CEO Best Practice: Negotiating Business Deals

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• Executive Summary
• Self Assessment Checklist

Expert Practices Articles

• Negotiating Win-Win Business Deals
• Six Steps to a Better Deal
• Playing the Negotiating Game
• The Art of Making Concessions
• Avoiding the Deal-Killers
• Dealing with Hardball Negotiators
• Improving Your Negotiating Skills

Book List: Negotiating Business Deals

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CEO Best Practice: Negotiating Business Deals

Executive Summary

• Negotiating Win-Win Business Deals
• Six Steps to a Better Deal
• Playing the Negotiating Game
• The Art of Making Concessions
• Avoiding the Deal-Killers
• Dealing with Hardball Negotiators
• Improving Your Negotiating Skills

Rather than approaching negotiations as a mutual problem-solving process, they see it as a kind of mental and verbal sparring session, where the side with the sharpest mind, toughest resolve and most aggressive tactics emerges as the victor. Such an approach invariably leads to win-lose or, worse, lose-lose outcomes, and their companies suffer in the long run.

Adopting a more productive negotiating mindset, say our experts, requires getting rid of some outdated notions about how to negotiate effectively. In particular, four common negotiating myths make it difficult, if not impossible, to create win-win deals:

• Negotiating myth #1: Negotiating involves competition.
  Reality: Negotiations involve exchanging information and resources in order to satisfy the different and sometimes conflicting needs of two or more parties.
• Negotiating myth #2: Negotiating involves bargaining.
  Reality: Bargaining is competitive; negotiating is cooperative. Bargaining focuses on who is right; negotiating focuses on what is right. Negotiating creates long-term deals and relationships. Bargaining agreements never last because the losing party always insists on the chance to come back and get even.
• Negotiating myth #3: Negotiating always involves compromise.
  Reality: Nobody wins in compromise because both sides end up getting less than they want or need.
• Negotiating myth #4: Effective negotiations involve the use of tactics, trickery and manipulation.
  Reality: Honest, ethical negotiators never try to manipulate or deceive the other side. Tactics should only be used in self-defense.

The bottom line is that negotiating business deals has nothing to do with bargaining, compromise and competition. To create win-win outcomes, both sides must:

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Six Steps to a Better Deal

Fleisher, Gilliss and Kaine, who between them have delivered nearly 600 Vistage presentations on the subject of negotiations, offer a six-step blueprint for achieving win-win deals:

1. Understand the other side. To solve the other person's problem, says Fleisher, you need to gather as much information as possible about their situation. Specifically, you need to know:

• Any existing time, industry and/or financial pressures
• Their corporate goals and objectives
• Their specific goals for the negotiation
• Their options if they don't make the deal with you
• The personal goals of the negotiator
• Who makes the final decision on the deal

"Smart negotiators spend far more time on research and discovery than they do on the actual negotiations," notes Fleisher. "The more information you have, the greater your ability to solve the other person's problem to your advantage."

Kaine also recommends finding out who you're negotiating with. "One of the first things in any business negotiation is to establish the honesty and ethics of the person sitting across from you," he explains. "A lot of people say they want a win-win outcome, but their negotiating style and strategy often prove otherwise."

2. Plan your approach. A planned approach starts with having a crystal-clear understanding of your own position. To clarify your position, Fleisher recommends identifying three different deal scenarios:

• Best possible outcome
• Worst acceptable outcome
• Expected outcome

These outcomes establish the ballpark you will play in. Without them, you have no realistic starting point. In addition, say our experts, the best deal-makers always prepare two other key elements:

• Walk-away point. This sets an absolute limit on the least favorable outcome you will accept. Anything less and you walk away from the deal.
• BATNA. Your "best alternative to a negotiated agreement" identifies what will you do if you can't reach agreement on this deal.

"As long as you have these two elements in place, you can't cut a bad deal," insists Fleisher."

Our experts also recommend the use of role play as an additional planning element. The more you know about how the other side might respond during the negotiation, the greater your chances of creating the outcome you want.

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Playing the Negotiating Game

Kaine believes that the person who controls the tone, tempo and format of the negotiations has a decided advantage. He recommends five principles for tipping the control factor in your favor:

1. The person who speaks first sets the tone for the negotiation.
2. The person who asks the most questions determines the content and direction of a negotiation.
3. Never argue with the other side.
4. People do things for their reasons, not yours.
5. The party that listens the most will have the greatest effect on the outcome of the negotiations.

Ultimately, reaching an agreement that works for both sides comes down to making sure the other person feels like they got what they needed from the deal. To increase the odds of reaching this outcome, Gilliss recommends the following:

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The Art of Making Concessions

Great deal-makers have a knack for making the right concession at just the right time. To improve your ability to make concessions, our experts recommend the following:

• Do the research. Make a list of "items of value" and use them when the other side asks for concessions. Also make a list of things you want in return.
• Never respond immediately to a request for a concession. Instead, use time to add uncertainty, thereby adding value to the concession when you make it.
• Never make a concession without asking for one in return. If you give without getting anything back, you reinforce the behavior of asking for the concession.

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Avoiding the Deal-Killers

One key to successful business deals is avoiding the major deal-killers while minimizing the minor gaffes that don't necessarily prevent an agreement but lead to less than ideal outcomes. These include:

• Going too fast
• Failure to establish your walk-away position
• Assuming the other side looks at the deal the same way you do
• Taking a short-term view

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Dealing with Hardball Negotiators

Worse, they tend to pursue win-lose outcomes. Negotiating with these people requires a careful assessment of the situation and a slower, more deliberate approach to the deal.

When faced with a hardball negotiator, Gilliss recommends the following:

1. Take a hard look at all the implications of the deal and what you stand to gain from it.
2. Hold fast to your walk-away point.
3. Don't get caught up in an auction mentality.
4. Watch out for individuals who just want to win.

Successfully negotiating with hardballers requires a three-pronged approach:

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Improving Your Negotiating Skills

To advance your skills as a negotiator, Fleisher, Gilliss and Kaine offer the following techniques:

• Conduct a negotiation plus/delta. Make it a habit to critique your performance after every business deal, identifying areas that went well and those that could stand improvement.
• Role play before every negotiation. Especially include reverse role play, where you try to determine how the other side will approach the negotiation.
• Understand the real meaning of "win-win." According to Kaine, "win-win" does not mean equal win. One party may gain more than the other, but as long as you both gain more by negotiating, you come away with a win-win deal.
• Avoid using tactics. Never introduce anything into the negotiating process that smacks of underhandedness, manipulation or deceit. Tactics should only be used to defend yourself from unscrupulous negotiators.

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