Richard Harroch Contributor
All Business Contributor Group
1. Listen and understand the other party’s issues and 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 and hot buttons, and 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. Refrain from talking too much.
2. Be prepared. Being prepared entails a whole host of things you may need to do, such as:
4. Understand the deal dynamics. Understanding the deal dynamics is crucial in any negotiation. So be prepared to determine the following:
6. Be prepared to “play poker” and be ready to walk away. You must be able to play poker with the other side, and be able 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 price or walkaway 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.
7. Avoid the bad strategy of “negotiating by continually conceding.” Ten years ago, a company I was involved with was desperate to sell itself. The CEO was convinced that a certain prospective buyer was the ideal acquirer and he wanted to do the deal with them. But the buyer kept coming up with new unreasonable demands, and the CEO kept giving into those demands in the hopes of getting to a closing. So what did the buyer do? It learned that it could just keep asking for more unreasonable things, and that the CEO would always eventually cave.
Nine months and $1 million in legal fees later, the company still didn’t have a deal. I then took over the negotiations and told the buyer that we were no longer interested in the terms they had been proposing, and we were walking away unless the price and deal terms got much better for us. By that time, the buyer itself had expended a great deal of legal fees and 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.
8. 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 derail 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 through 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.
9. 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 engaging in a process to sell 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 and 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.
10. Don’t get hung up on one issue. You want to avoid getting stuck on a seemingly intractable issue. Sometimes it’s best to suggest that an 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.
11. Identify who the real decision-maker is. You want to understand what kind of authority the other person that you are negotiating with has. Is he or she the ultimate decision-maker? I recently went through a long and fruitless set of negotiations with a person who kept telling me that he didn’t have the authority to agree to a number of points we were negotiating. He could tell me “no” to my requests but didn’t have the ability to tell me “yes.” My solution (because I had leverage) was that I ended the conversation and said that for us to make any progress, I needed to negotiate with the person who was authorized to make decisions and concessions.
12. Never accept the first offer. It’s often a mistake to accept the first offer from the other side. For example, if you are selling your home and you 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. And buyers expect that there will be a counter 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 and some back-and-forth negotiation will most likely lead to the two parties being satisfied that they struck the best deal they could, and thus be more committed to closing the deal.
13. Ask the right questions. Don’t be afraid to ask the other party many questions. The answers can be informative for the negotiations. Depending on the type of deal, you could ask:
Copyright © by Richard D. Harroch. All Rights Reserved. Many thanks to Richard Smith, an M&A partner at Orrick, Herrington & Sutfcliffe, for his helpful input into this article.
Matthew Bradshaw, CPSM, CPSD, C.P.M. is the Director of Programs for ISM-Houston, Inc.