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.
A Guide To Succeeding In Business Negotiations
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.
This is also known as the “don’t be an asshole rule.” Nobody really wants to do business with a difficult or abusive personality. After all, even after the negotiations are concluded, you may want to do business with this person again, or the transaction may require ongoing involvement with the representative of the other side. Establishing a good long-term relationship should be one of the goals in the negotiation. A collaborative, positive tone in negotiations is more likely to result in progress to a closing.
15 Tactics For Successful Business Negotiations
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.
- Review and understand thoroughly the business of the other party by reviewing their website, their press releases, articles written about their company, and so forth. A thorough Google and LinkedIn search is advisable here.
- Review the background of the person you are negotiating with by reviewing any bio on the company’s site, the person’s LinkedIn profile, and by doing a Web search
- Review what similar deals have been completed by the other side, and the terms thereof. For public companies, some of their prior agreements may be filed with the SEC.
3. Keep the negotiations professional and courteous. This is also known as the “don’t be an asshole rule.” Nobody really wants to do business with a difficult or abusive personality. After all, even after the negotiations are concluded, you may want to do business with this person again, or the transaction may require ongoing involvement with the representative of the other side. Establishing a good long-term relationship should be one of the goals in the negotiation. A collaborative, positive tone in negotiations is more likely to result in progress to a closing.
5. Always draft the first version of the agreement. An absolutely fundamental principle of almost any negotiation is that you (or your lawyers) should prepare the first draft of the proposed contract. This lets you frame how the deal should be structured, implement key points that you want that haven’t been discussed, and gets momentum on your side. The other party will be reluctant to make extensive changes to your document (unless it is absurdly one sided), and therefore you will have already won part of the battle by starting off with your preferred terms. Having said that, you want to avoid starting the negotiations with an agreement that the other side will never agree to. Balance is key here.
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 800 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.
Identify the Issues
Technical and logistical problems are often the most common issues we might face. Anything that is an issue to our counterpart is also an issue that will influence our business arrangement. We need to look at the partnership from their perspective. Depending on our research and knowledge of the other side in relation to their business disposition, we may be better equipped to address their issues.
With everything else in place, we can now consider the business proposals that will best address the goals and objectives of both sides. We might choose to either present these proposals in person, or submit them in writing prior to the talks.
A draft business agreement proposal that is presented beforehand, is a common practice used by many negotiators. It permits us the opportunity to talk about the draft later. It shows the other side the type of transaction that we are leaning towards. It may also provide us with a tactical advantage. Should the other side accept the first draft in principle, then it might act as an anchor that the talks will revolve around, and set the negotiation framework.
Be cautious that the first draft doesn’t anchor us too much, as negotiations are an evolutionary and not a stagnant process. By keeping the big picture in the forefront of our business vision, we don’t become short-sighted later on down the road. Be adaptable.
There are occasions where a first draft business proposal may appear as a sign of arrogance on our part. Each situation must be analysed to gage the opening moves. Also, if we insist on the terms of our first draft, our uncompromising attitude may result in a prolonged negotiation, or a failure to find agreement.