Topic #13: Negotiating

by Jarie Bolander on January 13, 2010

Talking Points

  • You can negotiate too good a deal

  • Understand the entire deal dynamics not just your piece

  • What the contract says is important but not as important as your intent at an equitable deal.

  • Never underestimate nor take advantage of a desperate adversary

  • Have a trusted advisor that you can hash out difficult deal details

  • Always state a higher authority that has final approval

Discussion

Hardly a business deal is ever done without some sort of negotiation. It’s just a fact of business life. Knowing how to negotiate is one of the most overlooked and critical skills of business. A properly done negotiation is the culmination of months of work that results in an equitable deal for both parties. Equitable does not necessarily mean fair since some deals will need to be bias one way or another. The problem that most people have with negotiation is that they mix their emotions into the deal. This does both parties a disservice since emotions cloud good judgement. Like anything, being good at negotiating is about practice, patience and keeping your cool.

What’s In It For You?

Before you embark on any negotiation, you need to figure out what is in it for you. Seems like a simple question but this can be overlooked in the heat of the moment. Step back and really think about what you need not necessarily what you want (that’s important too). Determining what you need out of the deal will give you the basis in which to negotiate from.

What’s In It For Them?

Equally important is to figure out what is in it for your potential deal partner. Again, this may seem obvious but not digging in and figuring out the dynamics of the deal will bite you big time. You may have to dig pretty deep since it might not be obvious as to the 2nd or 3rd order issues that might just kill the whole negotiation. Study your adversary. Gather as much information as you can. Carefully listen to what they say they need. There will be subtle hints as to what really matters to them.

Deal Framework

Once you have figured out that the negotiation is worth pursuing, it’s time to set some basic guidelines for how the deal will progress. Getting this down ahead of time will make your life a lot easier. The deal framework also sets the tone and reafrims what both parties want. The deal framework can also conclude with a Letter Of Intent (LOI) or Memorandum of Understand (MOU). These are non-binding documents that formally set the deal framework in writing.

Do Your Homework

Make sure you understand all of the details that might get in the deals way. Do some research on similar deals to see how your partner dealt with others. The more you know, the better off you are. As they say, knowledge is half the battle.

Negotiating The Deal

The best way to start this off is to write down what you both agree on. Reaching a basis or common ground first allows for a more productive negotiation. This step is a great way to see how difficult the entire deal will be to get done. If you can’t agree on simple things, then the rest of the negotiation is going to be difficult.

Term Sheet

Once you have several of the main points nailed down and the deal looks promising, it’s now time to write the term sheet. The term sheet is the start of the formal contact that will be what was negotiated. This goes to the lawyers that then start the formal contact process. Term sheets are typically iterated on by both sides until they are ready to send to the lawyers.

Contact Review

The contact stage is where your lawyer and your potential partners lawyer will battle it out over their use of the english language. One thing to remember about lawyers. They will try and put as much protection in the contact as they can get away with. I say get away with because it is up to the business person to rein them in. Left to their own devices, lawyers will generate a contact that is unworkable. Contacts are important to get right but the spirt of the deal is even more critical. Overly burdensome terms that create situations where not following them is cheaper are bad for everyone.

Signing The Deal

After several iterations, you will have a contact that both of you agree to. Congratulations. Go celebrate since once the deal is signed, it’s time to get to work.

Things To Ponder

  1. Take a look at some public business deal. What did each party get out of it?

  2. The next time you do a deal, step back and figure out how you would negotiate the other side. Write a paragraph or two on your approach.

  3. Look up one of the case studies in the Explore Further section. Write a paragraph from each parties perspective. Describe how they approached the deal.

  4. Do a simple negotiation for a product or service you buy frequently.

Exploring Further

  • Interesting post about game theory and negotiation.

  • Some case studies in negotiation.

  • Entrepreneur.com tips on negotiating

  • Article on Win-Win Negotiations.

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