Deal-making and negotiation skills are critical for
entrepreneurs. Success depends not just on great ideas and marketing skills, but
also on a network of deals which all entrepreneurs have to put in place. These
include deals for funding, manufacturing, distribution, marketing and promotion,
and deals with employees. And let’s not forget the deal at the end of the cycle
– the exit deal – which is supposed to make all of that effort, and all of the
other deals worthwhile.
Negotiation in a
changing world
Negotiation has never been more important in our lives. We
live in a collaborative, interdependent world where everyone needs to make
deals in order to get on. There are several reasons for this. The recession has
sharpened the imperative to make deals successfully – we are all less
vulnerable working together than working on our own. Equally, technology has
internationalised trade, made business go faster, and converged different
sectors. Both the opportunity and the threat this represents are best addressed
by working in partnership with others. Social media has also changed the way we
trade. In the old days companies could dictate the marketing of their products
through top down PR and messaging. Now consumers are able to spot inauthentic
messaging and tell other consumers if they are unhappy with the way a company
behaves. For the sake of trading reputation, businesses have to negotiate
with consumers for their attention, favour and money.
This new deal economy affects everybody: entrepreneurs,
sole traders, SMEs, big corporate and governments. Yet negotiation skills are
rarely taught, practised or even thought about. When businesses seek to improve
their trading environment they focus on a lack of lending from banks, the
legislative environment, or tax incentives. They focus on product development
or cutting overheads. Nobody focuses on how much extra margin they could generate
for their business if they improved the effectiveness of their negotiation
skills by 10 per cent.
Over the course of my career as a dealmaker and negotiator,
I have done many deals for and with large corporations, including Sony, Bertelsmann,
Tesco and the BBC. However, I have also invested in and worked alongside many
SMEs, and I now run my own business as a professional negotiator and
trouble-shooter. I find that the deal-making tool kit required for success is essentially
the same, whether I’m working with big companies or operating as an
entrepreneur.
The three angles
of negotiation
So what does this tool-kit consist of? Essentially it
involves managing the three angles of negotiation – negotiating state of mind,
negotiation process, and negotiation behaviour. As an entrepreneur, if you are
able to successfully manage this “golden triangle” of negotiation, then you
will be in great shape – and certainly in better shape than most of the
negotiators you encounter on the other side.
Notice also that none of these three angles of negotiation
has anything to do with the “content” of the deal. People get very preoccupied
discussing issues like price, but these are secondary to the three angles of
successful negotiation.
State
of mind
The first of these angles,
negotiation state, is all about the state of mind you bring to the negotiation,
which ideally is to be relaxed and confident. Think of yourself as a top
sportsman going out to play a match. If you’re anxious, people will spot this
(subconsciously or otherwise) and seek to push you harder. It’s also important
that the other side is in a constructive state of mind too. If they’re feeling
angry, worried or overwhelmed, that will only make the deal harder to do. One
of the key issues in forming the right attitude is to have a true appreciation
of the bargaining power on both sides.
It’s very easy to underestimate the
number of aces you have on your side and overestimate the number of aces held
by your negotiating opponent. However,
it’s normally the case that the bargaining power is more evenly divided than
most people appreciate. This is a particularly important issue for
entrepreneurs, who often find themselves negotiating with opponents larger in size.
You may not have market size but you
might have niche marketing power which gives you an edge with a larger player.
You may have information, expertise or network power at your disposal. There
are nine different sources of bargaining power, and they are rarely arranged
9-0 in favour of anybody.
Process
There are normally seven stages
in any negotiation and if you miss a stage you’re doomed to go back and cover
the missed step. Everyone is familiar with the later stages, including
bidding, bargaining and closing the deal, but people often skip the
earlier stages because they are impatient to get to the haggle. This is a
problem. The first stage, preparation, is absolutely key. You need to know
who is on the other side, who will be on your side, what’s the history between
you, what’s your ideal position, what’s your bottom line – a whole host of
issues which are too important to leave until the heat of battle.
Entrepreneurs
can create an advantage for themselves here. Larger deal partners may be
ill-prepared. A further early stage is the exploration of the emotional needs
on both sides and seeking coinage, which can address those needs. All
negotiations are ultimately driven by the emotional needs of the participants.
Do they need reassurance, respect, a sense of belonging, a desire to
achieve?
You need to be able to work
that out. Once you have you can deploy coinage to meet those needs, and get
back what you need in return. Coinage is a concession that feels like loose
change to the giver, but has high value to the other side because it meets an
emotional need. Finding coinage requires creativity and imagination – these are
exactly the kind of skills which entrepreneurs should have in abundance.
Behaviour
The management of negotiation
behaviour is key. There are 12 different kinds of negotiation behaviour
clustered around four types. Push behaviour is all about what I want from the
deal and pull behaviour is focused on what the other side wants from the deal.
Join behaviour is about what we can achieve from the deal together and part
behaviour is about taking your energy out of the deal – e.g. through taking a
break from the negotiation.
Different behaviour suits different stages, situations
and people. This is important as most people normally default to their favourite
behaviour every time. This is not enough. There are many different types of
individual – some are optimists, others are born pessimists. Some like to move
towards solutions, others like to avoid solutions. You have to select the right
behaviour for the right person. How can you spot these different behavioural
types? Through asking questions, observing and listening. These are not always
natural skills for entrepreneurs. They are often so passionate about their
project that they spend far too much time talking. As a rule of thumb you
should not spend more than 30 per cent of your time talking in any deal. More than that
and you have no time to focus on the other side and how they’re behaving. So
entrepreneurs should learn to exercise verbal restraint when negotiating – generally,
the more you say the more you give away, the less you say the more you
understand...
Clive Rich is the
UK’s leading deal-maker and trouble-shooter. For more information, visit www.cliverich.com
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