Startup and Small Business Guide to Negotiation
It is 2020 and we have good news:
1) negotiation can improve your position and 2) everything that comes with a contract can be negotiated. Thrilling.
Not thrilling? Improving your position means giving yourself or your small business an edge. It means finding a better deal for your startup. It means maximizing precious resources.
Okay not thrilling, but useful. Useful – so as an entrepreneur you should understand how to effectively negotiate. This guide will lay out the fundamentals to consider as you plan your next venture, explore new office space, hire consultants, contemplate service agreements, and build your business.
What does a negotiation look like?
It is unlikely that your negotiation will take place like an episode of Dragon’s Den or (for those with a more sophisticated taste:) Pawn Stars. Today, it is more likely that your negotiation will take place over a series of phone calls, emails, or video conferences. While it may be devoid of drama, the fundamentals of most negotiations will remain consistent.
Negotiation fundamentals – the four pillars:
1) Preparation
If there is one thing to take away from this guide it is this: the key to being a successful negotiator is preparation. Preparation is the most important aspect of the entire process. While later stages may seem more stressful, this is the stage that you need to commit the greatest amount of thought and work towards. A skilled negotiator will have already done most of the heavy lifting by the time the negotiation itself begins.
“Preparation” checklist:
What are you trying to accomplish?
What are the key issues?
Have you reviewed the numbers and can you make sense of them?
Analyze your position:
What are your strengths?
What are your issues and weaknesses?
Analyze the other party’s position:
What are their strengths?
What are their issues and weaknesses?
Concessions:
What are you willing to concede?
What are you not willing to concede?
Concessions – empathetic perspective:
What does the other party want from you?
What is a reasonable assumption of how the other party will view your concessions?
Prepare your opening statement – see #3 (“Strong Start”)
“Best Alternative”:
Your Best Alternative will serve as your plan if negotiations break down and will help you avoid a deal that you do not want.
Carefully consider what your state of affairs will be if you fail to come to an agreement. What does that situation look like to you? (Be as realistic as possible.)
Do you have an idea of what the other party’s Best Alternative is?
What will the nature of your relationship with the other party be after the negotiation? (IE. Will you be working with them on an ongoing basis?) How hard a bargain should you drive?
2) Breaking Points
You are building your business, you are launching your startup. You are building bridges and doing deals. You are basically the Wolf of Wallstreet…
Remember your goal is to better the position for your business. However, not all deals were meant to be. We intuitively know that every party to a negotiation has a line in the sand that cannot be crossed without the deal collapsing. This is called a Breaking Point.
“Breaking Point” checklist:
Do not fully commit to your Breaking Point before you have thoughtfully considered the Preparation checklist under #1, above.
Prepare your Breaking point.
Seriously understand the Breaking Point of the other party.
Although you are prepared, keep in mind that it is possible for new information to come to light during the course of the negotiation that could impact your Breaking Point. (If this is the case, slow down and take the time you need to make an informed decision, given the new information.)
3) Strong Start
We are all familiar with a saying relating to a genie and its bottle (not the Christina Aguilera version). Identical logic applies to a negotiating party’s opening bid. Your opening bid should generally set the uppermost parameter of what you are willing to accept. Once your opening bid is out there, it is very difficult to backtrack or to move that particular goal post.
“Strong Start” checklist:
Be sure to have an opening statement prepared, which should include the following elements:
Open with your highest justifiable bid.
Communicate your message powerfully using unequivocal language.
Speak with intention.
Do not think while you are speaking during your opening statement.
Be clear and concise.
Use figures.
Remember that if you do not advocate for yourself as an entrepreneur, or for your business, nobody will.
4) Value of Concessions
Give a little, take a little. Bargain. Haggle. Marchander (acknowledging my massive bilingual audience).
You read #1. You are prepared. You understand detailed aspects of the deal that you are willing to shuffle, trade, and swap with the goal of agreeing to a mutually beneficial larger picture. Concessions mean compromise. It is important to note that a compromise in a negotiation can only occur if both parties move from their original positions.
“Value of Concessions” checklist:
Know what aspects of the deal you are willing to compromise on.
Know what aspects of the deal you are not willing to compromise on.
Communication:
Ask and listen effectively.
You need to know the priorities of the other party so that you can effectively trade concessions.
Continually search for variables that can be used as a concession.
Move in increasingly small steps.
Similarly to your “Strong Start”, do not be compelled to immediately start climbing down from your position. Gage the situation and consider not shying away from conceding slowly and at irregular intervals.
Tips for the negotiation itself:
Try to choose the forum that will give you an advantage (IE. If the other party is a smooth talker, then consider hashing things out via email. If you believe the opposite to be true, then negotiate in person or over the phone).
Find out in advance who will be (virtually) attending from the other party.
In formal negotiations it is best practice to determine in advance who will chair the meeting.
Set an agenda.
Consider a time limit for the meeting.
If the other party suggests figures, then check them and do not assume that they are correct.
Use silence to your advantage (IE. If you make an offer, then let your words hang for a few moments. Sometimes a little social discomfort can go a long way).
It is not rude to outline a weakness of the other party’s position.
If necessary repeat or rephrase crucial questions.
Listening is the key to success.
Take a break.
Even if you and the other party have made progress, remember that you do not have a done deal until you close so do not let up.
End of meeting:
If you have come to an agreement do not let the excitement divert your attention from summarizing your points. Write them down.
Discuss next steps. Who will be in charge of moving things forward?
After the negotiation:
A business lawyer’s plea: if your negotiations do not result in a written and signed document, you should commit them to a formal contract. One more time: put it in writing. If you need help with the agreement, hire a solicitor. Being proactive in this sense will save you money, time, and aggravation. You do not want to be on damage control trying to sort out the terms of an amorphous handshake (or fist bump) agreement.
If the other party drafts the written agreement that reflects the negotiation, you should consider hiring a lawyer to help you review and revise it. You will want to go over it very carefully to ensure that what you think you are signing up for and what you are actually signing up for are one and the same!
