Negotiating can be frustrating. The dance of where both parties stand, what they really want and all that legalese makes getting a deal done seem impossible. Throw in inexperienced or ruthless parties and negotiations can get downright ugly. Luckily, with preparation and a clear understanding of what you want, the process is tolerable.
Step 1: What’s In It For You?
Vital to a successful negotiation is figuring out what you want out of it. This is the most critical step because this step determines if it’s worth even pursuing a deal. Think long and hard about what the deal needs to look like and what your real motivations are. Ask questions like:
- What are my goals for this deal?
- How do they fit within my overall business?
- Can I live without doing this deal? If so, why am I doing it?
- What are my options? Are their other people that can give me the same thing?
Once you have the answers to these questions, then you can figure out to proceed or not. It is perfectly acceptable to pass on a potential deal if whatever criteria you set out is not met.
Step 2: What’s In It For Them?
Understanding what the other party wants out of the deal is just as important as what you want. This knowledge, gained either directly or via research, helps you craft the limits of the deal. Ask the same questions as in Step 1. Put yourself in their position and look at it like you are negotiating for their side. Get inside their head and figure out what the major points of contention will be.
Step 3: Research Similar Deals
Before discussing terms or a price, figure out how other deals were structured. Your peers are great places to start your research. Get answers to questions like:
- What were the terms?
- How much did they pay?
- How long did the deal last?
- Were there non-performance clauses?
- Does the time required to do the deal make sense?
- How much would it cost to develop this on your own?
- What are the general market conditions like?
Asking these questions will give you a good sense of what the market is for your deal. This does not mean you need to offer them the same deal. What it does mean is that you will have the data available when discussions get off track or common ground needs to be reached.
Step 4: Initial Discussions
Once your research is done, it’s now time to approach the other party and talk about a general, high level framework for a potential deal. At this stage, you want to get down the main points of what needs to be accomplished and what you are negotiating. Resist the urge to name a price or terms. That comes later. This is more a data gathering stage where you figure out if a deal is possible, given the constraints you have and the other parties desire for the deal. Directly ask questions like:
- What do you hope to gain out of this deal?
- Have you done deals like this before?
- Here is what I think we are discussing, is that your understanding?
- Are you interested in what I have to offer?
Make sure you get a solid understanding of what the high level points might look like. Put this down on paper and have both of you agree before proceeding. This step is vital to get right or you will waste a ton of time rehashing exactly what you are talking about.
Step 5: Follow-On Discussions
These are the meetings where each party refines their position and wants to get deeper knowledge of the others motivations. It’s best to find common ground first and then discuss points of contention. As you find common ground or points agreement, add those to your framework document. Documenting what is agreed to as it happens allows each party to focus on points of contention and not on already agreed to items.
Price usually comes up during these discussions and is usually a tough item to negotiate. If you can, delay such discussions until the deal framework is solidified. Doing this allows you to value the deal more precisely. If you must talk price, then try and get the other party to commit to one first. This will give you a better sense of how off you both are. The research you did in step 3 pays off here because any price discussion can back up with data. It might not influence the deal but it demonstrates that you understand what the market will bear and that you have alternatives.
Step 6: Negotiating The Deal
There will come a point when you will have to sit down and start negotiating. It can sometimes be hard to tell when this point is upon you. Usually, it’s after several follow-on discussions that slowly clarify the deal to the point where you are now starting to talk about where you differ. At this stage, being prepared with hard facts and data will serve you well because these types of interactions can be emotional. Some will take your objections to certain terms personal while others will be rigid in certain, seemly odd terms. Keep in mind that while this stage should be fact based, it will have a healthy amount of emotion. Some techniques that can help keep the deal moving forward include:
- Don’t Take It or Make It Personal: Wrapping your ego up in a deal is never a good idea. It tends to make you less objective and prone to mistakes. Some opponents will deliberately mix subtle emotional attacks to put you off balance. Resist doing this yourself. It does no one any good to be highly emotional when trying to hash out difficult terms. Keep it professional.
- Think Like A Partner: The best way to approach any deal is like a partnership. Akin to the Win-Win, partnership focus allows you to think beyond the deal. Doing so gets you past the hard to define “what-if’s” and into more how can I work with these guys. Partners naturally want to trust and work with each other. They also want to do more than just the deal they are working on.
- Watch Out For The “Too Good A Deal”: I know, it sounds strange but you can get too good a deal. It might be luck, cunning or plain ignorance but there are times when the deal or term is so lopsided that the other party either can’t meet the requirements or the default term is a better option that compliance. Don’t get me wrong, you want the best deal you can get but think through the consequences for both sides.
- Bring It Back To The Core: There will be times when negotiations will get off track. These are the times when knowing the core of the deal allows you to get back on track. Always refer to the basic principals or framework to reign in the distractions. Doing this makes reaching agreement much easier.
- Reign In The Lawyers: The universal law for lawyers is this: left unchecked, they will always add more and more protections for their client. That is their job — to project their clients. Given this, lawyers can never come to agreement on your deal. It’s against their prime directive. You need to reign them in. You cannot plan for every contingency or adverse event. Lawyers are their to assist you with doing a legally binding agreement not to give you business advice.
- Reciprocating Terms: One way terms are usually a bad thing. The only exception is specific tasks or commitments that each party needs to undertake. Default, divorce or protection terms should go both ways. This shows that both parties want to treat the other fairly and hold themselves to the same standard.
Step 7: Term Sheet
Once you have hashed out the terms, the next step is to formalize a term sheet. These are straightforward to generate and should have all the major terms spelled out. One important item is when you agree on the terms, don’t materially add or change them. Lawyers have a tendency to want to add more “protection” since that is their job. Avoid doing this because it signals your disrespect for the other party and the terms you worked hard to negotiate. So, reign in the lawyers and do what you said you would do.
Step 8: Sign The Deal
Signing the deal should be a big deal. Both parties worked hard and the signing ceremony should reflect that. Now that the deal is done, it’s time to get to work and bring your shared vision to life.