Buying companies, arranging partnerships, selling contracts – each of these situations represents a ‘deal’ where value is negotiated.
Buying companies, arranging partnerships, selling contracts – each of these situations represents a ‘deal’ where value is negotiated. Being able to negotiate deals effectively should be as high on the business agenda for SMEs, as they are for the world’s largest corporations, but it’s a skill that is often ignored and as a consequence, poorly executed.
Negotiation experts Huthwaite International conducted the largest body of directly observed research into live commercial and contract negotiations, which reveals that most people, in most places, negotiate badly most of the time - and SMEs aren’t exempt. It’s all about creating a safe negotiating environment from the outset, which will then pave the way for SMEs today to ensure every business deal becomes a success. Here Neil Clothier, senior negotiations expert at Huthwaite, provides his top tips for SMEs aiming for negotiation success.
- Only negotiate if you really have to
If you can sell your buyer an unchanged solution at the full, quoted price, why negotiate? However, in major business contracts, this is rare. Usually the buyer will signal the start of a negotiation by saying something like, "I'd like to do business with you if." Average negotiators will have already given things away to achieve this position; the skilled will not.
- Don’t give something away for free
Effective negotiation involves movement by both parties towards an outcome. Avoid 'giving' something without 'getting' something in return. When you need to move from any stated position, make a conditional offer such as "I might be able to move on X, if you are prepared to move on Y." This is particularly important towards the end.
The seductive sight of a deal can tempt the unwary into unilateral concessions.
- Win win is not fifty-fifty
We're all encouraged to aim for a win/win in business, but when negotiations go two ways, the deal has to become about achieving the best possible deal for yourself, whilst still allowing for a win on the other side. To do this effectively, you must first understand what matters the most to those your negotiating with, allowing you to build in leverage and play to your counterparts aims and priorities as part of the deal.
- Feel powerful to get the results
Many sellers feel that power in negotiation lies with the buyer. However, having worked with buyers, I can tell you that they often say the opposite. They need the service being sold and can seldom afford the deal to fall through either. Power is a perception. If you feel powerful, you are powerful, and you behave accordingly. If you feel weak, the reverse applies. If power is about perception and feelings, you can manage and control it.
Commandment number five explains how skilled negotiators generate and manage their feelings of power.
- Fail to prepare, prepare to fail
Skilled negotiators do a number of things before embarking on deal making.
- They develop a credible fallback that describes what they will do if this particular negotiation fails entirely.
- They identify as many negotiable issues as possible, prioritise them and develop a negotiable range for each
- They calculate the cost of concessions for each negotiable issue to avoid impulsive and expensive mistakes in the heat of battle.
- They repeat the whole process, but this time trying to think as the other party.
- They spend time identifying 'common ground' and plan how to use it in the negotiation.
Thus they manage their feelings of power and identify the possible overlaps, trades and levers to give themselves the maximum flexibility to bargain.
- Identify your leverage
A lever is something that costs you less than the value the other party places upon it. It can therefore be traded for something that you value. Comparing the priorities on each negotiable issue identifies those levers. Linking issues and obeying the Second Commandment makes sure that you use them.
- Questions are the answer, not logic
This applies in every aspect of life, as any parent will tell you! Skilled negotiators know it too. They don't browbeat the other party or use long chains of logical arguments. They have only one or two key reasons for any particular position they adopt. They do however prepare lots of smart questions to probe the other side's stance. Their objective is to create doubt in the validity of that stance, the first stage in persuasion. They accomplish the second stage and creating movement by offering flexible trades and using their levers.
- Look for added value in every stage
A good deal is a creative deal. It creates additional value to whatever the two parties each bring to the table. Ideally, that value is created at the expense of a third party. For example, the competition or the taxman! When planning, skilled negotiators generate a wide range of creative options in considering how each negotiable issue might be settled. They look 'outside the deal' for extra value.
- Learn how to behave, particularly under pressure
Preparing and planning are fine, but we all face impromptu negotiations with no time for either. When this happens, all we have to fall back on are our personal negotiating skills. The stereotypical image of the negotiator as a hard-faced and intractable character is incorrect. Skilled negotiators have wide behavioural repertoires and the flexibility to match their behaviour to suit the situation. Our programmes help develop this behavioural flexibility.
- Never settle prematurely
However tempting, avoid settling issues as you go, particularly the minor ones. The risk is that you discard your levers and the negotiation comes down to a single-issue confrontation with no other issues available to break the deadlock. You need to be able to juggle all the issues so that you can bring any of them back into play at any time before the deal is concluded, Until the end, settle Issues provisionally.
And of course, like any good set of ten commandments, there is an eleventh.
- If it’s not good enough, walk away
Obvious, isn't it? But not so obvious when the deal has been in the sales forecast for months, it seems tantalisingly close and all that's required to close it is a few final concessions. Because they're clear about their 'worst' position and have a credible fall back, skilled negotiators recognise a bad deal and aren't afraid to walk away from it.