Essential Business Building Skills: #3 Learn how to negotiate
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In business, negotiation is the give-and-take process where two parties seek common ground to reach an agreement or settle a mutual concern. It occurs in banking (lines of credit), investor relations (equity stake), contracting (bidding), and product delivery (transference of assets).
Knowing how to negotiate is an art. It’s getting what you want or need at a favorable price. After a successful negotiation, each side should walk away feeling satisfied that they benefited from the negotiated agreement.
The bottom line is knowing how to negotiate well is critical to the success of your business.
Learn to Negotiate from the Pros
Not everyone finds negotiation easy. For some, learning how to negotiate comes naturally. For others, however, it’s a struggle.
If you feel shortchanged after each deal you negotiate, it’s bound to be frustrating.
The good news is that you can learn how to negotiate successfully from those who have significant experience crafting good deals.
There’s a valuable lesson to learn, whether negotiations involve salaries, buyouts, mergers, large customer contracts, salaries, or employees wanting vacation that conflicts with the seasonality of commerce.
In this series on the essential skills you need for your business to succeed, we’ve covered learning how to fail and the art of selling. Here we will share the third vital skill: how to negotiate effectively and strike a better deal.
How to Negotiate: Skills and Tactics
1) Approach Negotiation with the Right Attitude
Some believe that effective negotiators are adversarial and hostile. We could not disagree more! Those who believe that are effectively telling you to just agree to a deal and forget about negotiation.
Good negotiation should not end with one side taking all. If the other side feels that they lost everything, they won’t want to do business with you again. The aim is to meet somewhere in the middle.
When both sides reach a mutually beneficial agreement, it can lead to a lasting and productive relationship. So, consider the long-term consequences, along with any immediate gains you hope to achieve.
Even with the upper hand, you may decide to make a calculated concession looking to secure a better deal or partnership down the road.
Regardless of where the discussion is heading, check your ego at the door. Keep your eye on the big picture and remove emotion from the business decision.
“The most difficult thing in any negotiation, almost, is making sure that you strip it of the emotion and deal with the facts.”
— Howard Baker, former Senate majority leader, diplomat
2) Be Prepared
Great negotiators know their opponents’ strengths and weaknesses, as well as their own. When you are up against Goliath, that just means they have information that is useful to your points.
Being prepared means reviewing their website, reading their articles, and conducting a thorough search on Google and LinkedIn. You’re aiming to find out the following:
- The experience and education of the person you will meet
- The role competitive pricing plays in your meeting
- If the party is authorized to make a decision
Forbes recommends clearly defining the following parameters in your mind before going into a negotiation:
- The ideal outcome regardless of what you believe the other party will agree to
- Nonnegotiable requirements and the bottom line below which you’re not prepared to go
- Priorities for a successful outcome and what you are willing to trade away
- Any terms you may want to introduce tactically during the process
3) Be Strategic and Methodical
Before you start, it’s a good idea to set any ground rules of how you plan to negotiate. This will help build trust, keep the negotiation on track, and maintain a respectful and productive dialogue.
Although negotiation is a tactical process, it’s not a poker game. By making priorities clear from the outset—without giving away all the secrets—both sides can build rapport and promote cooperation and trust.
During the discussions, focus on the process rather than the outcome. Be purposeful rather than combative. Keep in mind what you want and what the other party wants. Don’t cave or concede as you remain patient and confident in your value.
Consider making the first offer. Doing so will throw out an “anchor” or reference point for the counteroffer. You’ll begin closer to your ideal outcome and improve the chances of success.
But if you think you might have underestimated the true market value, this might not be the best approach. It might be better to hold off and let the other side go first. After all, you don’t want to pay more for something or receive less value than it’s worth.
Generally, offers should be a specific price rather than a price range. That’s because the buyer will naturally consider the lowest end of the range. They will assume it’s acceptable to you and make it their starting point.
Don’t worry about insulting the other party regarding price, quantity, or quality. As long as your offer isn’t ridiculous, the negotiation will continue as you methodically find the padded margin in the deal.
In addition to leveraging the other party’s weaknesses, concentrate on making the most of your strengths.
“You can look at the situation and feel victimized. Or you can look at it and be excited about conquering the challenges and opportunities it presents.”
— Jack Welch, business executive, author of Winning
4) Be Dynamic
Remember the cardinal rule of negotiation: If you don’t ask for it, you will not get it.
Being a great negotiator means adapting to the situation you are presented with and taking calculated risks. You must understand who has the greatest leverage to make these tactical decisions. Think about the answers to the following questions:
- Who stands to gain or lose the most?
- What options does the other party have to work with?
- What deals have the competition made in the past?
- What time constraints are at play?
Remember, time kills more deals than anything else.
5) Be a Great Listener and Ask Questions
The one who talks the most is likely to have the most to lose. Talking too much can lead you to give too much away. In learning how to negotiate, remember that silence is a powerful tool.
This is not the time or the place to talk about how great you are. Great negotiators answer questions with questions.
So, practice active listening. Pay attention to what is being said, asking open-ended questions to learn as much as you can about where the other party stands. Listen for limitations, flexibility, and what is most important to them.
If you get them talking about themselves, you are in control. Inform your negotiation strategy by asking them about pricing, assurances, alternative products, competitive products, timing, delivery, features, benefits, contract language, etc.
But you should also listen to what is not being said. You can learn from that too.
“During the negotiation process, it’s common for misconceptions to occur since both parties assume what the other person is saying or thinking. This can lead to conflicts or disagreements.”
— John Rampton, entrepreneur, investor & influencer
6) Be the One with the Options
Don’t enter a negotiation with only one option. You must have alternatives and things that can enhance your position without hemorrhaging your gain. Avoid exclusive negotiations with one party until you have reached a meeting of the minds.
“Negotiating, as opposed to bargaining or haggling, can create new value rather than just distributing it. New value is created by trades—asking for something you want and giving something in return. Having several negotiation issues to trade helps ensure that you can enlarge the pie rather than cutting ever-thinner slices of it during the process.”
— Martin Rand, strategist, Forbes contributor
7) Be a Winner
If you negotiate a bad deal, you will fight that deal during execution and delivery—it’s not worth it. Upon reaching a satisfactory agreement, thank the other party, but don’t celebrate!
Celebrating the outcome of a negotiation sends the signal to the other party that they have been taken advantage of. Sending this signal will jeopardize the long-term potential of the relationship.
When both parties feel great, and you have a win-win solution, get all the terms in writing. If it’s a big deal, have a lawyer draft it and choose one both can agree on.
The art of negotiation for the entrepreneur and small business owner is about being the anchor. Take the high road, don’t argue, and seek to understand before being understood.
Don’t think of the process as a one-time agreement. Think of it as a long-term relationship.
When you learn how to negotiate, focus on understanding the key characteristics that great negotiators have in common. They are…
- Prepared for negotiation
- Strategic and methodical
- Great listeners
- The ones with the options
- The ones asking the questions
- Winners without creating losers
Keep in mind that negotiation is an art and is critical to the success of your business. Learning to do it effectively means the difference between a mutually beneficial compromise and a total loss. Don’t underestimate the importance of knowing how to negotiate!