Getting Ahead of Negotiations
Negotiation is almost entirely about leverage.
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I just finished reading Never Split the Difference, one of the most popular books about negotiation written by a former FBI hostage negotiator. It’s good, I recommend it! However, there are a wealth of books and articles on negotiation, almost all of which promise to give you the skills to “win” at negotiation. Considering that people continue to write these books, you should realize that it’s really not that simple.
Negotiation is a complex combination of people, relationships, facts and timing (with some luck thrown in). Most of these books focus on one or two of those factors, trying to convince you that your negotiation skills are the secret to getting what you want. I’ve been negotiating business deals for twenty years, and while I am pretty good at it I don’t think skills matter that much in the end.
Why?
Negotiation is all about leverage.
Whichever side has the most leverage has control in a negotiation. The most common form of leverage is the ability to walk away with no deal, which is the ultimate power in any negotiation. If you’re running out of money, investors have leverage because you won’t exist without investment. If a job candidate has three offers in hand, they have leverage because they can take any one of those offers. Regardless of your negotiation skills, if you have the leverage you will do pretty well.
As a result, the best way to do well in negotiations is to create leverage before a negotiation ever begins! That usually means generating alternatives, so that you have the leverage to walk away from a potential deal. For example, if you are talking to investors, do so long before you need the money. If you have 12 months of runway, you can walk away if the investors don’t offer a deal that you like.
There are a lot of forms of leverage, and most of them need to be created long before you need them. This means that negotiation is a strategic problem, not a tactical problem that you solve with better negotiation skills. You need to plan ahead and generate options even if you don’t know that you’ll need them.
Here are some examples:
The best CEOs I know meet and get to know the CEOs of potential acquirers years before they ever think about selling the company. Building relationships with potential acquirers is a way to generate options that you don’t know when (or if) you’ll ever need, but not something you can do overnight. There is little cost to building those relationships, but a lot of value if you find yourself in a negotiation with investors or potential buyers and need leverage.
Customers, even if they love your product, will want to negotiate on price. If you don’t know what they pay for similar products, you won’t know when they are pushing back to get a good deal or pushing back because they can’t afford it. Do the research and find out how much similar products cost, and if possible how much that prospect pays for other products. Former employees are a wealth of knowledge on this front!
Large company HR teams are trained to make their initial job offer low, so they have room to increase the offer if you negotiate. Make sure to research the industry benchmarks for your role, and the range of compensation the company pays relative to those benchmarks. While companies are required to publish those ranges, they publish such wide ranges as to make it useless. Talk to former employees to learn the truth!
It might seem like a lot of work to create negotiation leverage in advance, especially if you never end up needing it. The good news is that you can do it whenever you have downtime, since there is no rush if you get a head start. Experienced leaders make it like a part-time hobby, spending a few hours a month generating potential future options.
Do negotiation skills matter at all? Absolutely. Given two people with the same leverage, but different levels of negotiation skill and experience, the person with the better skills and more experience will do better.
So, read books on negotiation. Or better yet, get experience negotiating yourself! But remember that negotiation is a strategic problem so generate options for yourself long before you know if you need them.
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