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What Is Negotiation?

It’s a lot easier to describe what negotiation “isn’t” than what it is. Let’s get some things straight upfront. Negotiation is not:

• a search for truth, justice and the American way

• a friendly discussion at the corner Starbucks

• a quest for the perfect solution to a business problem

Make no mistake: Negotiation is a game. Whether sellers have paid good money for something or are emotionally attached to it, they’ll want to get the most money they can from its sale. Buyers are worried about losing money and want to pay as little as possible for something so the chances of making a profit on resale are as high as possible. Somewhere between these two goals, there’s a deal waiting to happen.

The goal in negotiating is to win—to get the best deal you can. Period.

Preparing for Negotiation

To get ready for any negotiation, you must do three things:

1. Know your bargaining position. In every negotiation, someone is in a stronger position and someone is in a weaker position. Where are you?

Let’s say you’re looking to lease 1,000 square feet of retail space in a shopping center. The landlord is a large commercial real estate developer with 2 million square feet of space in five major shopping malls in your town. How flexible do you think this landlord will be in the negotiation? Not very. One thousand square feet is a drop in the bucket to this landlord, so you’ll be the one making all the concessions.

NEVER LET ’EM SEE YOU SWEAT

Are you serious about wanting to be a better negotiator? Then learn to play poker. A good poker player is almost always a good negotiator. Consider the lessons poker teaches you:

• Use a “poker face” to conceal your emotions from the other side.

• It isn’t so much the hand you’re dealt, as what the other players think you’ve got. If you get a great hand and show too much enthusiasm, the other players will fold early and leave you with a small pot, but if the other players think you have only a mediocre hand, they’ll stay in the game and leave a lot more money on the table.

• Likewise, if you truly have a mediocre hand, by making the other players think you’ve got something better, they’ll yield to their insecurity and fold early. This leaves you with money you wouldn’t have gotten if you’d shown your cards too soon.

Bluffing and posturing are part of the game of negotiation. If you master these techniques early, you stand a much better chance of winning negotiations on a regular basis.

Now, let’s say you’re looking to lease 1,000 square feet of retail space in a strip mall. The landlord is a local widow whose husband died several years ago. The strip mall is the only property she owns, the 1,000 square feet is the largest tenant space in the mall, and it’s been vacant for the last six months. Who’s in the stronger position now?

You—and you’re crazy if you don’t take advantage of it. (See “The Golden Rule” on page 243.)

2. Know how the other side perceives its position. It isn’t enough to know what your real bargaining position is. You also have to consider how each side perceives its position. As any poker player knows, sometimes a mediocre hand can be a winning hand if it’s played properly. If the person with the mediocre hand can convince the other players that he or she has a much better hand than he or she actually has, and the other players (with better hands) buy into that, they’re likely to fold early to cut their losses, leaving the pot to the bluffer.

If your negotiating position isn’t great but you see the other side is worried about losing the deal, you can’t go wrong by coming on strong and playing to the other side’s fears.

TIP

Sometimes silence is the best weapon. By quietly pondering for several moments what the other side has just said, you raise their anxiety about your willingness to do the deal. Your body language should send the signal that you have all the time in the world and don’t need the deal. Just don’t do this too often; you’ll appear indecisive.

3. Assess your bargaining style. Are you aggressive or passive by nature? I hate to say it, but in 25 years of studying lawyers, I’ve found that those who are naturally aggressive, fearless and downright ornery tend to make the best negotiators. People are afraid of them, want to avoid their nasty behaviors and give them what they want. To truly succeed at negotiating, it helps if you can find your inner Rottweiler. Remember, it’s a game.

I’m not saying you should yell, scream or threaten violence during a negotiation (although some negotiators use these techniques to great effect). You can be pleasant and communicate your willingness to get the deal done as quickly and efficiently as possible. Just make sure the other side doesn’t misinterpret your nice behavior as a sign of weakness, or you’ll lose the negotiation.

THE GOLDEN RULE

“You can never get a bargain on something you really, really want.”

In any negotiation, the side that needs the deal more is the side that gives up the most—precisely because they need the deal and can’t afford to have the other side walk away from the table.

Winning the most points in a negotiation is almost always a function of: 1) not needing the deal as much as the other side does, 2) convincing the other side they need the deal more than you do, or 3) a combination of 1 and 2.

Nervous about negotiating? Here’s a great way to practice. Go to collectibles shows and look for items you don’t feel strongly about—you can take them or leave them. When you find one, approach the dealer and offer him 50 percent of the asking price. He’ll almost certainly refuse your offer—sometimes nicely, sometimes by pretending to be offended—but don’t worry about it. You don’t really want the item, and you know he paid less than 50 percent of the tag price. Thank him politely, tell him you really couldn’t justify paying more than 60 percent of the price, and move to the next booth.

Then, return to the dealer in the late afternoon and ask politely if he has reconsidered your offer. If the item hasn’t sold by then, the dealer is concerned about having to lug the thing back to his showroom and will be in a better bargaining mood. Stay firm. Remember the goal isn’t to add to your antiques collection, but to practice your negotiating skills. Make it a point to say no to whatever counteroffer he proposes, and walk away.

Do not try this if you see an item you really want—your body language will inevitably tip your hand to “the dealer,” and he will turn the tables on you by saying something like “I’m sorry, but I’m only making a 10 percent profit at this price.” At this point the negotiation is over—you’re reaching for your wallet, and you’ll pay the dealer’s price.

What Do You Want?

Now that you’re psychologically ready to sit down at the bargaining table, it’s time to figure out what you need to get out of the deal.

Sit down with a sheet of paper, fold it down the middle, and label each half “deal points” and “trading points.” Then list all the points you need to reach agreement on. Deal points are those you must win—if you can’t get those, you walk from the table and look for another deal. For example, if you paid $1,000 for a painting and need to get a 20 percent return on your inventory to stay afloat, getting a purchase price of at least $1,200 is one of your deal points.

WARNING

Don’t agree to give up something without asking for anything else in return—a “gratuitous concession.” You may think you’re being generous, nice or respectful to the other party, but it’s seldom perceived that way. Rather, the other side sees it as a sign of weakness and an invitation to press for bigger, more damaging concessions.

Any point that isn’t a deal point is a trading point—nice if you can get it, but you can live without it if you sense it’s a deal point for the other person. In a negotiation, your goal is to get all your deal points and as many of your trading points as possible, recognizing that often you’ll have to yield one or more trading points to get your deal points.

Be realistic when identifying your deal points. A lot of things you negotiate for aren’t really life or death for your business. If you aren’t sure if you really need something or not, it’s a trading point.

The Negotiation Process

There are three basic steps in any negotiation—sometimes they happen in order, sometimes not.

• Step one: State your position. At the beginning of a negotiation, each side lays out its position and tells the other side what it needs. As soon as it’s apparent the two sides agree on something, that point is taken off the table so the parties can focus on the issues where they disagree.

• Step two: Search for win-win compromises. Sometimes when a negotiator asks for something, what he or she really needs is a lot narrower. By probing the other side, you can often find a way to give them what they really need without giving them everything they’re asking for. Here’s an example: The other side wants you to promise you won’t compete with them anywhere in the State of X for five years. By asking probing questions, you learn that the other side doesn’t plan to do business outside of Town Y. You agree not to compete with the other side in Town Y for five years, and keep your options open for the rest of the state.

• Step three: Do a little “horse trading.” Sooner or later, in every negotiation you get to a point where further compromise is impossible. For a deal to happen at this point, both sides have to engage in a little “horse trading.” You look at the list of three open points, realize that only one of them is a deal point, and offer to give on the other two points to get the one you need. If the other side agrees (one or both of the two points you gave them were deal points for them), you make the deal. If the other side refuses (your deal point was also their deal point), the negotiation’s over—and so is the deal.

TIP

When sizing up your negotiating points, the ones that will take cash out of your pocket if you give them away are probably deal points, the ones that won’t are likely trading points.

Everything Is Negotiable

When you first start negotiating, it’s hard to separate deal points from trading points—everything seems important. Experienced negotiators know something you don’t—everything is a trading point. Nothing is non-negotiable. If you need the deal badly enough, you can give up some deal points and still survive to negotiate another day. As any lawyer will tell you, you know a deal’s been well-negotiated when both sides walk away from the table feeling at least somewhat disappointed in the outcome.

Sales Contract Negotiating Points

Do you think the only thing to negotiate in a sales contract is the purchase price? Think again. Here are some noncash terms you can negotiate.

• The number of goods to be sold

• The condition of the goods at the time of delivery

• Return privileges and/or credits for goods delivered in defective condition

• Rebates for goods that aren’t sold within a specified time period

• Shipping and delivery dates

• Method of shipping (UPS vs. FedEx, for example)

• Method of payment (money order vs. credit card, for example)

• Currency of payment (for international sales)

• Whether discounts will be offered for volume or bulk purchases

• The timing of payment (cash upfront vs. installment payments)

• The interest rate to be paid on any deferred portion of the purchase price

• The penalty rate of interest to be paid if any portion of the purchase price isn’t paid on time

• Whether the seller will have a lien on the goods until the purchase price is paid

• Whether the buyer’s principals will guarantee payment of the purchase price if the buyer defaults

• Whether the seller or buyer will pay sales and/or transfer taxes

• Whether the seller or buyer will insure the goods while in transit

• When title to the goods transfers from seller to buyer

• Whether or not the seller will “warrant” title or condition to the goods

• The sale closing date

• Whether the seller will assume responsibility for the products’ liability and other legal claims if the goods turn out to be defective

• Whether the seller will provide the buyer with advertising and promotional materials to assist in the resale of goods

• If a broker was involved, who will pay his/her commission?