Reaching a mutually acceptable outcome
Whether it’s securing investment or making sales, negotiation is a fundamental part of running a business. But it’s a process that many founders find difficult, fearing that they are unable to negotiate forcefully enough. In fact, negotiation isn't about being tough, but about two parties striving towards an outcome that is mutually acceptable to both, as the experiences of these entrepreneurs illustrate.
Be confident in your own research
When Steve Jacob, CEO of Fabrik Invest, spied a property of six apartments and a commercial unit for sale he learned that offers of between £450,000 and £500,000 had been made. He offered £350,000, which he felt reflected the true value of the property based on his own research and preparation. “Although their response was one of amusement, I insisted that’s what it was worth to me,” he says.
The property was taken off the market, but went back on a year later, receiving a similar range of offers of £450,000 to £500,000. Keen to see the property sold, the receiver asked the property agent who he could recommend as the most trusted buyer to honor their commitments and complete in a timely fashion. The agent chose Jacob and his offer of £350,000.
He says: “I knew my numbers and stuck to them, I wasn’t fazed by the fact that there were higher offers, or by my initial offer being laughed at. My technical research was solid and I knew what the building was worth.”
Jacob spent £150,000 developing the unit into four apartments, and along with the six original apartments, achieved a gross development value of £1 million.
Let the other party do the talking
When one of wedding photographer Kathy Baerg’s clients asked her for a discount on her services she explained to him that as her travel expenses were already included in the price, he was saving more than the discount he’d requested. “He was happy with that information and accepted my price,” says Baerg. “It didn't change anything for me regarding my price, but it gave more value to my client.”
The key to good negotiation, she says, is learning to listen and let the counterparty have their say without being interrupted. “This allows you to gather all the information that you need to weaken their argument,” she says. “If you avoid interrupting them, and can hold your nerve, some clients start to backpedal and don't really want that discount any more.”
Level the playing field
Paul Armstrong CEO of tech consultancy HERE/FORTH recalls his negotiations with the U.K. National Lottery operator Camelot’s procurement team and being hammered on price. “The key phrase I used that stopped the discounting in its tracks was, ‘Are you the sort of person that needs to push to 10% or can you live with 7.5%?’,” he says. “You can change the numbers to suit your needs, but it's a great way of not giving away too much at the beginning of the relationship, while also adding some much-needed parity when people are negotiating that leaves both sides feeling OK.”
Be prepared to walk away
In the early days of AI research company AMPLYFI the team was contracted by one of the Big Four to support a major client project. In addition to being paid, they were promised opportunities to meet with them to showcase their work and capabilities.
CEO Chris Ganje said: “Close to completing all of the project deliverables, our partner suddenly indicated that no introductions would be made and that they would be presenting all of the results themselves. They did, however, promise to give us due recognition and credit.”
They had a choice; capitulate and complete the work, or walk away and sour what was a critical relationship for the brand at that time. Ganje says: “I told them that having face time with the client was non-negotiable and that we would walk away if they reneged on our original agreement. Our partner backtracked and the outcome turned out positive for all parties.”
Build relationships for success
Negotiating with your bank over a commercial mortgage agreement can be a daunting prospect unless you’ve gone into the meeting with a solid grasp of your business plans and financial requirements.
Peter Thomas, owner and chairman of PMC Speakers, successfully negotiated a 100% mortgage with his bank to purchase the company’s first factory. He says: “We were well prepared with a clear business plan for the year that showed we had done our homework and knew our financial requirements. This is essential and applies to any negotiation. It also shows how vital relationships are to business success, and not only with your customers and suppliers. We cultivated a strong relationship with our commercial bank manager and have applied this philosophy to all the key businesses that we relied on for our success.”
Five Top Negotiation Tips for Entrepreneurs
Chris Atkins, chief negotiating officer at negotiation consultancy The Gap Partnership, has five tips for entrepreneurial businesses and their teams.
Set and internally align on your objectives.
What does good look like and, more important, what’s a bad deal that we need to walk away from? “Unless the negotiating team understands the parameters of negotiation, they are likely to fail,” he says. “Ensure that everyone understands and agrees on the desired outcome before the negotiation starts.”
Objectively understand risk in your contract
We all see risk in different ways and as a result, people react to low risk or low importance issues, while allowing higher impact subjects to drift. Reviewing all potential risks using objective criteria will allow greater emphasis on critical points and enable risk mitigation planning as part of the negotiations.
Understand your power
The real power between the two parties is usually misperceived, either undervalued or over-assessed, and both can lead to dangerous judgments in negotiation. “Power gives you choices and time spent understanding and influencing the power balance is always time well spent,” says Atkins. “Entrepreneurial businesses often assume they have less power than their larger counterparty, but when analyzed objectively this is often not the case.”
Show strong leadership
Often the success or failure of a negotiation sits with relatively junior members of the team, and failure to listen to the fears of the team could result in a predictable danger being overlooked. If they are unsure, or unconvinced about the negotiation plan then they will not be able to negotiate with confidence, with disastrous results.
Flex to suit the negotiation circumstances.
“No two negotiations are the same,” says Atkins. “It is vital to the success of the negotiation to consider all possibilities and conclusions, and to understand the commercial environment and the organization or people with whom we are negotiating, then modify our style to optimize results.”
