers on your end. How do we ensure that?
3. Listen carefully to understand the other Party’s issues & point of view. Some of the worst negotiators I have seen are the ones who do all the talking, seeming to want to control the conversation and expound endlessly on the merits of their position. The best negotiators tend to be the ones who truly listen to the other side, understand their key issues (& hot buttons), then formulate an appropriate response. Try to gain an understanding about what is important to the other side, what limitations they may have, and where they may have flexibility. Strongly refrain from talking too much.
4. Keep the Negotiating professional & courteous. Nobody really wants to do business with a difficult or abusive personality. After all, even after the Negotiating are concluded, you may want to do business with this person again, or the transaction may require on-going involvement with the rep of the other side. Establishing a good long-term relationship should be one of the goals in the negotiation. A collaborative, positive tone in Negotiating is more likely to result in progress to a closing.
5. Understand the Deal Dynamics is crucial in any negotiation. So be prepared to determine the following:
- Who has the Leverage in the negotiation? Is the other side going to be getting a significant payment from you? If so, the leverage will tend to be on your side. Who wants the deal more?
- What Timing constraints is the other side under? What Alternatives does the other side have?
6. Never accept the first Offer. If you’re selling your business and receive an offer, consider countering at a higher price or better terms (even if there are no other offers). If you don’t counter, the other party will be concerned that they offered too much and may end up with buyer’s remorse and attempt to get out of the deal. Most buyers expect that there will be a counter offer – as they expect that their first offer will likely be rejected. Most buyers will leave room in their first offer to go up by at least 5%-15% in price, depending on the situation. Counter-offers + some back-and-forth negotiation will most likely lead to the two parties being satisfied that they struck the best deal they could for each of them, and thus be more committed to closing the deal.
7. Prepare a Letter of Intent or Term Sheet to reflect your deal. It is often helpful, at the appropriate time, to draft a Letter of Intent or Term Sheet to reflect your view of the key terms of a deal. This can help expedite getting to an agreement, save on legal costs, & continue the momentum for a deal. It is more informal than a definitive Agreement and easier to reach agreement on. For example, Letters of Intent are often prepared and agreed to in connection with Mergers & Acquisitions [M&A].
8. Be prepared to “Bluff” and be ready to walk away, if the terms of the deal aren’t up to your liking. This is easier said than done, but is sometimes critical to get to an end game. Know before you start what your “target” or “walk-away” price is. Be prepared with market data to back up why your price is reasonable, and if you are confronted with an ultimatum that you absolutely can’t live with, be prepared to walk away.
9. Avoid the “bad” strategy of “Negotiating by Continually Conceding.” After 9 months conceding and $1M in Legal fees, the company still didn’t have a deal. I then took over the negotiations and told the other company that we were no longer interested in the terms they had been proposing, and we were walking away unless the price & deal terms got much better for us. By that time, the buyer itself had expended a great deal of legal fees & management time to get to a deal, and they panicked at the prospect of losing the deal. So they conceded to virtually every point I wanted, including an increased purchase price, and we closed the deal in 45 days. So the lesson was that continually conceding points (while not getting anything in return) can lead to the exact opposite of what you are hoping for. If you are conceding a point, make sure to try and get something in return.
10. Don’t fixate on the Deal in front of you and ignore Alternatives. In many situations, you want to have competitive alternatives. This can enhance your negotiating position and allow you to make the “best” decision as to how to proceed. For example, if you are selling your company, the best thing you can do is to have several potential bidders at the table. You want to avoid being locked up into exclusive negotiations with one bidder until you have reached a meeting of the minds as to the best price & terms available. Similarly, if you are looking to buy a product, lease office space, or acquire a loan for your business, you will often be better off if you have alternatives—and the other party knows it has viable competitors. By negotiating simultaneously with two or more parties, you can often obtain better pricing or better contractual terms.
11. Don’t get “hung-up” on one Issue. You want to avoid getting stuck on a seemingly impossible issue. Sometimes it’s best to suggest that Issue be set-aside for the moment and both parties move on to make progress on other issues. A creative solution may come to you later outside the heat of the negotiation.
12. Keep in mind that Time is the enemy of many deals. You have to understand that the longer a deal takes to get completed, the more likely that something will occur to de-rail it. So be prompt at responding, get your Lawyer to turn documents around quickly, and keep the deal momentum moving. However, that doesn’t mean you should rush thru negotiations and make concessions that you don’t need to make. Understand when time is on your side and when time could be your real enemy.
13. You always Draft the first Version of the final Agreement is a fundamental principle. This lets you frame how the deal will be structured, implement key points that you want that haven’t been discussed, and gets momentum on your side. The other party will be reluctant to make extensive changes to your document (unless it is absurdly one sided), and therefore you will have already won part of the battle by starting off with your “preferred” terms. Having said that, you want to avoid starting the negotiations with an agreement that the other side will never agree to. Balance is key here.
14. Get the help of the best Advisors & Lawyers. If it’s a big or complicated deal, you want real expertise on your side – helping you in the negotiations and drafting the Contract. For example, if you are selling your company, it is usually worth the money to hire an Investment Banker who knows your industry and has relationships with prospective buyers. If you are doing an M&A transaction, you want a lawyer that has done 50-100 M&A deals (and not a General Business lawyer). These advisors don’t come cheap, but are worth it if you get the right one.
Comments: Do you know any other Tactics to use during Negotiations?
from Forbes Zine 9/16 enhanced by Peter/CXO Wiz4.biz
For more Info, click on Negotiating.