The Sign Of AGood Negotiation Is When Both Parties End Up Equally Dissatisfied
Last week I was asked to give a masterclass in negotiation. I felt woefully underqualified to give this class, and I said as much to the class within the first 30 seconds. I’m about as far from an expert negotiator as Homer Simpson is but I guess as the ol’ saying goes, “those who can, do, those who cant, teach” or something…
The session was mostly focused on negotiation for term sheets, but I told the class that if they were looking for advice on negotiation tactics (which is frankly what most people are ever really interested in) there are a tonne of books and resources on the interwebz that could give them waaaay better advice than I ever could. However, I was happy to talk through some of my learnings about useful principles for negotiation over the last two decades, which I think are universal irrespective of your negotiation strategy or tactics. And while this advice verges on supremely boring, I do think these fundamentals are often underestimated and things like how to get someone to price anchor, are overestimated. So, expert negotiators, I suggest you move on to the next post in your reading list, but for those of you who haven’t yet negotiated with their partner who takes the rubbish out and who walks the dog, or a new rental lease, or bought a house or any other day to day event that involves some sort of negotiation, please do read on.
This is fairly self-explanatory but the basic tenet is that you should never ever go into a negotiation unprepared. Doing so is a recipe for getting an absolutely horrible outcome — either because the end result is not what you wanted or needed, or because it will end up taking considerably longer than it should or relationships will get bruised possibly irreparably without the right preparation. So, what do you actually need to prepare for, ahead of a negotiation?
One of the things one of my mentors told me early on in my career, was that if you don’t go into a negotiation with a clear view about what precisely you need and want to get out of negotiation, you will almost certainly not get it. If you haven’t defined up front to yourself what your core outcome is, which are your need to haves, and nice to haves then you will almost certainly lost track of them as you get caught up in the ‘deal fever’ — it’s a thing, trust me. For example, if you think about the example of taking investment into your startup is the core goal capital, maintaining decision control, is it expertise? Defining these for yourself upfront is helpful for then knowing which elements of a deal need to have the most attention and help you define what are your nice to haves, what are your need to haves.
Then in parallel, if you are not thinking hard about what the core goals of the other party are in advance, then you are only doing half the preparation. If you don’t think about this you will be negotiating blind, without any foresight over which elements are likely to be threshold issues for the other party. When you are able to think about these in advance you can plan for how you might reach a mutually agreeable outcome instead of being blindsided by them and having to consider on the spot which can draw out the negotiation, or worse force you to make a decision to quickly. A good negotiator will think hard about what the counter party will be looking to achieve in the negotiation, and work out where the frictions might lie and plan some strategies, compromises or solutions to accommodate these in advance.
The how refers to how are you planning to approach the negotiation. Passive aggressively? Thumping the table and storming out when you don’t get what you want? Affable and conversational? Polite and respectful? Collaboratively? Concilliatory? Compromisingly? You need to understand your style and how this impacts your approach in advance for two key reasons:
1. You need to be aware of your own tendencies and biases and how this impacts your negotiation ability. For example, one of my colleagues is a natural people pleasure, and therefore his natural tendency is to find a compromise for every negotiation point, however, not every issue should end in a compromise — some things you need to hold the line on. Whereas, I can be pretty easily fired up if I think someone is being disrespectful or condacending and this can mean I can get quite punchy — this is not helpful, it can escalate into being inflammatory, points scoring behaviour and focussing on the wrong things. So I almost always negotiate with my colleague who is super calm, never gets ruffled and is super charming, because he always tempers that inflammation.
2. There are different ways to get what you want, and thumping the table and storming off might get you there, but be cognisant that how you interact with people in a negotiation because it is a sign for how you will be later in the partnership, if indeed post negotiation there is a partnership — how you approach conflict, how you problem solve, how collaborative you are, how authentic you are in your interactions, what things you stand up for an how you stand up for them will all be signals for how you will behave in the future. People often think that being super tough, super aggressive or super inflexible in a negotiation will garner healthy respect (wow, he’s tough!), but actually it’s most likely to make people think you are an uber dick and not want to negotiate or work with you again.
Always think about the balance between short term gain versus long term damage and vice versa.
And like before, try and think ahead of time how the counter party is likely to approach the negotiation — in my experience I’m not sure there is an argument for change your wholesale approach dependent on this — sometimes you can make small tweaks but sometimes it’s just useful because it mentally prepares’ you so you are less confronted if its challenging. One of my old colleagues could be very aggressive in his approach to get what he wanted and often yelled and belittled, and would only respond positively if someone met his aggression with an equivalent volume — at first I found this confronting but over time I used this strategically, when negotiating with him. In that example, tweaking my natural approach (collaborative, empathetic) made sense. But most of the time, I find sticking to my knitting with my natural approach is more effective to for tempering an aggressive negotiation and controlling the tone and cadence. Planning for this in advance is incredibly useful for building a solid mental foundation for the negotiation.
Finally, don’t fall for the reasonable but incorrect assumption that people will behave like you do — just because you make concessions doesn’t mean they will, just because you think reciprocity is a cultural accepted norm, doesn’t mean it will be honoured. Don’t fall into the trap of assuming behaviour just because that’s they way YOU would think.
Actually, this is THE most important pre-negotiation consideration.
It’s really critical, once you have identified the outcomes that are important to you, that you identify the reasons why they are important to you. Firstly, this is because it helps to prioritise which identifies the need-to-haves and the nice-to-haves. Secondly when it comes to negotiating the critical points or threshold issues, explaining why they are important to you will almost always create a sense of understanding that will endear the other side to helping you find a solution. When the negotiation revolves around clause after clause or term after term, it can get clinical, but I find explaining why a certain term or point is important to me, can be THE most effective way of reaching a mutually agreeable conclusion.
When we negotiate term sheets, I know that when founders first look at them they can be overwhelmed, confronted and frankly sometimes a little fearful. But this is why our approach is to sit down with founders and management and go through them term by term and explain why the terms are there and what they help us achieve. This is a two way street of course, but it’s amazing how this process takes founders from mortal enemy to partner in about two hours.
And, as with the previous points, thinking about why the counter party is likely to want a particular outcome is also useful in advance, or even as a tactic during the negotiation — if I’m ever stuck on a term with a counter party I will often ask them to explain why this is important, or bothering them — sometimes an alternative solution can be found, sometimes their concern is unfounded or is dealt with in other terms within the document or transaction and sometimes we can’t find a solution, but asking ‘why’ is the most efficient way to find a path to an outcome.
Get Good advice.
In my experience, teams of two always do better than a lone wolf in negotiation– we have a team of two on every negotiation. I mentioned above how this was useful to help balance natural tendencies, weaknesses and shortfalls, but it’s also useful to have someone to bounce ideas off of, to rein you in if you are getting off track, or to pay attention to details you might miss. This can be a trusted party, ie.. a colleague, a chairman, a friend, or a professional adviser. Without a second person, the dynamics are stacked against you, you miss things and details, you can let your personal biases or shortfalls affect the outcome.
If you can afford it, a good commercial lawyer is worth their weight in gold — good commercial lawyers know which are the battles to win and don’t try and win every point — they help make commercial decisions, that is help decide which elements are critical to the outcome you are shooting for, which are the ones you don’t need to really worry about and what is the most practical solution. The up-front cost of a good commercial lawyer can actually save significant costs of a poorly negotiation transaction, in the long term.
Lastly, remember to Zoom out.
It’s always easy to get bogged down in specific clauses, terms or language but it can sometimes lead to over emphasis on one point which can lead to blowing up the negotiation or deal. Always try and zoom out and look at the transaction or deal in its totality to help provide perspective on whether any one point is a deal breaker or not. I find myself guilty of this at times, on a recent negotiation, we found ourselves overly concerned with a (rather full) valuation of a potential investee company and it became a huge issue for my investment committee who felt this made the risk return profile untenable. However, as we zoomed out, and looked at the transaction in its totality, which included several investor downside protections to help manage downside risk, we concluded that that particular issue (valuation) wasn’t worth blowing the deal up over because the risk return profile was balanced by the transaction structure in its entirety.
So, these are a few of the takeaways from the class, it’s not comprehensive, but I thought this maybe useful to some of you. I’m keen to hear from you whether you agree or have any other learnings that you think people may benefit from. If you do, pop them in the comments or shoot me a note on twitter @ElaineStead.