Time and emotion — these are the two things most often wasted during a negotiation. We simply spend too much time on items that don’t really matter, because we let our emotions override any semblance of logic. It is a natural human response to act negatively, reactively, and emotionally to any negotiation points that are counter to one’s pre-disposed positions. It is also poor negotiation practice.
The mere fact of having a position lies at the root of why we get caught up in the drama of a negotiation, rather than focusing on the plotline or ending (i.e. goal) toward which we are striving. In business school, students are sometimes taught the difference between position-based versus interest-based negotiation. When you focus on the differences between your positions rather than the commonality of your interests, little progress can be made. There is nothing necessarily wrong with having a going-in negotiating position, and we can’t really avoid having pre-existing assumptions and desires. But when we don’t get what we want and frustration ensues, what can we do? The key is to understand five areas that can both help move a negotiation forward and in doing so usually advance us to where we want to be:
- Understand the common goal and common interest. Make sure you fully digest and articulate any areas of common interest. Is it simply to maximize value for the company or are there instances, for example, where the greater common goal may be to get a deal done to sell a business rather than optimize its value by waiting? One of the best ways of making this happen is to simply to have both sides articulate their goals and interests in writing and share them to ensure clarity and alignment.
- Understand the underlying and ancillary motivations of the other side. Oftentimes there are conflating or conflicting interests at hand. As much as possible, you need to understand the total “motivational picture” of your counter party. For example, at our firm we have been in negotiations where we ultimately learned that what appeared to be irrational negotiating by the other side was driven by how they were compensated for the deal. Where possible, uncover if those negotiating for other side have any personal remuneration at stake, and how that changes with different outcomes – it will drive behavior.
- Be transparent and explain the why of your points. It can be surprising how seldom people explain the why of a position for which they are fighting. Take even the previous example on personal deal compensation. If something is going to impact you personally, it may be better for you to disclose it — at least the other party will understand. So often it is taken for granted that the other side fully appreciates why you are asking for a term or condition when they actually have little clue. Before you can do this, you also need to make sure you fully understand your own why for each of your points!
- Calculate the materiality of each point. Much of the time sink of negotiations is unfortunately spent on elements that don’t really matter — things that will not materialize, or if they do won’t have a major impact. Legal and tax counsel is always critical and highly valuable, but can sometimes also be the tail that wags the dog. Once I was leading an important negotiation where we debated at length with legal and tax experts over “edge scenarios” that might negatively impact us. This went on for two days until I took a step back to actually calculate what our largest dollar exposure could be. It turned out to be less than the cost of of preparing a structure to avoid it and likely less than the professional and legal fees we had already accumulated thinking about it! Do the math and calculate how material a point is — then determine if it is really worth fighting for in the bigger picture.
- Look for points that have an asymmetry in value. Once you understand the math of a negotiation, look where there may be asymmetry. There are always points where there is a fundamental difference in how each side perceives the value. To be effective in negotiation you need to comprehend the balance of trade on every key point. Basically, look where your currency is worth more. Consider, for example, the purchase of a house. If the eventual price is the most important currency for you, then see where there may be a different lever (a different “currency”) to trade for your desired lower price. Sometimes a seller may care more about the timing or certainty of a closing than the price. Taking out a financial contingency, or letting the close happen on whatever time frame the seller wants, may gain you disproportionate benefit in the price. Remember the bigger context and have the empathy and rationality to think about it from the other side.
Following the five rules above will eliminate a large amount of futile negotiation on things that don’t matter, or things that matter much more for one side than the other. The goal of any negotiation is to reach agreement, but unfortunately the journey there is usually painful. We find ourselves “stuck” on terms or conditions we feel are must-haves, and lose perspective as to why we want the things we think we want. It does not need to be like that. Focus on the two or three scenarios that really matter for each side and have reasonable probability of being realized, as opposed to every edge scenario. In the end it probably won’t be a contract that saves you. It will be the quality of your relationship, your rationality, and, yes, your ability to do effective subsequent negotiation (definitive documents are rarely definitive). The reality is that you are more likely to get a fair deal — and even get the opportunity, from time to time, to have your cake and eat it too — if you stay disciplined on the underlying architecture and rationality of each negotiation point. Good luck, and happy negotiating.
ANTHONY K. TJAN
Anthony Tjan is CEO, Managing Partner and Founder of the venture capital firm Cue Ball, vice chairman of the advisory firm Parthenon, and co-author of the New York Timesbestseller Heart, Smarts, Guts, and Luck (HBR Press, 2012).
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