In this episode of Side by Side Digital, one of our long-time leaders, Jim Knuth, discusses the principles and pitfalls of negotiating. He also offers tips for effectively communicating your position. Below are highlights from the podcast on business negotiations.
Eight Business Negotiation Principles
Take control. Have the discussion at your place. Set the time, the agenda, the priorities and even the fact that there's going to be a negotiation. By controlling the situation, you are better able to decide what topics are discussed, the priorities and how the negotiation is going to go.
You also can take control in more passive ways. Summarize where things stand and maybe restate the other party's position to ensure understanding.
Bottom line, take control of as much of the negotiation as you can, because at the end of the day, the party that takes control generally has more control over how issues are resolved.
Share information. This is a time for transparency.
Transparency builds trust. You want to work toward win-win solutions. If you want to hold your cards close to your chest, you put the other person on the defensive and you are going to decrease trust.
Here's the psychological point: People tend to follow the norm of reciprocity. In other words, they respond in kind to how you treat them – negative to negative, closed off to closed off, open to open, positive to positive.
You want to share information. You want to be open to build longer-term, productive business relationships. And maybe most importantly, you want to build your case.
Use facts, not feelings. This is your chance to get the important facts out on the table, even prioritize them.
Successful negotiators separate business from personal, facts from feelings. They stay calm and poised, and don't let difficult personalities or different styles drag down the negotiation.
Lastly, they avoid using personal language like, “I believe,” “I think” and “In my opinion”. Stick to statements of fact.
Make the first offer. This defies that conventional wisdom of being a tough negotiator – don't tip your hand, hold your cards close.
But research has shown that people who make the first offer tend to get terms closer to their target price. This is the psychological principle of anchoring. In other words, where is that first stake in the ground, where is that anchor? Whatever the first number is on the table, it sets the stage. The other party typically starts to work around it.
Question rather than demand. If the other party has taken a hard line on certain issues, sometimes the best approach is to simply ask why.
Why is that important to you? How did you arrive at that number? Or maybe ask an open-ended question. Tell me more about that?
Again, be careful not to fall into the demand trap. Questions tend to open the discussion up and be more productive. Arguments and demands tend to close communication down.
Break negotiations into parts, when appropriate. Some negotiations break down because the parties take an all-or-nothing stance. You have to agree to all of the terms and conditions to move forward.
A good way to avoid this roadblock is to break the negotiations into parts or sections, starting with some of the easy ones. This way you can reach agreement and have some a sense of moving forward.
Another tactic is to offer more than one solution or option. In other words, would you like red or blue? Do you want large or extra-large? Would you prefer cash rent or a flex lease again?
When you offer more than one option or solution, you tend to start comparing and contrasting those options, having dialogue and finding middle ground. Again, it's another sign of progress.
Counter offers increase satisfaction for all parties. Here's the bottom line – rarely accept the first offer.
Every buyer wants to feel like they got a good deal. Every seller wants to drive a hard bargain. And both parties are going to feel a little more satisfied if there's some give and take. Making a counter offer also ensures you are getting the best deal.
Know your target price – and your walk-away terms. Negotiating parties usually know their target price or what they are hoping to get.
The key is to also know the range or point where you need to stop or walk away. If you don't know both, it can put you at a huge disadvantage, especially when you get into the heat of the moment. If you don't know your walk-away point and have a very clear idea of your limits, you will likely agree to terms or conditions that you will regret later.
Putting Negotiating Principles into Action
Take this story of a young producer who was about two years out of college. He came home to farm with his dad. They had a good-size grain operation, and his dad gave him the task of trying to convert all their cash-rent agreements to flex leases.
This producer invited all of the landowners, one by one, to their operation. He made a seven-year scenario of the differences between the terms of their cash rent and the flex lease proposal.
He certainly was sharing information. He used facts, not feelings. Clearly, he made the first offer. He knew his target price and his walk-away point. And he broke the negotiation with some into parts.
Over the next two years, he was able to convert all but one of their cash-rental agreements to a flex-lease agreement. He followed a lot of the fundamentals of business negotiations.
Avoid Business Negotiation Pitfalls
Let's flip the coin and talk about what not to do.
Poor planning or no planning. Successful negotiators plan ahead. They do their homework and they know their priorities, alternatives, target price and walk away.
This is not a time to wing it. The old saying is true here. Failing to plan is planning to fail.
Thinking the pie is fixed. It's usually not.
This is part of the planning process. You have to look through the other person's eyes. Do you understand what is important to them, their preferences and their bottom line? By focusing on only one aspect of the negotiation – usually just price – you might be leaving other win-win alternatives or options on the table.
Say a landowner lives two hours away and their elderly mother still lives on the home place. What may be important to them is that somebody checks on her once a week. Or maybe that someone mows her driveway or removes the snow in winter. Or a landowner could be concerned about the quality of their ground conservation, and you offer to put in a buffer strip by the creek, plant cover crops or do no till.
Don't always think the pie is fixed. There may be other options and alternatives to reach a deal.
Failing to frame up the issues. Don't start by throwing out a number. This can quickly lead to a take-it-or-leave-it situation.
Framing up the issues is all about telling the why around your proposal. Maybe why your offer is within industry standards or reflects current market conditions. Why there needs to be a change in terms or price. It puts a foundation under your offer or deal. Failing to frame up the issues is a big mistake.
Not watching where anchors are set. Remember, an anchor is the first price you stick into the ground. There are always adjustments from those anchors in negotiations. The key is to be mindful of where the anchor is set.
As an example, you are the seller of a house listed for $500,000. A buyer offers $375,000, a pretty lowball offer. You decide not to respond. A few days later, that same buyer comes back with a $425,000 offer and you decide to counter with $495,000. The buyer comes back with an offer of $435,000 and complains, “I have come up $50,000.” What is your response?
Think about that. Where were the anchors set? The fact is, you have both given in by $50,000. From that first offer, the anchor wasn't set. So, watch where anchors get set in a business negotiation.
Caving too quickly. This can be an outcome of the first four pitfalls. You didn't do your homework, didn't plan, thought the pie was fixed just around price, didn’t frame up the issues and you didn't watch out for the anchors.
Guess what? You have nowhere to stand and maybe have turned it into a take-it-or-leave-it situation. Negotiations aren't always meant to be quick and easy. It's great if they can be. But successful negotiators are comfortable with some time and tension. Ideally, you want the other party to respond to you, not the other way around.
Gloating. The goal is to work toward a win-win outcome, not win, lose. Gloating doesn't make long-term, productive relationships. In fact, gloating will only drive the other party to extract the difference sometime later.
Business Negotiation Communication Tips
We've talked a little bit about the business negotiation basics. In other words, what to do. We just talked about what not to do. Let’s finish with some communication tips: Be clear, concise, crisp and direct.
Remember, the goal of any communication is to create understanding. That understanding has to be through the eyes and the mind of the other party. So, test yourself. What are you going to say? What are the words you're going to use?
Usually in business negotiations, less is more. Be very direct. Don't confuse the other party.
Be calm. Negotiations can get heated, emotional. Keep your wits about you, and think on your feet. This will always give you an advantage.
And be confident about your offer, your why and what you are saying. People tend to read when you're not confident and that can undermine your position.
Lastly, be compelling. Be convincing that you are presenting a fair offer and that you're working toward an agreement with the other party.
