“5 Steps to Better Negotiation”

By Susan Fee

            Negotiating shouldn’t be a big deal for business owners.  You do it daily.  Each time you change lanes in traffic, bargain with your spouse over household chores, or buy and sell a car, you are negotiating. 

            Whatever the situation, the basic principles are the same.  But when it comes to operating your business the consequences of not understanding these principles can be damaging.  No matter what type of business you own or the type of issues you face, these five rules of negotiation hold true.

1.  Prepare, Prepare, Prepare

            The best negotiators know that it’s 90 percent preparation and only ten percent actual bargaining.  Do your homework by getting to know the other side and the issues.  Jennifer Quinn Williams, owner of St. Louis Closet Company in St. Louis says when she started her custom closet design business nine years ago, she only had one employee and most of her negotiations were with customers, vendors, and landlords. 

            Now that she has a payroll of 25, her negotiations have shifted more to employee issues.  Even so, she gives the same amount of time and attention to getting to know her staff and their concerns.  “Employees are the best part and the worst part about owning a business,” she says.  “It’s not just about providing a paycheck.  The issues are so much deeper.  You need to understand what’s important to them on a personal level.”

            According to Quinn Williams, being able to communicate and read people well is crucial.  Ask questions and observe.  Put yourself in the other person’s shoes.  What would you do or ask for in their position?  What would your expectations be?  What might the concerns be?   

            Even if you don’t have the chance to meet the person you’ll be negotiating with ahead of time, you can still prepare.  Find out if anyone you know has dealt with the individual or company.  Also, imagine the issue and options not only from your perspective, but theirs too.            

2.  Adopt The Right Mindset

            How you think about negotiating has everything to do with your outcome.  Do you think of it as an all-or-nothing battle?  Or are you working towards a mutually beneficial agreement?  According to consultant Mike Staver in Fernandina Beach, FL. even the popular definition of creating a “win-win” situation for both sides can be deceiving because it implies competition.   

            He says a far more realistic goal is to reach an agreement that is considered by both sides to be fair and reasonable.  “If both sides have an end goal of winning then, in reality, somebody has to lose.  The other danger is that people associate winning with being happy.  Negotiation is about compromise and sometimes the best deal you are going to get won’t leave you jumping with joy,” he says.      

            Judi McLean Parks, a professor of organizational behavior at the John M. Olin School of Business at Washington University in St. Louis, MO says another common mistake business owners make is assuming a “fixed pie” mentality.  “A fixed pie means that whatever I win, you lose and vice-versa.  A key to successful negotiations is to realize that the pie is rarely fixed, and if we can jointly figure out how to expand the pie both parties can receive what they want,” she says. 

            Negotiating requires your best skills, especially when you’re tight on cash, desperate for business, and feel like you have little leverage for negotiation.  That’s when it’s necessary to be creative and look beyond immediate dollar figures to other possible benefits.  Quinn Williams agrees.  “The more my business has grown, the more creative I’ve become.”   

            To demonstrate her point, McLean Parks offers the classic example of two children fighting over one orange.  Their parent settles the dispute by cutting the orange in half - a fixed pie mentality. 

            But, neither child is satisfied.  By using creative problem solving, the parent might have discovered that one child wanted the orange for its rind to make cookies and the other wanted it for the juice to drink.  So the pie (orange) could have been expanded and both could have received a whole orange of rind, and a whole orange of juice. 

3.  Know The Difference Between “Position” And “Interest”

            As the orange story illustrates, what a person says he wants does not necessarily explain why he wants it.  The distinction is important.  What a person wants is called his position.  If your employee asks for a 15% raise, that’s his position.  But by only focusing on positions, the fixed pie mentality sets in and leads to arguing back and forth until someone agrees to budge.  Whoever gives in ends up mad and frustrated with the outcome.         

            What’s far more important is your employee’s interests, in other words, why does he want the raise?  What is motivating his request for a specific dollar amount (position)?  Likewise, what are your reasons for taking your position?  Satisfactory negotiations attempt to meet both party’s interests.  The only reason a person takes a position is that he assumes it’s the best way to meet his interests.  When you focus on interests you usually discover there are several positions that provide solutions.  

For example, imagine all the possible reasons an employee might ask for a raise: 

·        Important to his ego

·        Saving for a down payment for a house

·        Needs a new car

·        Feels under paid for his skills

How you handle the negotiation from your side should hinge on your employee’s motivation.  Say your employee’s spouse just lost her job, and that’s why he’s asking for a raise.  Perhaps you have a job opening that meets the spouse’s qualifications.  You’ve met your employee’s interests of added income without giving him a raise. 

            Rich Pelo, CFO of Fairhaven Group, Inc. in Bellingham, WA says that it’s very important to keep your own interests in mind.  His company manufactures backpacks, luggage, and laptop computer cases and negotiates with large chain store buyers.  “The list of what buyers ask for is incredible.  They routinely want things like free freight, five percent off invoice, and net 90 terms,” he says.  Pelo holds his ground by remembering his main objective:  What’s going to help sell the product?  Don’t be afraid to clearly state your interests, and in turn ask about the other side’s. 

4.  Always Have a “BATNA” (Best Alternative To a Negotiated Agreement)

            Part of your pre-negotiation preparation is to develop a Best Alternative To a Negotiated Agreement.  “Having a BATNA is a tremendous source of power in a negotiation,” says McLean Parks.  You may never need it, but just knowing it’s in your back pocket gives you peace of mind.  Without one, you can become anxious, appear desperate, and settle for a less than an ideal solution.  This is especially true if the other side has more power.   

            Roger Fisher and William Ury, authors of Getting To Yes (Penguin Books) say that your BATNA is also helpful in determining the value of offers on the table.  “The reason you negotiate is to produce something better than the results you can obtain without negotiating.  What is that alternative?  That is the standard against which any proposed agreement should be measured,” they say. 

            Be careful not to use your BATNA as a threat to coerce an agreement.  Your back up plan is never as good as your first choice and should be kept quiet until you are actually prepared to use it.   

5.  Know When To Walk Away

            Not every negotiation is worth staying with until the bitter end.  When the situation becomes unbalanced, it may be time to call it quits.  Says Staver, “It’s time to walk away when the amount of energy you are investing is exceeding the return you can reasonably expect to get,” he says. 

            Time is a critical.  “We have never lost an account in six years of business, but that’s because we’ve yet to say no,” says Pelo who adds that the decision not to walk away from certain accounts has cost the company enormous time and energy.  That’s why this year they plan to stick to their guns even if that means losing some business.  “I’ve learned never to want something so bad I can’t lose it,” he says. 

            Use your BATNA as the bottom line.  As soon as your alternative options are better than what the other side is offering, it’s time to move on.  “Apply knowledge, time, money, people, connections, and wits into devising the best solution for you, independent of the other side’s assent,” say authors Fisher and Ury.  “The more easily and happily you can walk away from a negotiation, the greater your capacity to affect its outcome.” 

            Says Quinn Williams, “I just don’t accept no for an answer because I know there are at least ten other ways to ask my question so that the other person at least agrees to think about it,” she says.  Her determination to keep up communications even in challenging situations is a good reminder not to give up too early. 

            If you are uncomfortable with conflict you may bail at the first bump in the road which can be very costly.  Instead, remember to keep the focus on interests rather than  positions.  Accept that people have differences and it’s okay.  Always separate the person from the issue.  If you find someone particularly difficult to deal with, don’t stoop to his level.  Avoid personal attacks by separating the person from his behavior. 

            If you ever doubt what to do next, McLean Parks says to follow the Golden Rule.  “Treat others the way you want to be treated in the negotiation - be fair but firm.”