Setting your intentions and defining the negotiating relationship is a key part of the negotiation process.
The first step in any negotiating process is defining and understanding the context you’re operating in.You have to understand the strategic environment of the negotiation in order to be successful. There are several elements to defining this context. First, who is the decision maker? And why are they doing this? The better you understand these players and what they’re trying to get out of the negotiation, the more successfully you’re going to be able to approach them.
Second, define your goals. What are you interested in and what do you need. By laying out these objective functions you can focus on achieving them during the negotiation and make sure that you don’t accidentally give them up. Third, what are the outcomes that are in play? What’s at stake? So when you look at the final negotiation, what are those possible end states. What do you risk losing? What do you risk gaining?
Next, define the other options you’re considering. Many negotiations have many different outcomes that you can pursue. By defining what these options are, you’re better able to determine which one you should pursue. And last, what will it take to close the deal? Trying to get a clear understanding of what’s going to lead the other party to say yes and what’s going to get approval on your end for the negotiation is critical.
An example of a negotiation I went through where we had to clearly define the context, was when we were trying to buy back a franchise operation. The owners were looking to cash out. They wanted to sell their franchise back to us as a corporation. Our goal was to buy access to their market, but do so at a reasonable price. So these were the goals of the parties that were involved. Now, the options we had available to us were either a full purchase of their territory or no sale and they would retain it. We couldn’t buy a portion of it and we couldn’t enter that market without making a purchase. So, we had those two option that we had to think through and evaluate. And then last, we had to understand that it would take significant cash up front and we had to look at our ability to pay that as well as what that offer would be worth to the franchise owners.
By laying out this complete context to the negotiation, we made our negotiating position much stronger because we understood what we wanted to get out of the deal. As you look at negotiations you enter, make sure you take the time to define this context and document it so you can go back to it on a regular basis, test your assumptions, and stay on track to achieve your goals.
Relationships in any negotiation are critical to understand. You have to step back and look at the players and really appreciate how important the relationship is to you. As well as, how valuable the relationship is to your opponent. Is this a long-term or short-term relationship? You have to look at the past history you’ve had with this individual as well as, looking at your opponent and the future history they want to have with you. By understanding if this is a new relationship or if you’ve got history, it’s going to inform your negotiating approach.
Relationships make all the difference. Failure to consider those relationship dynamics can win you the battle in that short-term negotiation and you may get the deal done, but long-term, you’ve lost the war, and the long-term contract. This can make future deals harder to do.
For example, I was conducting an acquisition and we had a mid-term challenge with the person we were purchasing the business from. We had a relationship with them and that relationship was important to us, but the relationship didn’t matter to our opponent. He was changing industries. He was moving on completely, but we had a reputation to protect. So, the relationship dynamics in this situation were uneven.
We had to approach the negotiation differently than he did. We had to handle this deal very carefully because this deal was going to impact future acquisitions we were looking to do. The reason for that was, this individual would absolutely talk to other people who were trying to sell their business to us, and he would either say nice things or not so nice things based on the way this negotiation went. For him, it didn’t matter what the ongoing relationship was because he was getting his money and moving on.
The dynamic that created was we were much more willing to make concessions, while he was able to take a much more aggressive negotiating approach. In the end, we made a lot of concessions to keep him happy in the negotiating process versus trying to extract the most value we could from the deal. Ultimately, in the short-term, that looks like it wasn’t a great decision because we overpaid for his business, but long-term, that relationship mattered and he said some great things about doing a deal with us. As you look at your negotiations you’re entering into, understand who the players are, and what that relationship dynamic is. Once you understand it, adjust your negotiating approach appropriately.
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