Top ten tips for business negotiations
We all negotiate all the time, but we aren’t all born negotiators. Thankfully, “getting to yes” without giving more ground than necessary is a skill that can be developed if you know fundamental negotiation strategies and tactics. Whether the negotiations are with potential buyers for a business, suppliers about a new contract, or new hires about job responsibilities and compensation, every business owner or manager will benefit from improving their ability to negotiate.
This bulletin sets out practical strategies and tactics for achieving your goals in a negotiation. Strategies are about how you approach a negotiation and tactics will help you execute while pursuing your objectives.
- Determine your goals Be clear on what you want to accomplish, and distinguish short-term and long-term objectives. When is it more important to win the battle, or keep fighting the war? For instance, it may be worth settling litigation in order to speed up the sale process of a company.
- Know the rules of the game In order to win, you need to be ready to play the whole game. Negotiations always run for multiple rounds. There will be offers and concessions, so never lead with your best or final offer and do not be afraid to ask for more than you want. Don’t take “no” personally and do not be afraid to say “no” (it’s all part of the game). Every move you make sends signals for the rest of the negotiation; play chess, not checkers: think multiple moves ahead.
- Do your homework Do the legwork to justify your “asks”. For example, when looking to raise capital, know how similar companies are valued in order to anchor your valuation. Similarly, anticipate the other side’s objections and research whether there is a good reason for them to say no (or if they are really just expressing a preference).
- Make sure you have a Plan B Without a Plan B, you have no choice but to accept what the other side is offering. Develop options where you can. Your alternatives can be with reference to small components of the negotiation or the entire deal. The goal is leverage; if you have none you may need to manufacture some.
- Create deal tension Deal tension means a sense of urgency to complete negotiations or anxiety that the other party will walk away. The framework of the negotiation can create or alleviate deal tension. For example, an auction creates competitive tension amongst buyers. In contrast, a time-limited “no shop” exclusivity clause creates a window of opportunity for productive negotiation, with the expiry of exclusivity ratcheting up pressure by introducing the possibility of competing offers from third parties. Take the opportunity to negotiate the rules and process that will govern the substantive negotiation.
- Use time to your advantage Time can hurt and help you. Deadlines such as external commitments, cash-flow requirements, and year-end are all relevant, as is deal fatigue or taking time to obtain better advice. Recognize and put time pressure on the other side while masking your own time constraints.
- Be the aggressor when it helps There are times when you have to take a stand and push others hard even if that is not your natural negotiation style. Strategically deployed aggression can set the tone for a long negotiation in your favour. Poorly deployed or unsubstantiated aggression can erode goodwill or can be a clue that the other side’s position is fundamentally weak.
- Chip away and bundle A deal is only done when it is signed, if it isn’t, you can ask for more. Keep many issues of varying importance on the table in order to horse trade if needed. Chipping away at the other side not only extracts additional concessions but may also motivate them to conclude the deal.
- Appeal to higher authorities Sometimes the final decision makers are not in the room. On offence, it can be frustrating to negotiate something “final” only to learn it isn’t. On defence however, consulting a higher decision maker can help stall for time, defend against aggressors and frustrate efforts to chip away. Be deliberate about who you bring into the room, and be aware of who the other side has at the table and whether they have the authority to conclude the deal.
- Press the big red button Deadlocks happen, especially towards the end of a negotiation. Assess if they are deal breakers or just final problems to be solved. Sometimes you have to resort to drastic measures to resolve deadlocks or reframe stalled negotiations. Walk out. Reveal that you have other offers. Commence litigation. There are plenty of options. Pressing the big red button creates deal tension, adds time pressures, rebalances leverage and raises the profile of the deal to get real decision-makers to the table. Timing is everything. Press it too soon and leverage and goodwill can disappear, hold off and you can risk losing the negotiation.
Learn about and pay attention to the people involved in your negotiation. Carefully consider who you’re negotiating with, what is motivating him/her/them, and what external factors could impact negotiations.
Prepare your team for tactics they are likely to face. Your entire team has to be on the same page. Every team member has a role and unique motivations. Understand both. For example, the business team is likely to have a greater appetite for risk than legal, while the operational team may be concerned about overpromising what they can actually deliver. When on defence, ensure team members are not in a position to be manipulated by tactics such as “divide and conquer.” On offence, understand what motivates individuals and use that understanding to drive strategic wedges between their team members.
Ultimately, you will likely need to bundle the final few issues together to be resolved as a package. Doing so separates real business issues from immaterial disagreements or “technical points”. When you’re on defence, it also helps protect against chipping away.
The strategies and tactics set out above will help businesses better prepare for achieving optimal results through a negotiation. If your experience is limited or the stakes are high, experienced advisors can help guide you through the negotiation process and reach your goals. Please contact the authors if you have any questions about your upcoming negotiation.
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