How To: Negotiate a Truce
Negotiating isn’t about getting a great deal; it’s about building a partnership. Rip off your counterpart and you might get a one-time windfall. But by searching for middle ground, healthy profits could roll in on both sides for the foreseeable future.
That’s the advice from John McAdam, head of the consultancy Pioneer Business Ventures and author of The One-Hour Business Plan Foundation. “Many times people go into negotiations thinking it’s a zero-sum game, and the only way they can be proud of themselves is if they take all,” says McAdam, who teaches business strategy at The Wharton School of the University of Pennsylvania. “That is kind of childish, and it is our grandfathers’ way of doing business.… For me, the best deals are those in which my partner wins, their clients win, then I win—in that order,” McAdam says. “Then you are building something bigger that will have results beyond the deal at hand.”
Before you approach the other party for a better price or sweeter terms, take two steps.
Step 1: Figure out what makes the other party tick. Do your homework. “You’ll get a flavor of the company and the person, and see what their priorities and passions are,” McAdam says. Walk into the meeting with a list of three things you want in the deal, and three items you believe the other party would like.
Step 2: Determine your bottom line. “Know what your alternative is if you have to walk away from the negotiation,” says Kevin Corley, associate professor of the W.P. Carey School of Business at Arizona State University, who teaches a course on negotiations. “It is a very powerful position.”
But be careful to avoid having a hair trigger on the nuclear option. “Walking away not only terminates the deal, but the relationship,” McAdam says. “Small-business owners usually can’t afford that.”
Other strategies, with scripts for how to tackle them:
1. Just ask for what you want. Don’t make it emotional.
Say this: “Instead of 30-day terms, I need 90 days. How can we make this happen?”
2. Immediately offer something in return.
Say this: “I promise to pay you on that 89th day and will agree to sign a three-year deal instead of our usual two-year contract.”
3. Be open-minded and creative. “With small businesses, there are a lot of considerations aside from the price of goods,” Corley says.
Say this: “I can agree to keep the monthly retainer the same if you agree to bump up the hours of service.”
4. Don’t lay all your cards on the table. “If you appear overprepared, you’ll look like a warrior,” McAdam says.
Say this: “Help me understand why what I am asking for is not possible. I’d like to continue our relationship, if possible.”
5. It takes two to tango.
Say this: “This deal has to work for both of us or we can’t do it.”
Adds McAdam: “If the other guy senses he’s being perceived as beating up on you, he’ll feel like a jerk and chill out.”
Principal and CFO
Company: Stalco Construction, a general contractor and construction manager in Islandia, N.Y.
Tactic: Cultivate loyalty in vendors and employees by negotiating better terms to thrive through the recession.
Result: Tripled revenue and grew staff by a third.
In 2008 we saw the writing on the wall but wanted to keep the company intact through what looked to be a tough economy. We set a crazy goal: not to make money, but to be in a strong position to grow after the recovery. We laid out this plan to our 32 employees and asked for their commitment to brainstorming ways to be competitive and efficient. In return, we promised they would keep their jobs and all their benefits.
It was about creating an atmosphere of commitment and family, and addressing employees’ fears, as they saw our competition getting rid of their more expensive talent. That same principle was applied to our vendors. In order to execute our plan, we needed to grow our marketing budget from $20,000 to $250,000 by 2009. To find that money, we renegotiated all our nonessential services. We said, “We don’t want to lose your service. What are you willing to do so you can keep your bills paid, just like I need to pay my bills?”
We negotiated discounts on bottled water, coffee and information technology—getting 30 hours of support for the same price as the 20 we had been receiving. Each day we buy our entire staff lunch and eat together, previously paying $10 to $12 per meal, typically. We asked local restaurants to offer menus for $5 per meal, and our employees voted on what they wanted. Some restaurants came back with better $5 menus when they missed our business. After a while we raised it to $6 per meal, because it’s important to be fair.
Some services we could not negotiate, so we stuck to our word and cut those: We could not find a paper vendor providing a price that worked, so we invested $45,000 in a paperless system and saved $90,000 the first year.
We make sure our vendors and employees understand our business works on small margins, and winning a bid can come down to a quarter of a percent. If everyone understands, it makes small changes easier. Loyalty goes both ways. In tough times we’ve asked our coffee vendor to give us a break, but I will never again look elsewhere when times are good.
We have hired 12 people since 2008 while tripling our revenue. It was a grind, but we did it. We never missed a 401(k) payment, and we still feed our staff every day.
Founder and Motivational Speaker
Company: BNPOSTV, personal limited liability company (LLC) focused on child welfare, based in Southern California
Tactic: Show vendors how their services help others, and how a good deal can help their businesses.
Result: Negotiated drastically reduced fees and built a thriving business.
I started my own insurance agency at age 27. I had no money, and worse, no negotiation skills. But I was passionate about child welfare, and how the right insurance programs could help kids in need. I learned I could leverage that passion to build my business. After all, passion is contagious.
The key is connecting the dots between how a vendor’s services are part of the process of good being done in the world. If they feel their efforts are helping someone, they are far more willing to provide a discount or better contract terms.
For example, recently I needed a brochure created, but a graphic design company gave me a quote I could not afford. So I explained what I was trying to accomplish: I was hoping to build my business, which helps abused kids. I told him, “I’m sure you’re worth every penny of your fee, but I cannot afford it. But I think you can help me communicate my message, which will also help so many children.”
I also explained that these brochures will be sent to thousands of locations around the country, and the media company’s name and logo would be displayed on each and every one. Not only was this free publicity, but publicity attached to an important cause. Further, I mentioned this was not a one-off deal. I would need other products in the future.
The designer gave me a 50 percent discount, and I kept my word. His company was featured on the pamphlets, and I returned many times, plus referred him to others.
By connecting the dots between a person’s work and your mission, you not only open the door to good deals, but also—and more important—elevate a person’s job or business to something greater. That is how you build lasting partnerships.
Company: Voices.com, online marketplace for voice-over talent, with headquarters in London, Ontario
Tactic: Negotiate payment terms for a domain name.
Result: Web traffic doubled in the first month; media attention and business has since boomed.
Our business launched in 2004 as InteractiveVoices.com, which is a mouthful and difficult to type, so we researched a number of better URLs, including Voices.com. This name was easily identifiable with our service and would put us at the top of search engine rankings for industry keywords. We realized getting this domain name would be the best thing that could happen to our company.
Previously, we’d bid $100,000 for other URLs—deals that never worked out. In 2006, we saw that Voices.com was taken, and had our lawyer contact the property’s owner. He was using the site to host content about mental health topics but had not updated it for five years. Our attorney did not mention our company, but inquired about the owner’s willingness to sell and his asking price. Had the owner known how valuable this property was to us, he might have priced the domain higher than we could afford.
To our surprise, he came back with the price of $50,000—far below our $100,000 limit. We countered with an offer of $30,000. We didn’t want to offend him, and by bidding higher than half, we hoped to send the message, “Hey, we’re willing to meet you more on your side than ours.” He agreed.
The problem was we couldn’t get financing for the deal. As a web business, if we went under, there were no assets the banks could hold as collateral. They all said no.
Our lawyer taught us to never take “no” for an answer. We went back to the owner of Voices.com and asked if he would agree to quarterly payments of $5,000 for a year and a half. To ensure he’d see his money, he maintained ownership of the domain until the first $15,000 was paid. That essentially gave him control over our whole business, so we sent our payments early to make sure we didn’t miss any.
As soon as we rebranded, our existing clients were impressed we landed such a desirable URL, and because the name had been registered for so long, it had incredible SEO power. Overnight our web traffic doubled, the number of customers approaching us went up and our advertising expenses went down.
Because of our search engine power, we’ve been quoted on CNN, Bloomberg and other major outlets. There is no doubt this was a great investment.