Negotiate like the big guys

TAKING CONTROL SERIES

NEGOTIATE LIKE THE BIG GUYS HOW SMALL AND MID-SIZE COMPANIES CAN BALANCE THE POWER IN DEALING WITH CORPORATE GIANTS SUSAN ONAITIS SILVER LAKE PUBLISHING L O S A N G E L E S, C A A B E R D E E N, W A

Negotiate Like the Big Guys How Small and Mid-size Companies Can Balance the Power in Dealing with Corporate Giants First edition, second printing 2005 Copyright © 1999-2005 by Susan Onaitis Silver Lake Publishing 111 East Wishkah Street Aberdeen, WA 98520 Negotiate Like the Big Guys is the latest title in Silver Lake Publishing's “Taking Control” series for business owners. For a list of other publications or for more information from Silver Lake Publishing, please call 1.360.532.5758 or visit our Web site at www.silverlakepub.com. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transcribed in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of Silver Lake Publishing. Library of Congress Catalog Number: pending Onaitis, Susan Negotiate Like the Big Guys How Small and Mid-size Companies Can Balance the Power in Dealing with Corporate Giants Includes index Pages: 276 ISBN: 1-56343-855-0

ACKNOWLEDGMENTS

Many people generously shared their time, expertise, anecdotes, advice, and support to make this book happen. I’d like to especially thank the following people: Ken—for his 30 years of support and love, and his often expressed belief that I can do anything I set my mind to; Nancy Hightshoe—for recommending me to the editors at Silver Lake and for her encouragement and faith; Angela Moore—for advice and expertise early in my career that helped me negotiate my own employment contracts; Broadmoor Professional Women’s Poker Club—for helping me recognize the link between being a good poker player and an effective negotiator; Al Smith—for putting me in touch with a network of people who gave generously of their time and experience; Sterling “Bud” Dimmitt—for ideas and entrepreneurial spirit; Carmen Dubroc—for gender expertise; Viva Knight—for the Kuwait anecdote; Steve Zuckerman—for making me bend my own negotiating rules and reminding me why I shouldn’t do it again; Lois Ebin—for being a savy international deal maker; Catherine Stein—for helping me practice what I preach; Myrna Socol—for good anecdotes, advice, and support; Carol Green—for labor/management views;

NEGOTIATE LIKE THE BIG GUYS Cindy Allaf—for a new view of labor/managment negotiations; Briana Joy Beveridge—a mentee who taught me more than she will know; Isabel Kersen—for naming the book, continued support and encuragement; Beth Phillips—for international expertise; all clients with whom I have negotiated—for the experience it gave me necessary to write this book and teach the skills of negotiating. Susan Onaitis, New York February 1999

TABLE OF CONTENTS

INTRODUCTION David vs. Goliath: Power and Negotiation ......................... 3

CHAPTER 1 Moving Away from the Traditional Approach ................... 19

CHAPTER 2 Various Negotiating Styles ............................................... 39

CHAPTER 3 Mastering Adversarial Negotiating ................................... 61

CHAPTER 4 Collaborative Negotiation ................................................. 89

CHAPTER 5 Anticipating and Handling Price Pressure ..................... 105

CHAPTER 6 . ........... Negotiating Etiquette: Letters, Faxes and E-mail ..................................................................... 133

CHAPTER 7 How to Handle Lying and Dishonesty ............................ 149

CHAPTER 8 Alliances—The New Rules ........................................... 167

CHAPTER 9 Human Factors: Nationality, Ethnicity .............. and Gender ................................................................... 193

CHAPTER 10 Dealing with Differences in Corporate Culture ........................................................................... 207

CONCLUSION How to Prepare for a Big Negotiation ............................ 217

APPENDICES ................................................................. 235 INDEX ........................................................................ 273

NEGOTIATE LIKE THE BIG GUYS

INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION

Introduction

DAVID VS. GOLIATH: POWER AND NEGOTIATION The 1990s have seen the business world change more dramatically than any other ten-year period in modern times. As people in business, we’ve become immune to the scope of these changes. The telecommunications industry has reversed itself—and reversed itself again. The Internet has changed the way people and businesses communicate—and Internet stocks have rocketed through the financial markets. Traditional corporate giants lay off tens of thousands of employees...and then nervously look for merger partners. In the midst of all this chaos, more people than ever are starting their own businesses. Are they visionary? Are they reckless? Who can tell? The only certainty is that the coming decades are going to see more ambitious small companies doing business with fewer nervous large ones. This leads to some common stories. A plucky entrepreneur anxious to close a big piece of business walks— alone—into a conference room where a dozen middlelevel managers, lawyers and consultants wait to deconstruct her proposal. How much will she give up to get the contract? The senior executive who spent twenty years making deals for a large company is laid off—and on his own. He’s got some cash to invest in a start-up...but he doesn’t have the support staff he used to. What will he put at risk to take a chance on a great prospect? And can he step in as the rainmaker to help a couple of twentyyear-olds actually do some marketing?

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NEGOTIATE LIKE THE BIG GUYS In these cases, the upstart Davids are facing the corporate Goliaths at the negotiating table. The rules for these exchanges are different than traditional negotiating rules. They’re more fluid. They’re more risk-prone. And they’re better for the upstarts. This book is about these new rules.

The entrepreneurial mindset In a small business, the decision-maker’s mind is usually racing from exuberance to paranoia...and back again. Where does my power lie as a small company trying to entice a huge company to do business with me? Why do they need me as much as I need them? How can I uphold the integrity of my pricing structure when a large company seems to hold all the power? How can I build lasting relationships with my customers and secure the repeat business that cuts my marketing costs? Are there opportunities to barter my services in exchange for the services I need? How can I negotiate business contracts that meet my needs and still form long-term relationships with customers? As a small business owner, independent contractor or entrepreneur, you must have a new approach and different skills than you needed 15 years ago to negotiate deals. You need to adopt a new definition of negotiating. You have to re-define the words customer and competition, and re-examine how you contract with customers. In the book Technotrends, technology forecaster Daniel Burrus writes that “Collaboration rather than confrontation is going to be the norm in the twenty-first century, and with forward-thinking organizations it already is.” True enough. But this is a big-picture observation. It’s an impression made in broad strokes. It sounds good at a cocktail party...but what does it mean when you’re offering a deep discount to a customer you’d never heard of six weeks ago? If you want to be in business—and doing well—after the turn of the century, you must become expert at forming alliances and negotiating solutions that maximize gains for everyone involved. You must understand and prepare for the nuances of intercultural negotiating. You should be

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INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION able to recognize when the traditional “wince and flinch” approach is being used on you—and have the skills to transform that approach into something more forward-looking.

The obvious analogy Throughout this book, we will come across the image of David and Goliath—used by various people in various situations. The analogy to the negotiations we’ll discuss is obvious. And it’s appropriate. But, right now at the beginning, let’s take a moment to consider it in some detail. If you remember the Biblical story from your childhood, you know that Goliath was a giant Philistine soldier who went around the countryside bullying people and using his size to intimidate others to get what he wanted. David was a small Jewish boy who was brave...and maybe crazy...but destined for great things. David challenged Goliath to one-on-one combat. The prospect seemed laughable, even to the people on David’s side. But the boy moved more quickly than the giant could respond. With one clean shot from his slingshot, David killed the killer. He surprized even himself. The moral of the story may seem obvious: Size and strength don’t necessarily beat skill and confidence. But there are more nuances to it than that. The story offers other lessons. Power doesn’t always come from size and strength. And, more often than you’d guess, the little guy holds the power and doesn’t know it. There’s an old refrain in negotiation and strategy schools that the person who has the least to lose holds the power in a negotiation. And that may still be true in some situations. But, like the David and Goliath story, there are more subtle readings to make of it. Power is fleeting. It can change in the course of a business relationship. Sometimes, it can change even during the course of a single negotiation. This may be because the person who has the least to lose may change. Think about it. If you can walk away at any time and feel that you have not lost anything of value, you can afford to push the negotiation to the limit to get what you want. It gives you more strength than if it is a high stakes interaction and you have a lot invested. 5

NEGOTIATE LIKE THE BIG GUYS If you look at negotiating from small business owners’ perspective, very often they need the business so badly that they don’t feel like they are in a position to walk away from anything. They may often feel powerless in the face of the demands of current and potential customers, and may cave in because they feel the other party has all the power. But this is all perception, which is often...mostly ...projection. Where does the small business person’s power in a negotiation really lie? That’s the essential question. If you really need the business and can’t afford to lose a deal, how can you avoid making concessions that will hurt you in the long run? Also, how can you make any demands or ask for concessions yourself?

Confidence and belief in your own power In today’s business world—where getting things done at big companies often seems to take an act of God—the small business owner or independent contractor holds a lot of power when it comes to negotiating. If nothing else, flexibility gives entrepreneurs some extra muscle when it comes time to getting in the ring with the big guys. But, how can a small business person get the most out of that extra muscle? And how can he be sure he’s getting it? Isabel Kersen, former Vice President of Sales Training for cosmetic giant Cosmair, Inc., says, “Because belief in power makes taking action unnecessary, we seldom test the power we attribute to others. Because we believe that a large account will ‘throw us out’ if we don’t cooperate, we seldom get tough with them and see if they really will or at what point they will.” In other words, big companies need small companies as much as the small players need the large. This may sound slightly cosmic, but it gets down to some basic questions. What is power? Who has it—and how do you find that out? How can you use it if you have it? What should you do if you don’t feel you have it? Where does power originate? When is it wise to put the power aside? In order to understand how to use power, you must first know what it is. In a negotiation, power typically means

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INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION having the upper hand or a position of strength emanating from a characteristic or circumstance. Power, in short, is the ability to influence or control. Power in and of itself is neither negative nor positive. How you use power is what puts a positive or negative spin on it. Power can also be seen as the effective use of behaviors that achieve the best possible outcome for all involved. Before entering a negotiation try to be clear about who has the power and where that power is coming from. Power has many sources and if you can determine the source of the other party’s power, you can be prepared to deal with it more effectively. Many people misunderstand power and make assumptions about it that aren’t true. For example, some small business owners believe that they need large companies more than the large companies need them. They neglect to analyze their own sources of power and in a negotiation end up caving in at the slightest demand from the large company. They fail to see their own strengths and the reasons why the large company came to them in the first place. It is common to enter a negotiation where you and the other party both have some power. In fact, that is a more probable scenario than one or the other of you having significantly more power than the other. In that case, it is wise to analyze the sources of power for both before you enter the negotiation so you can anticipate how and when that power might be used.

The nature of negotiating power Some people believe that if you have the power, you should use it to gain as much as possible for yourself. But, that attitude is only acceptable if you are willing to take the risk that the relationship might be irreparably damaged as a result. If you are buying a home and don’t particularly care about the relationship with the realtor, that attitude is fine. But if you are negotiating a business deal with a customer, partner or competitor, it doesn’t make good sense for the long term. Mazda Motors first introduced the Miata roadster in the early 1990s. The little convertible quickly became one of the hottest-selling cars in the American market. Mazda 7

NEGOTIATE LIKE THE BIG GUYS couldn’t produce the things fast enough to satisfy the public’s demand. The scarcity may have been good PR, but it was actually bad for Mazda, which missed some sales because of the shortage. Who gained the power in this episode? The Mazda dealers. They were in control of doling out the hot cars. Many marked up the cars by as much as a hundred percent over invoice price—shrugging off any complaints by claiming “It’s the law of supply and demand.” In the long run, Mazda’s approval rating—especially for service-related matters—plummeted. Car buyers knew they were being bled by Mazda dealers...and they didn’t like it. In a marketplace in which the average consumer spends over $325,000 in a lifetime and has a memory like an elephant, the short-term bonanza generated by the Miata cost some long-term goodwill. Several years later, Mazda was bankrupt and looking for another car company to bail it out. In his book, The Eight Essential Steps to Conflict Resolution, author Dudley Weeks defines power as “the capacity to act effectively and the ability to influence.” The flip side of that is acting inappropriately or abusing power. The misuse of power can lead to aggravation, increased conflict, and the eventual deterioration of the relationship. In a negotiation, the misuse of power can force the parties into adversarial negotiating, which, can be damaging to the long-term relationship between the parties. However, using power effectively can help the parties come to a settlement that helps build the relationship.

Traditional sources of power Where does power originate? If you don’t have the upper hand, do you have any power at all in the negotiation? And if you do, what is the source of that power and how can you use it? Many forms of power exist in the business world. Here are some traditional sources of power: •

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Positional power. Some people prefer to call this kind of power authority. It derives from the person’s position in an organization or commonly recognized hierarchy. Some people assume that, the higher up in any given hierarchy a person is, the more power she

INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION has. Certainly in corporations, businesses, politics, sports and entertainment that would seem to be true. A certain deference is often given to those perceived to hold positional power, whether they use the power of their positions or not. An example of this would be any CEO or Chairman of the Board of a company. The higher up the pecking order, the more power the person is seen as having. •

Personal presence or force. Some people by their very nature and presence are perceived to have strength. Characteristics of this personal charisma are assertiveness, self-confidence, self-initiative, and clear and direct communication skills. Often they are good speakers and recognized for their public speaking capabilities. Because of their confidence and ability to communicate, they are seen as powerful people. They often have a charisma derived from their personal presence that gives them power unrelated to their positional power.

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Information. Traditionally, information is equated with power. In large companies, the person who has the most information is seen as powerful. Convincing decision makers to share information with their staffs is one of the challenges of contemporary businesses.

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Size. As with Goliath in the childhood story, large, tall and/or physically imposing people are often perceived to have power simply because of their size. While this perception is often not true, size can be a source of power especially if it is combined with behaviors designed to intimidate.

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Intimidation. Sometimes power is derived from intimidation tactics. There are people who equate voice volume to power. They convey the impression of power by yelling, screaming, pounding on things, and generally acting explosive in order to get what they want. They are aggressive, harsh and generally nasty, and they look for weaknesses in their opponent that they can prey on. Even though former Soviet premier Nikita Khrushchev had positional power, he tended to use intimidation tactics to convey his power at the bargaining table. Another good example of power through intimidation is a gangster like John Gotti or Bugsy Siegel.

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NEGOTIATE LIKE THE BIG GUYS

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Skill at negotiating. If someone has a reputation for being a skilled negotiator, she might be perceived as a powerful person. This is the person you want on your side of the table in a negotiation. Prominent attorneys like the late William Kuntsler and Senator Edward Kennedy are seen as skilled negotiators and carry that reputation into the courtroom and on the Senate floor.

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Physical attractiveness. Someone who is seen as charming, fun-loving and sexually appealing can derive power from his physical attractiveness. We all know people who get their way because they are “sexy” or “funny” or “cute.” They basically appeal to others and use their physical attributes to get what they want. Celebrities like Richard Gere or Susan Sarandon are good examples of power derived from good looks.

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Allies or partners. Sometimes people can have power by association with powerful people. The “right hand” guy or gal derives power through her powerful boss, ally, partner, spouse or associate. Often they hold the key to accessing the powerful person, so they have what is sometimes called “referred power.” While Hillary Clinton is a powerful person in her own right due to her personal presence, she also has referred power by virtue of her role as First Lady.

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Manipulation. The use of game-playing, minor cons, schemes or ploys designed to gain the upper hand can be seen as a source of power, especially if positional power goes along with it. Richard Nixon was someone who outwitted people to get what he wanted. He not only had the positional power of the Presidency, but he also was a master at using his wits to outsmart his opponent.

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Ability to inspire trust. Eleanor Roosevelt had the ability to convey a sense of honest, sincerity, and genuineness so that even after her husband died and she was no longer in the public eye, she retained a tremendous powerbase of constituents. Building networks and forming bonds of friendship create power for the person forming those relationships.

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Ability to build coalitions. Some people have a knack for getting people to join forces toward a com-

INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION mon goal. They are skilled at building alliances and consensus among disparate groups where others have failed.

Nontraditional sources of power While it is helpful to know some of the traditional sources of power, if you are a small business owner who doesn’t fit into any of the traditional categories from which you can derive power, where is your power when you sit down with a big corporation to negotiate a deal? And where is your power when you bargain with another small business owner? Let’s look first at dealing with big companies as a small business owner. It is important to know what the big companies value that they don’t already possess. Using the preparation process outlined later in this book will help you assess what you can offer a big company that they will value because they don’t have the capability themselves or their way of doing it is too cumbersome. Speed and flexibility Small businesses are unencumbered by hierarchical levels that slow down decision making. Typically, small businesses can act quickly and make changes midstream without having to reinvent the process. Large corporations value the flexibility of small businesses and, therefore, in a negotiation, small business owners derive power from that flexibility. “Small companies have the opportunity to be innovative and quick,” says Marla Metzner, owner of Fashion Licensing of America, Inc., the company that holds the Ernest Hemingway and Great Gatsby licenses. “We can offer more and move more quickly than big companies,” she says, citing an example of a cruise line that wanted to name the restaurant on a new ship the Gatsby Dining Room. “They couldn’t pay our full fee, so I was quickly able to negotiate a reasonable fee and a couple of free trips, in lieu of our full fee. In many large companies it would have taken weeks to get approvals for such an unusual solution. I accomplished it in one phone call. The client was happy and I was happy.”

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NEGOTIATE LIKE THE BIG GUYS Entrepreneurial attitude From the beginning of the 1990s, the battle cry of giant companies has been “we’ve got to be more entrepreneurial.” In other words, they want employees to work as if they were acting as CEO of the company—make decisions, act, take risks and be totally responsive to their external customers. What happens in many big companies is that employees feel they need to please only one customer—their boss— in order to survive and even survive in the corporate environment. Because of that focus, many policies, projects, processes and products are created without even looking to the external customer of the company. Many opportunities await the employee that is willing to do so. However, employees want to make safe decisions and therefore often will make no decision. People who want to avoid taking the risk of making a wrong decision form committees to study the issue and implement their findings. If the committee’s solution doesn’t work, no one gets blamed because after all—it was the committee’s recommendation and you can’t fire the whole committee. In the meantime, nothing gets accomplished except meeting after useless meeting. Small business owners are risk takers and act quickly when they see opportunity. That is not to say that they act impulsively and without regard to the risks involved. On the contrary, real entrepreneurs weigh the possible solutions in view of resources and risk, then act decisively to accomplish the task in what they see as the best way possible. They learn from their mistakes and aren’t afraid to make decisions. It is these qualities of decisiveness and action that large corporations seek to imbue in their employees. However, because of the structure and reward systems established within large corporations, an employee with an entrepreneurial attitude is often seen as a maverick. Entrepreneurs aren’t afraid to rock the boat, whereas corporate employees are negatively reinforced for doing the same. So while they don’t systematically reward the behavior of entrepreneurs within their ranks, corporations do value the qualities and characteristics in an external entity. Therefore, entrepreneurial attitude is valued by cor-

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INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION porations and gives an external consultant or entrepreneur an edge in negotiations. Specialized expertise Many small business owners tend to focus their business on the products or services in which they have a specialized expertise. Most believe that focusing on their core competency is their best leverage for making a profitable business. Similarly, large corporations have been attempting to get back to their core business in the past decade, believing that the focus on what they know best will increase profits. The upsurge in outsourcing or outright selling off of parts of the business that are not core to their expertise has led large companies to search for experts in the areas where they are not specialists. This gives a small business owner a source of power she may not have had previously in negotiating. A good example of this is the training function at the DuPont Corporation in Wilmington, Delaware. DuPont’s core business is chemicals, not employee training. Yet for years they financed and staffed a training department of over 300 people. Then Forum Corporation, a small company that specializes in training, proposed to take over the training function since it is their area of expertise. DuPont, wanting to return to its core competency of manufacturing chemicals, contracted with Forum to handle employee training at the corporation for five years based on the premise that training was not DuPont’s core business and it didn’t want to be in the business of training. Even if a corporation doesn’t choose outsourcing as a solution, specialized expertise is often highly valued because many corporations tend to hire generalists and rely on outside people for a more focused, specialized approach to solving problems and enhancing productivity. Small business owners can derive power from a specialized expertise. “Small business people can lose power if they try to be ‘all things to all people,’” says executive coaching consultant Myrna Socol, who services a largely corporate clientele in the Northeast. “Saying you can do anything the

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NEGOTIATE LIKE THE BIG GUYS client wants or needs gives an impression of being a huckster, and that reduces your credibility in the client’s eyes.” Outside perspective “Outsiders” are thought to have an expertise and fresh outlook that corporate insiders don’t have. Outsiders are exposed to a variety of companies and are therefore thought to bring with them a broader view of problems and more creative solutions. Whether this is true or not depends on the outsider, but it is the perception among many corporate clients. Many people are surprised at the lack of corporate management support for internal people who want to be actively involved in professional groups or who want to attend outside conferences for continuing professional development. And sometimes employees themselves lack interest in expanding their vision outside their own corporation. This lack of outward focus creates an internal staff with myopic vision and limited resources to solve tough problems. Internal myopia is a source of power for an outsider who keeps up-to-date on the most contemporary thought and research in his field. “Insiders” often complain that “management listens to outsiders more than their own people.” When queried about this complaint, managers say that often their people are too close to the problem and too jaded by their knowledge of the inside to bring fresh ideas or approaches to the table. Small business owners can derive a certain power simply by virtue of being from the “outside.” Of course, it can also work against you if a client sees her industry as so unique that one has to have had experience in the industry to understand the problems. The trick is to see how outsiders are viewed by the client with whom you are negotiating. Customer service Since the early 1980s, large companies have been trying to “get closer to the customer” and thereby provide excellence in customer service. Many corporations have been successful at achieving that goal, but many more have 14

INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION not. Small business owners offer a personalized service that many corporations can’t or won’t offer due to costs, production strictures, company mores or simply a resistance to change. In his best-selling book Growing a Business, author Paul Hawken writes, “The degradation of customer service resulted from the assumption that the customer had to conform to the company, rather than the other way around. Large size is no longer an advantage.” Small business owners know they won’t stay in business unless they are customer-focused. Their future depends solely on their ability to meet the customer’s needs. Customers want to know who they are dealing with, and when they purchase they like to have personalized service. Small business owners and entrepreneurs understand the importance of that to their customers. “I am living customer service as I do it,” says executive coaching consultant Socol. “I can promise excellent customer service and I deliver it. I am there when the client wants me no matter what because I am in a service business. If I don’t provide above average customer service, I will be out of business.” Lower costs Typically, small businesses can offer specialized products or services at lower costs because they don’t have the overhead costs of large corporations. Of course that is not true in all cases. But where it is true, it becomes a source of power for the small business owner in the negotiation when used correctly. (Sometimes when customers negotiate price with a small business owner, they will use the issue of lower overhead costs to try to get a reduced price for the product or service.) Keep in mind that the price/value ratio is an attraction for a large company when looking at using outside resources to supply a product or service that would cost them more to make or do themselves. Resource network Many small business owners and entrepreneurs network to the extent that they have a cadre of expert resources in 15

NEGOTIATE LIKE THE BIG GUYS a wide variety of fields at their fingertips. When external suppliers become trusted allies of a big corporation, they often provide that client with access to their network of experts, bringing added value to the services already provided by that small business owner. The power of the “network of experts” is often helpful in a tough negotiation. It is one more reason large companies like to deal with small companies. “My relationship with many corporate clients is such that they call me for resources on a variety of issues unrelated to my own business,” says Nancy Hightshoe, a St. Louisbased motivational speaker. “When they trust me, they trust my referrals. And often people inside the companies I deal with don’t have the network of people I have because of my business.” Small business owners can offer added value to large companies in a variety of ways. Because they are not embroiled in the political scene or protocols of the large corporate clients, small business people can offer a fresh perspective, creativity, agility and out-of-the-box thinking desired by so many caught-in-their-culture giants. All of these capabilities are a source of negotiating power for the small company negotiating with the big guys. Now that we’ve established the power that small businesses derive from the added value that they can offer to large corporations, what about negotiating a deal with another small company as a supplier or a possible ally on a project? What are the rules when it comes to alliances and virtual companies? In a small business to small business deal, each brings certain strengths and advantages that make the sum of the two greater. In this scenario, you want to build on each other’s strengths as you put the deal together to maximize the gain for both. (Chapter 8 will take a closer look at forming alliances and partnerships.) In this situation, each business stands to gain more by working and building value through association. According to Steve Marshall Cohen, director of corporate development for Goldstein Golub Kessler & Company, P.C., an accounting and consulting firm in Manhattan, “Money follows value. Create the value, then the money will come.”

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INTRODUCTION: DAVID VS. GOLIATH/POWER AND NEGOTIATION Power and who’s got it in a negotiation are critical issues to address whenever you are headed to the bargaining table. Another critical issue is confidence. Many people fear negotiating because they don’t see themselves as skillful negotiators. Preparation and practice are key to enhancing your belief that you can become an effective and powerful negotiator. As Eleanor Roosevelt said, “You gain strength, courage and confidence by every experience in which you really stop to look fear in the face. ... You must do the thing which you think you cannot do.” Summary Owning a business relationship means that you first have to build it. Relationships are built on trust, openness, service excellence and common goals. The new rules of negotiating mean that you have your customer’s interests at heart, but not at the expense of your business. It means finding ways to join force with your customers or competitors, so that each of you stand to gain from the relationship. “Wince and flinch” negotiating needs to go the way of the dinosaur—it has outlived its usefulness in a world where business alliances and client-supplier partnerships built on a basis of trust and openness are the way business is done. Collaboration, partnering, alliances and maximizing gains for all is the way to do business today if you are to remain competitive. To succeed in a negotiation, you must be prepared— physically, mentally and psychically. To throw you off guard, the other person may try to force you into a surprise negotiation. A boss sticks his head in the door and makes a request to which he wants an immediate answer. Or, the phone rings, and a customer suddenly wants an on-the-spot price quote on a project discussed in vague terms months ago. Don’t be bullied into a negotiation for which you’re not prepared. No reasonable person should deny a reasonable request for more time—and you will gain time to prepare your case. You’ll also enjoy the advantage that comes from holding the negotiation at a time and place of your choosing. 17

NEGOTIATE LIKE THE BIG GUYS The purpose of this book is to guide small business owners and entrepreneurs through the new approach to negotiating that will enable you to take control of the success of your business. It also will teach the skills necessary to form the alliances that will take you into the next millennium. The book will provide insights on how to brainstorm solutions to business problems that will make your customers come back to you time and again. The worksheets in the appendices will enable you to prepare for business dealings that keep your company growth on target. This book will provide you with the knowledge and skills to negotiate in this new business world so you can “own the business relationship.” It will prepare you to handle any negotiating situation you may face in your business. This book will also examine new definitions of customer and competitor. It will challenge you to think strategically about business growth and new possibilities that skilled collaborative negotiating can help accomplish. We will lay the groundwork for the premise that changes in business have meant big changes in negotiation and deal making.

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH

Chapter 1

MOVING AWAY FROM THE TRADITIONAL APPROACH In the past, the game-playing, manipulating winner-takeall negotiating approach was as commonplace as the cradle-to-grave job security that big companies guaranteed employees at that time. Many of the recognized “fathers of business negotiating” wrote books and built consulting practices based on an approach to negotiating that has as its main premise the need to outwit and outmaneuver your opponent. In addition, success in negotiating almost always meant someone won and someone lost. Experts taught business people how to make sure they didn’t end up the losers. Little thought and few words were given to the idea of building trust and long-term client relationships. These things didn’t matter because, if you did lose a client, there was always another one right around the corner. Then something happened in the 1980s that changed the face of business, thus changing the traditional approach to negotiating. American business, realizing that it was slow to keep up with ever-increasing global competition and eager to amass greater rewards for shareholders, began to trim the fat and reduce its well-cultivated role as provider of employee entitlements. Magazine covers touted “the death of the lifetime job” and “the rise of the new employment contract.” American business began a period of white water change that had it examining everything from employee benefit plans to outsourcing non core business services to product introduction cycles to productivity improvement to relationships

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NEGOTIATE LIKE THE BIG GUYS with competitors. The seemingly unending pool of customers began to dry up as companies merged, global competitors took over, and old loyalties died off. The idea has evolved to a whole new level with the huge numbers of former corporate soldiers now hanging out their shingles as independent contractors and entrepreneurs. The downsizing of corporate America and the increase of global competition over the past 15 years has had wide ranging effects on how business is conducted, not only in America, but around the world. In America, this has meant not only the death of both the lifetime job and the unwritten employment contract between company and worker, but also major shifts in the following business issues: •

how companies are structured and restructured,

•

responsibilities of companies toward workers and vice versa,

•

how workers are viewed and supervised,

•

how we define management and what is required of managers,

•

how businesses are funded,

•

how work flows and is processed,

•

how many resources are available,

•

what we expect of workers,

•

where work is done—home, office, car, customer’s premises, etc.,

•

how we treat each other in the workplace,

•

the relationship between companies and their vendors,

•

how businesses view and treat customers,

•

how businesses see competition and how they deal with their competitors, and

•

who we negotiate with and how we negotiate business contracts.

A global trend While the European business community has held off streamlining due to a mix of complex laws discouraging layoffs, downsizing has now begun in earnest as Euro-

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH pean companies try to remain competitive and provide shareholder return as rewarding as in other parts of the world. Europe is facing some of the worst unemployment figures in its history. Jobs in the industrial and farming sector have been slowly disappearing for the last twenty years, but now white-collar workers are being hit hard in the same way American workers have been experiencing job loss for some time. Even Japan, long the model of employer paternalism and employee loyalty, is undergoing a major shift. More and more young, ambitious workers are leaving big companies to start their own businesses, layoffs and early retirements are becoming the norm, and job performance is pushing out seniority when it comes to pay raises. All around the world, business is changing dramatically. Everyone is fighting for a bigger piece of a smaller pie. And many are trying to create new pies. As a result, business practices we once took for granted, like traditional negotiating approaches, are falling by the wayside in favor of more collaborative, equally beneficial, win-win strategies. In this chapter, we will look at nontraditional approaches to negotiating that small business owners are using with success today. That doesn’t mean that traditional methods of negotiating are being abandoned by all. But it does mean that strategic companies who want to achieve long-term relationships with their business partners, whether they be customers, suppliers or competitors, are engaging in business practices designed to maintain healthy relationships that will endure into the next century.

The effects of on-line commerce Today’s business people may not be smarter than yesterday’s, but they have a huge advantage. They can turn to numerous sources such as the Internet, industry reports, catalogs and the news media to learn about products, markets and prices. They can even negotiate purchases via the Internet, buy at rock-bottom wholesale prices or deal through on-lines distributors. These trends also point to changes in how goods and services are marketed and sold. Salespeople may well

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NEGOTIATE LIKE THE BIG GUYS become something more like educated customer service representative people—who are knowledgeable, trustworthy and not focused on selling. They’ll be given little or no freedom to negotiate, which will be a relief to many customers. As a result, it’s likely that more business will be done in fewer meetings. But these changes put more of the pressure to sell on the owner or CEO. According to Glen Meakum, head of the on-line industrial-products marketer FreeMarkets OnLine, there are three hard truths about the Internet: •

it gives more power to buyers than to sellers;

•

it increases the risk that incumbent suppliers will lose business; and

•

it may force everyone to lower their prices.

Meakum’s argument is that, in a world in which everyone is linked together, it’s the buyers who gain power. Suppliers lose power. This is because electronic networks do two things: 1) they allow people who purchase things to get better information and make better decisions (an example: in the automobile market, numerous on-line services give people details about cars; as a result, any smart consumer can go to a dealer fully armed with invoice prices, etc.); and 2) they allow a buyer to put suppliers into direct competition with one another in on-line auctions. In a world in which information is more available and people aren’t getting business based on hard-selling, the most efficient companies should emerge. On the other hand, the Internet will be a threat to a sloppy producer with an aggressive sales force. “What I tell my clients is that if incumbent suppliers squeak, it probably means they’re scared, and that probably means they’re not very good,” Meakem told Inc. magazine. According to Meakem, the Internet’s focus should be on the decision-making process, rather than transactions. The reason is simple: Companies can save more by making the right purchasing decision than by shaving a few cents off of each transaction.

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH Negotiation provides you with the opportunity to create the kind of longer-term, value-driven relationships that will keep your business on a growth track now and in the future. It is time to take control of your business negotiations and make them work for the long term.

Adopting a new approach Negotiating has changed because business has changed. All traditional business practices have been called into question as markets, customers, competitors, problems and solutions have changed. Technology has been a big driver of the change. Technology has allowed us to look at markets differently, to look at product development and product introduction cycles in a new way, and to look at how we do business and who we do business with. In the book 2020 Vision, former Harvard professor and business writer Stan Davis, makes this point: “To design, produce, deliver, and also finance products in real time requires that all links in the business chain be tied very closely together. Suppliers, manufacturers, distributors, and retailers may still exist as independent companies, but the interdependencies among them become so total that the concept of an arm’s length relationship may disappear.” Another reason negotiating has changed is that the downsizing and outsourcing of corporate America has meant that many more entrepreneurs are out on the streets. Those whose businesses survive past the first year quickly recognize the need to be flexible and innovative if they are going to stay in business. John Sculley (of Apple Computer fame) believes that all innovation comes from small companies. Not some of it, but all innovation comes from small companies.” It is that innovation that makes them so appealing to big companies. And it is the resources and markets that make big companies so appealing to entrepreneurs. Big companies and entrepreneurs need each other and therefore must find mutually satisfactory ways to work together so that they can each take their share of the economic pie.

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NEGOTIATE LIKE THE BIG GUYS

The needs of corporate giants change It isn’t only big companies and entrepreneurs who need each other. Big companies need other big companies, and entrepreneurs need other entrepreneurs. There is a whole new dance of negotiating going on out in the business world because parties who used to think of themselves as competing are now discovering the dance floor is bigger if you join forces rather than glare across the room. So you have the Intels of the world dancing with the Microsofts of the world. And IBM doing a jig with Apple. And GM joining forces with Household Bank. All of a sudden, competitors are holding hands and unlikely matches are springing up all over the business community. It’s why you have a video production entrepreneur forming an alliance with an independent corporate meeting planner. Or a furniture sales rep networking with a designer. As each individual’s or company’s piece of the pie got smaller, they looked to join force with someone who could help find a bigger pie. That is why negotiating has changed along with many other traditional business practices. Smart business owners are trying to find ways to leverage their assets, and one important way is to negotiate for long-term relationships. In the past, two rivals seeking the same piece of business might have done elaborate market research to determine their competitor’s strengths, weaknesses and positioning. They may have even resorted to corporate espionage to figure out how to beat the competitor. The one who became the preferred supplier would then spend untold human resources bobbing and weaving through the negotiation process, using age-old tactics designed to get as much as they could without giving up much. The real winner was the party who walked away having ‘pulled one over’ on the other. Sound familiar? There are still businesses that operate that way. You know the story. They teach and practice such gambits as: flinch when your opponent makes an offer, hold the person’s feet to the fire whenever you can, always ask for more than you expect to get, look pained when the opposition makes a move, never be the first to put your price on the table, make a deliberate mistake then look like the hero

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH when you correct it, use ultimatums and a take-it-or-leave it approach. The adversarial approach pits you against me. It uses manipulation, threats, acting, games and sometimes downright misrepresentation of facts in an effort to outwit an opponent. Remember the salesmen in the movie Tin Men? They used every slick tactic in the book to scare, cajole, persuade and trick people into paying a premium price for aluminum siding. Sophisticated consumers and small business owners of today won’t stand for calculating manipulation. And even if they fall for it once, they will never do business with the manipulator again. Yet you can still find books and courses that tout this as the preferred method of doing business. However, this method of conducting business does nothing to raise the trust level. And it is trust that will gain you “ownership of the customer,” as John Sculley notes.

Key concepts have changed Negotiating has changed because the definition of customer and competitor has changed. In today’s world, yesterday’s competitor could be today’s customer. Let’s take a look at some definitions. In the book The Death of Competition, business consultant James Moore writes: “The traditional way to think about competition is in terms of offers and markets. Your product or service goes up against that of your competitor, and one wins.” He goes on to say that the problem comes when there are too many of the same products or services in existence that not all of them can make a reasonable profit. He cites the airlines and steel companies as examples. One response, he says, is competitors putting each other out of business. Another is creating new markets by joining forces with former competitors in intense cooperation, creating shared visions, forming alliances and managing complex relationships. If you and your competitor join forces to create new visions of the future, adversarial negotiating will destroy the relationship. What is required is open, honest communication between parties who are attacking a problem, not each other. 25

NEGOTIATE LIKE THE BIG GUYS The definition of customer has also changed and with it the process of traditional negotiating. Customers have traditionally been the purchasers or users of products and services. Now customers may be partners sharing costs, ideas, people, and risk in an effort to find new markets and solve business problems. For example, the health care division of Ernst & Young sends consultants and accountants to work on a hospital’s premises and get close to the customer. The consultants work diligently to find ways for the hospital to cut costs and risks, make more informed decisions and offer better services. This is good business for the hospital and for Ernst & Young. Working in close cooperation with customers requires business owners to communicate cooperatively, share information, act scrupulously, and negotiate in the best interests of both. Traditional negotiating put the customer in the role of opponent, or worse yet, enemy. It pitted business owners against the customer which, in turn, necessitated an adversarial approach to negotiating. This is no longer in the best interest of either business owner or customer. The new world order requires each party come to the negotiating table exploring new ways to work together to create wealth. Without the commitment and creativity this requires, businesses will flounder, and may even expire. Negotiating, as it is being used in this book, is defined simply as the process by which you try to get someone to give you something you want in exchange for something else. That process can be one which is rancorous, tedious, fraught with games and trickery, and threatening to the long-term relationship of the two parties or it can be straightforward, simple, open and build trust between the parties. In today’s business environment, the latter approach is more likely to yield the kind of relationships that will enable the small business owner to build the foundation for a growth-oriented future. But some big companies stubbornly continue to exploit partners. And too many small companies are willing to jump into a bad deal because they allow their judgment to get cloudy. Sometimes the worst thing that a small company can bring to the negotiating table is too much enthu-

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH siasm for a piece of business. It’s a lesson most people learn when they’re kids—but have a hard time applying in their adult business lives: If you’re too excited about something, you usually don’t proceed as carefully as you should. The June 1998 federal court decision Brentwood Investors et al. v. Wal-Mart Stores, Inc. considered how the disputed negotiation of a lease worked out between a small real estate investment partnership and the largest discount retailer in North America. The real estate investment group was dying to do business with Wal-Mart...and ended up paying for that impulse. In August 1985, Brentwood and Wal-Mart entered an “Agreement of Purchase and Sale” under which Wal-Mart sold 13 parcels of land on which it had or intended to build stores to Brentwood. The stated purpose of the Agreement was to complete a so-called “lease-back” transaction. Wal-Mart would sell the real estate to Brentwood; Brentwood would rent the real estate back to Wal-Mart. From a business perspctive, the deal was supposed to give Wal-Mart cash it needed to expand its chain of stores and give Brentwood a secure real etate investment with reliable rental income. Brentwood was so hot to do the deal, it borrowed money to buy the properties—sight unseen. The Agreement provided for separate closing dates for each of the 13 properties. It contemplated closing on each of the properties no later than January 1987—about a year and a half after the deal was signed. The Agreement did give Brentwood the right to refuse to purchase any of the 13 parcels, upon inspection and before a particular sale closed. If Brentwood rejected a particular property, Wal-Mart would replace it with another of approximately equal value. Finally, and critically, the Agreement stated that Wal-Mart would deliver a pre-arranged lease to Brentwood 20 days before the closing on a property. This lease was the attractive part of the deal for Brentwood. Its terms included a base minimum rent plus a percentage rent that—after the fifth year of a 25-year lease term—added more. The percentage rent was described as an inflation guard, increasing the rental income according a formula based on sales generated by the store on each property. 27

NEGOTIATE LIKE THE BIG GUYS Specifically: The minimum rent shall be 10.15% of the purchase price of the Property. The percentage rent shall be 1% [of annual sales] over the fourth full fiscal year base. The purchase price...shall be the same as the cost which [Brentwood] incurred for the Property. This seemed to be a great deal. The minimum rent was pretty high to start with. And the percentage rent could make the investment pay for itself in as little as six or seven years. However, Brentwood jumped at the offer—perhaps a little too eagerly. For one thing, its principals weren’t represented by counsel when the Purchase Agreement was signed. They chose instead to have their lawyers review each property before closing. Another questionable decision: Brentwood signed the Purchase Agreement before Wal-Mart had identified the particular sites to be purchased. This was the lure of the high rents. In fact, Brentwood played no role in the selection, development or management of the store sites. Of the 13 properties that Brentwood bought and leased back to Wal-Mart, four became the center of a dispute. These four were store sites in Lake Forest, Alabama; El Paso, Texas; Hattiesburg, Mississippi; and Ft. Dodge, Iowa. The leases seemed to include a lot of language that protected Brentwood. They provided that: Except as otherwise expressly provided herein, this Lease shall not terminate; nor shall [Wal-Mart] have any right to terminate this Lease or be entitled to the abatement of any rent or any reduction thereof...it being the intention of the parties hereto that the fixed minimum rent, percentage rent, and all other rents and charges payable hereunder to or on behalf of [Brentwood], shall continue to be payable in all events and the obligations of [Wal-Mart] hereunder shall continue unaffected, unless the requirement to pay or perform the same shall be terminated pursuant to an express provision of this Lease.... [Wal-Mart] waives all rights now or hereafter conferred by law (i) to quit, terminate or surrender this Lease or the demised premises or any part thereof, or (ii) to

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH any abatement, suspension, deferment or reduction of the fixed minimum rent, percentage rent or any other sums payable hereunder to or on behalf of [Brentwood], regardless of whether such rights shall arise from any present or future constitution, statute or rule of law. However, the pre-arranged lease did not contain a provision requiring Wal-Mart to continue to operate Wal-Mart stores at the location for the complete term of the lease. This would turn out to be huge issue. The Hattiesburg, Mississippi, store stands out as a good example of how the business went. In May 1992, Brentwood and Wal-Mart executed a second “Amendment to Lease Agreement” in connection with the Hattiesburg store. (Wal-Mart had expanded the store and wanted Brentwood to invest another $850,000 to “buy” the larger space. Brentwood was willing.) In the Amendment, both sides agreed to a new calculation of the percentage rent. This new language read: In addition to the Rent hereinabove provided, [Wal-Mart] shall pay to [Brentwood] on or before the sixtieth (60th) day after the expiration of each of [Wal-Mart]’s fiscal years of the term hereof, a percentage rent equal to one percent (1%) of that amount by which the gross sales, as hereinafter defined, in any fiscal year commencing with the 1992 fiscal year exceed the gross sales during the 1991 fiscal year of the term of the lease.... [However], nothing in this Paragraph or any other provision of this Lease Agreement shall be construed as an implied convenant [sic] on the part of [Wal-Mart] to continuously operate its business in the Demised Premises during the term of the Lease or to continue paying Percentage Rent after such time as [Wal-Mart] may choose to cease operating its business in the Demised Premises. Those last few lines should have been a red flag for Brentwood. But the partnership agreed to the language regarding operation of the stores based on Wal-Mart’s oral representations that it was unlikely to close the Hattiesburg store and that, if it did close the store, it wouldn’t open another nearby. (Maybe the whole Amendment should have been a red flag. In a letter to Brentwood, explaining the new deal, WalMart proposed that the lease would be amended for a

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NEGOTIATE LIKE THE BIG GUYS “fresh 25 year term” and that “Percentage rent would be adjusted to 1% over the 4th year base of the new 25 year term with $1.00 per square foot cap.” So, Wal-Mart seems to have intended to push back the date for payment of percentage rents by providing for a “fresh” 25 year term.) In 1994, Wal-Mart closed its operations at the Hattiesburg store and opened another store nearby. In fact, 1994 was a bad year all around for Brentwood. That year, Wal-Mart also announced that it was in the process of closing and sub-letting the Alabama, Texas and Iowa stores and that it intended to discontinue paying percentage rent after those stores were closed. And it was opening new stores—with new landlords—near each of the sites. The object of Wal-Mart’s moves seeemed to be to avoid paying the percentage rents. The new stores in the four areas had fixed-rent leases. Wal-Mart continued to pay the fixed minimum rent but argued that it was not obligated to pay percentage rent under the terms of the leases. It had sublet one of the four stores and was trying to sublet the others. Brentwood sued, arguing that Wal-Mart: •

breached or anticipatorily breached its leases to avoid paying the percentage rent; and, in order to maintain good faith, Wal-Mart should pay rent equal to an amount including the percentage rent;

•

violated an implied term and condition of the amended Hattiesburg lease by vacating that store and opening a new one nearby (and that the implied term should trump the actual language of the lease); and

•

fraudulently induced it to “purchase” the Hattiesburg expansion and amend the Hattiesburg lease by representing that it was unlikely to close that store.

Going back to the beginning of the deal, Bretwood also claimed that Wal-Mart had misrepresented the income that Brentwood would earn on its investment in the leaseback transactions. The federal court hearing the case determined that the primary dispute was whether a covenant of continuous operation should be implied into each of the leases. A

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH second issue was whether Wal-Mart had misrepresented to Brentwood that—if it paid for expansion of the Hattiesburg store—Wal-Mart would not close that store and open another store in close proximity. In its decision, the court noted that a “covenant of continued operation can be implied into commercial leases containing percentage rental provisions in order for the lessor to receive that for which the lessor bargained.” This sounded good for Brentwood. After that, though, just about everything turned Wal-Mart’s way. Wal-Mart submitted the affidavit of Thomas Seay, its Executive Vice President of Real Estate and Construction at times relevant to the dispute. Seay had primary responsibility for Brentwood’s leases. Seay stated that the four properties were opened and operated as “Wal-Mart Discount Stores” until the company stopped operating from those stores and opened much larger “Wal-Mart Supercenters” in close proximity. (The Supercenters included grocery stores, remained open 24 hours and offered services like auto and vision centers.) Seay said that Wal-Mart’s policy was to avoid any obligation of continued operation—except in rare instances and for only limited periods of time. He stated that the Brentwood deals didn’t count as those rare instances and that, if Brentwood had insisted during negotiations on operating obligations, Wal-Mart would not have agreed to the deals. Wal-Mart also submitted the affidavit of Anthony Fuller, one of its staff lawyers who “assisted” with the Brentwood lease-back arrangements. Fuller said that he intended the Brentwood deals to conform to Wal-Mart’s policy and that he would have said so plainly “[h]ad there been any suggestion by [Brentwood] that they wanted or believed they had obtained an operations obligation.” Fuller also said that sometime after the Purchase Agreement was signed—but before the closings of the individual properties—“Brentwood’s attorney was concerned that the Lease did not impose an operations obligation on Wal-Mart, and expressed a desire to negotiate for a modi-

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NEGOTIATE LIKE THE BIG GUYS fication to the lease; I (being aware of Wal-Mart’s corporate policy not to agree to operating covenants) refused. [Brentwood] and [its] counsel elected to nevertheless go forward with the real estate closings.” Although a continuing operation obligation could be implied by a percentage rent lease, the court also noted that contracts should be interpreted so as to make them reasonable without violating the intent of the parties. A covenant can only be implied if, after examining the contract as a whole, “it is so obvious that the parties had no reason to state the covenant [that] the implication arises from the language of the agreement.” The court concluded, bluntly, that the Brentwood leases did not give rise to such an implication. First, the leases did not require Wal-Mart to operate its stores—Discount or otherwise—for the entire term. Second, the leases permitted Wal-Mart to assign or sublet the properties to third parties without Brentwood’s consent and without restriction as to use. Third, the court ruled, “the fixed minimum rent cannot be found to be insubstantial. The purchase price for the four locations totaled $12,170,000. [Wal-Mart] agreed to pay between $284,000 and $353,000 per location per year for the term of the leases as fixed minimum rent.... Over twenty-five years, [Brentwood] will receive approximately $31,619,737.50.” And, finally, Wal-Mart would not have entered the deals if Brentwood had insisted on a continuing operation provision. Brentwood’s claims involving the Hattiesburg store were based on statements made by Sandra Watson—WalMart’s representative—during the amendment to lease. Watson stated that the additional provision specifically disclaiming any operating covenant was being added “at the request of [Wal-Mart]’s counsel” and that it would not change the original lease—at least as she understood it. Brentwood called Watson’s statement a misrepresentation. The court didn’t agree. “In light of the explicit provisions of the [amendment],” it ruled that Brentwood “cannot now claim that they were mislead by oral representations made prior to executing the [amendment]. There is no credible evidence that [Wal-Mart] intentionally mislead [Brentwood].” 32

CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH In a desperate move to cry “conspiracy” Brentwood asked the court for permission to add a new charge to its lawsuit. The partnership wanted to argue that Wal-Mart had “a longstandard undisclosed policy” of “reserving the unilateral option of closing down Wal-Mart Store operations” to avoid the payment of percentage rentals projected by it to induce investors to participate in the lease-back arrangements. The court didn’t buy this argument. “Interestingly, [Brentwood] does not allege that this undisclosed policy was employed as to the other nine properties purchased by [it] and leased to [Wal-Mart],” it wrote. The court rejected this added claim as untimely and futile. If Brentwood had spent more time trying to understand why Wal-Mart wanted the lease-back deals badly enough to offer fat rents, it might have realized that the lack of a continuing operation clause was a major escape-hatch from the deal. And, if Brentwood had spent more time studying WalMart’s business, it might have had a better idea that the Discount Stores were being replaced by Supercenters. But that’s why cagey outfits like Wal-Mart offer seemingly generous terms: They want the excitement to overrun people’s judgment.

The balance of power Sometimes it is clear going into a negotiation who has the power and who doesn’t. Analysis to determine the balance of power should take place in the preparation stage so that you know going to the bargaining table what your position is. A guide for how to analyze the power sources is located in the appendix section at the back of this book. Keep in mind that your position can change during negotiation. If you don’t have the power walking into the negotiation, you need to do a number of things in the negotiation in order to ensure you don't get taken. 1) Prepare like you have never prepared before. You want to have as much information at your fingertips as possible. 33

NEGOTIATE LIKE THE BIG GUYS 2) Make every attempt to move to collaborative negotiating by defining the problem and putting common interests on the table. See if you can get the other party to problem solve with you so you can come up with a solution that maximizes the gain for both of you. If you fail to move the negotiating to a collaborative approach, the following points may be of help: a) Have a firm bottom line—know the point at which it is no longer acceptable for you to remain in the negotiation. Ask yourself if it is worth it to you to give in to the other’s demands. If you must, walk away. b) Stay focused and concentrate during the negotiation; listen for cues that the other party gives about their needs and wants. c) Be patient; don’t rush the negotiation. Hear out your opponent and try to keep an open mind. If you can stay somewhat flexible, you may end up with a better deal than you originally thought, given you didn’t have the power. “No negotiation should mean survival,” says Sue Yellin, business coach and successful entrepreneur. “If the negotiation means survival you are too emotionally immersed in the process and you may end up giving things away that you wouldn’t ordinarily do. You hate yourself later.” Manhattan-based consultant Steve Marshall Cohen takes a metaphysical view of deal making. He says, “If you are doing a good thing, it will work. If you are doing a bad thing, it may work for a while, but eventually it will fail.” The most difficult thing you may have to face if you don’t have the power going to the bargaining table is if the other party gloats or reneges on earlier concessions. If you really need to stay in the negotiation, ignore the naked displays of power and keep trying to reach a settlement. Stay focused on solving the problem. Try not to let the other party’s antics shake your confidence and strategy. No matter how much you prepare, you will not have all the information going into a negotiation. Cohen says there are two things you can’t account for walking into a negotiation: a) the overriding factor—no matter how many reasons not to do the deal, something tips the scales that overrides all common sense and experience; and 34

CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH b) the unknown factor—something driving your opponent that you don’t know about. It can work in your favor. Cohen points to the example of an entrepreneur in the business of designing hats who was seeking capital from an investor. They met, talked, and the investor backed away from the deal. Wanting to turn the tide, the entrepreneur sent the investor’s wife a custom designed hat. The wife loved the hat and convinced her husband, the investor, that this entrepreneur would sell a lot of hats. He called the entrepreneur and they negotiated a deal. “Everything in his business experience told him it wasn’t a good deal,” says Cohen. But the overriding factor of his wife’s influence tipped the scale in favor of the hat designer. It turned out to be a good deal.” If you hold the power walking into a negotiation, you have two choices: 1) use the power to its ultimate and get as much as you possibly can from your opponent, or 2) use your power to move the negotiation to a collaborative posture so both of you can gain something of value in the negotiation. Your choice depends on your long-term objectives and the relationships you are trying to establish or not. If you want a long-term relationship with the other party, it is wise to use your power to negotiate collaboratively. The other person will be relieved and remember you as a fair and equitable person—someone they would like to do business with again. Consider one exemplary case. Early in his career, Executive J was being recruited by two companies at the same time. He had used a boss at his former company as a reference for the first job and that boss had then recommended him for the second position. The former boss told the hiring party at the second company that J was already being recruited by a Fortune 500 company. The hiring party at the second smaller company interviewed J and asked him not to accept an offer from the giant company until he had a chance to make an offer to J. The offer came in from the Fortune 50 company, so J called the second party and quickly received an offer from him. J knew he was in a very powerful position in negotiations with the second company. Keeping in mind that he could 35

NEGOTIATE LIKE THE BIG GUYS probably get almost anything from them, he also realized he didn’t want to play it too hard because he wanted good relationships with both companies from the beginning. Ultimately, he negotiated in a collaborative way and got an excellent compensation package from the second company, but he also developed good relationships by being open and direct about his needs and wants. The second company was happy to have him and relieved that he didn’t take them to the cleaners. J felt it was risky to push the second party too far, even though they made it clear that they wanted him. Unknown to the second company, J wasn’t really interested in the first company’s offer. The entrepreneurial spirit of the second company appealed to J more than the staid, structured formality of the Fortune 50. That was the unknown factor motivating J to take a reasonable approach to the second company’s offer. No one at the second company could have predicted that J would have negotiated so collaboratively, but his positive reputation preceded him for the remainder of his career with that company. Usually, both parties entering a negotiation wield some power. Each typically has something the other wants or he wouldn’t be negotiating. With a fairly equal balance of power, you have a couple of choices: 1) use your power to influence an equitable outcome for both parties, thereby preserving and, possibly even enhancing, the relationship long term; be open and direct about where you see the other person’s strength and where you see yours and try to come to a collaborative process for resolving the negotiation; 2) wield your power lightly on the issues you care most about recognizing the other party will most likely do the same; try to get all the issues of importance to each of you on the table and see if the use of power is even necessary; 3) rely heavily on your power in areas where you can, realizing its effect on the other party; recognize you may be burning bridges important to your future if you wield the power with too heavy a hand. Financial consultant Cohen advises, “Be generous. When you give more, you get more. All the great gurus of the world believe that old saying, ‘what goes around comes

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CHAPTER 1: MOVING AWAY FROM THE TRADITIONAL APPROACH around,’ and I have seen it happen time and again in business deals.”

How to get power Power is a variable that figures strongly in any negotiation whether it involves bartering, partnerships, alliances or other dealmaking opportunities that result from current changes in the global marketplace and co-opetition. (Coopetition is a term coined by Ray Noorda, founder of the software networking company Novell, Inc., to describe the concept of working with competitors, suppliers and customers to discover new markets and expand existing ones.) In the traditional approach to negotiating, the party who had the least to lose usually held the power. However, times have changed. Now both parties in a negotiation can stand to lose big time if they don’t find satisfactory ways of coming to agreement. And if they do find ways to work collaboratively, they can both win. Small business owners, especially those in a commodity business, often feel powerless walking into a negotiation because they know the customer could go to any number of suppliers if the customer doesn’t like the deal he is getting. They are under the impression that this factor leaves them powerless in a negotiation and in the position of having to meet all of the customer’s demands in order to get the business. Is there a way to get power in a negotiation if you don’t feel you have it? One thing you can do to gain power in a negotiation is to do an effective job of selling before you ever get to the bargaining table. Asking the customer questions designed to uncover her needs, then demonstrating how you—more than anyone else—can meet her needs sets the stage for an equitable negotiation and tips the balance of power a little more in your direction. If you are in a commodity business, you need to have a clear vision of what sets you apart from your competitors. I call it your unique selling advantage and it may be different for each customer depending on his needs. Is it an extra service you provide? Is it a different twist in the way you do business? Is it your own reputation? Is it simply your ability to listen to the customer and speak their language? Whatever it is, you must clearly communicate that

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NEGOTIATE LIKE THE BIG GUYS message to the client in terms of meeting a need she has. Once you do that effectively, you will be surprised at how the power issue becomes less significant in the negotiation. In the tearout pages in the back of this book is a Unique Selling Advantage Analysis worksheet you can use to determine the benefits you offer customers if you are in a commodity business. The idea behind a unique selling advantage is that if you are in a commodity business it offers you the opportunity to distinguish yourself from all the others. By distinguishing yourself in the sales process, you are ratcheting up your power base for the negotiation.

Summary Negotiating has changed and who negotiates with whom has changed as a result of the new world of business. Openness to creative approaches and new ways of delivering products and services to the marketplace is a requirement of small business owners in this environment. Understanding the balance in power and learning how to negotiate in ways that keep relationships alive and thriving is an important skill for the small business owners of today. Even if you think you have a unique product or service to offer that gives you an edge and an opportunity to “rake it in,” don’t be too arrogant. At the rate of production and idea generation, it won’t be long before your unique idea is on every street corner. Ultimately, the relationships you form and how you do business will be more important to your long-term survival than any unique product or service idea.

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Chapter 2

CHAPTER 2: VARIOUS NEGOTIATING STYLES

VARIOUS NEGOTIATING STYLES Negotiation deals with various parties who have different needs and viewpoints attempting to reach an agreement on matters of mutual interest. Knowing what to expect prior to arriving at the negotiating table adds substance and direction to an organization’s efforts. Every person—every negotiator—has his own communication style. It’s a complex mix of experience, psychology, education and mood at a given time. All of these things come to the table in any discussion with another person. Since World War II, psychologists and linguists have studied the various forms and styles of communication. A working knowledge of these forms is helpful in understanding how people give and receive information. In doing so, you increase the odds that your message will be heard— and understood—by the person with whom you’re talking. Some books and articles on negotiating dwell on the style that you should use when you come to the table. That’s little more than a fool’s errand. By the time you’re in the position to negotiate—even if you’re small and the other side is huge—you’ve probably developed a style that would be tough to change. It would also be an unnatural thing to change it. Rather than changing the way you operate, you will probably do better to study and understand the styles other people use. If you can make the right judgments about people and styles on the other side of a negotiation, you can focus on specific decisions...reactions...rather than cosmic profundities. 39

NEGOTIATE LIKE THE BIG GUYS In this chapter, we’ll use a few of the tools of cosmic profundity to explore the specific decisions you can make in the course of negotiation in order to communicate more effectively. We’ll look first at some of the differences in communication styles and how that shape a negotiation. Specific decisions are usually more efficient.

The elements of negotiation and communication Every face-to-face communication is comprised of three key ingredients: verbal messages, nonverbal messages and listening. Each of those three can be further divided into several subsets of skills. Of course, people need some combination of these skills in order to thrive among others. But most of us are stronger in one form of communication. Most of us learned our communication skills as children and most of us were reinforced, both positively and negatively, for various combinations of those skills. As children, we learned from that reinforcement and we developed methods of verbal and nonverbal communication that worked for us. The more positive reinforcement we got, the more we repeated those behaviors that earned us rewards. After trial and error, we developed a set of behaviors that worked for us most of the time—kind of a “comfort zone”—with regard to communicating. For some people, this means that they become comfortable doing the talking. For others, it means being more comfortable listening (which includes picking up non-verbal signs). We all know people who couldn’t listen if their lives depended on it—they only feel comfortable when their mouths are moving.

The origins of communication preferences Another aspect that influences the communication styles people prefer is the way that they are—usually as children—taught to show their emotions and impulses.

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CHAPTER 2: VARIOUS NEGOTIATING STYLES In some families, a stoic, “take-it-like-a-man” approach was rewarded; in others, raucous laughter, hot debates, furious yelling and public displays of affection were routine. Once again, as children, most people learn which behaviors earn the most attention and gravitate toward those. In time, these tendencies morph into a communictaion style—the way we prefer to give and receieve information. Psychologists have been studying how this morphing process works for most of the twentieth century. Carl Jung was among the early researchers into the many aspects that make up the personality and how it is formed. In later years, Katharine Briggs and her daughter, Isabel BriggsMyers came up with a way to analyze a variety of the traits that make up a personality and developed a tool to help people determine aspects of their own personalities. The result—the Myers-Briggs test—is used in many education and business environments to help people understand the complexities of their own behavior. Having some understanding of how personality types relate to communication preferences helps establish an effective negotiation. Once you know your own preferences, you can identify other people’s preferences. If you are experiencing communication difficulties with someone, the chances are good that the problem stems from a clash of preferences. If so, you can change directions and try to use an approach that might appeal more to the style of the other person so the communication can be more effective. For example, if you are a person who wants all the facts before you make any decisions, and you want to see data to back up those facts, you may clash with someone who goes on hunches and opinions. You may see that person as off the wall and unprepared when, in fact, he is simply creative and dramatic. However, if you want to make certain he understands what you are trying to communicate, you’ll probably have to adapt your style to something that more familiar to him.

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NEGOTIATE LIKE THE BIG GUYS As you can imagine, it is extremely helpful to know the communication style of the person with whom you are negotiating. If you know it, you can adapt your style to hers and significantly increase your chances of achieving your goals.

Determining negotiating styles Most researchers agree that there are a few basic styles that come from the combinations of verbal preference and comfort level with showing emotions in giving and receiving information. Datacrats This style is characterized by a desire for facts, figures, information that is supported by tests and research. A person who shows this style prefers to hear a case from start to logical finish in details that anticipate any questions she might have. Typically, she will prefer to have things in writing and operate best in an atmosphere with clear rules, procedures and well-tested guidelines. Datacrats take their time in reviewing all documentation and can’t be rushed. Their manner is deliberate and reserved. They tend to be more conservative in their use of gestures and facial expressions. Often you can’t tell what they are thinking because they tend not to respond quickly. Datacrats are thorough, efficient and attentive to detail. Datacrats—people who think logically—are usually eager to achieve what psychologists call “closure.” Closure is a neat, final, well-defined solution to a problem. Technical people seek closure because they are trained to find precise solutions. But life isn’t an equation; negotiations and other “people problems” can’t always be wrapped up as neatly as a mathematical proof or engineering design. Goalies People who prefer this style are task driven, results-oriented, highly opinionated and prefer to give direction than take it. They are quick walkers and talkers, love to make decisions, and can accomplish a lot in a short time. Goalies are driven by achievements and drive others to work hard and faster. They communicate quickly—mostly in

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CHAPTER 2: VARIOUS NEGOTIATING STYLES bullet points—because they love to do the talking, they often aren’t good listeners. They don’t easily show emotion although sometimes you might hear someone say about them that “their bark is worse than their bite.” Because of the importance they place on accomplishing the task at hand, goalies may come across as abrupt, cold and even harsh. But usually this behavior is simply a result of their concentration on getting the job done. Relators Relators are typically very good listeners who have lots of patience and all the time in the world to spend with you. That is because they place more value on relationships than on the completion of tasks. That doesn’t mean they are lax about working; it does mean that they get work done by keeping things running smoothly with all the people involved. Relators make great team builders and mentors. They genuinely care about others and do all they can to make sure everyone is feeling good. They hate conflict and avoid confrontations at all costs. Relators are the ones who are most likely to take care of creature comforts. It is in their offices you will find such things as Bandaids, Kleenex, candy and aspirin. They prefer to communicate by asking questions and gathering information—often more personal than task-oriented. Relators would prefer to have meetings over lunch and will easily turn the communication spotlight from them to you. Expressors The people with this style are free with their emotions, friendly and outgoing. They like to be the center of attention and are usually good joke tellers. In communicating, they like to be in the limelight and seek to be the center of attention. Expressors are easy to read because they readily express their feelings. Expressors, like goalies, are also quick in their actions and speech. They are creative, highly competitive, and love to take risks or try new things. They enjoy being on the cutting edge and are usually the first on their block to own new gadgets and technology toys. They love to hear themselves talk and have a tendency to value their own opinions and ideas above everyone else’s. 43

NEGOTIATE LIKE THE BIG GUYS When assessing someone else’s negotiating style, don’t expect that all males and females fall into a single category. Don’t assume that a person’s ethnicity determines their behavior. The same person may respond differently on different days: health problems, issues at home or work, and other factors can make a difference.

Asking the right questions In most cases, a person’s communication style is determined by a series of questions that relate to peferences in talking and listening and tendencies regarding how much of your emotions you express when you are communicating. Here are a few of the questions you can ask yourself to determine how you communicate. 1) In a conversation with others, do you prefer to do most of the talking or would you rather ask questions and get the other person talking? Are you a good listener or do you interrupt people and jump into the middle of the conversation so you can get points across? Goalies and expressors prefer to do most of the talking in a conversation. They tend to ask few questions and like to be in control of the conversation. Goalies want information to make decisions and move the task toward completion; expressors just like to talk and be in the spotlight. On the other hand, datacrats and relators are usually good listeners who tend to turn the conversation limelight over to others. If they have to fight to get into the conversation, they would prefer to sit back and listen. Datacrats and relators ask a lot of questions because their preferred way of gathering information is to seek it from others. Datacrats want to find out what others know, and relators want to find out about the individual as a person. 2) How comfortable are you with displaying how you feel about things? Do you prefer not to show your feeling to others or are you a person who others can read like a book? Do you typically have a “poker face” or do you wear your heart on your sleeve? Datacrats and goalies tend to play their emotions close to the vest, not displaying their feelings either through

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CHAPTER 2: VARIOUS NEGOTIATING STYLES words or facial expressions and gestures. However, relators and expressors are pretty open about their feelings and show them through generous use of facial expressions and gestures. They will also talk about their feelings and “let it all hang out,” as the old expression goes. 3) How important are details to you? Do you need to see things in writing with sources and attribution? Are you comfortable with rules and procedures or do you see them as a noose around your neck, preventing you from experimenting with new ideas? Goalies and expressors don’t have time for too many details. They usually want their information in bullet points and prefer it on one sheet of paper. They are turned off by reams of paper and lists of sources. Because they move and think and act and talk fast, goalies and expressors just don’t want to take the time to sift through lots of paper to get the crucial information. They like people to get right to the point in any communication and don’t necessarily want to spend a lot of time on small talk. Goalies and expressors usually feel confined by rules, procedures, and guidelines. Because goalies like to make their own decisions and do things their way, they chafe at anything that seems to bind them or set limits on them and their decisions. Expressors hate rules and regulations because they love to try new things and experiment. They love to push the limits and often, through their creativity and persistence, they come up with better solutions to the old ways of doing things. They are the ones most likely to cut through red tape and take a risk with something new. Goalies cut through the red tape simply to accomplish the task faster. Datacrats and relators, on the other hand, have infinite patience for detail, information, guidelines, procedures, and tried-and-true methods for doing things. Relators prefer information to be of a more personal nature, but they will patiently sit through whatever you feel is necessary for them to hear in order to understand your message. Datacrats listen patiently and look for flaws in your thinking. They are much more likely to challenge your sources and question your logic than relators.

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NEGOTIATE LIKE THE BIG GUYS Both relators and datacrats like rules and procedures because they know someone has tried it before and therefore they are less likely to make mistakes if they follow the rules. These two styles are pretty risk-averse and believe they are helping people by outlining the “right” way to do things. Neither of these styles is comfortable being the first one to try a new process or product. They would rather stick by a known quantity. After asking yourself these questions and looking at your answers, you will probably discover that you are not purely any one style. In fact, you are probably a mix of styles. We all are. But what you want to do is look for patterns and preferences. Once you discover your patterns and preferences, you will most likely discover your dominant style. You may also have a strong back-up style. For example, you may discover that you are a person who likes to make decisions, you move and talk quickly, and you value bottom-line results. But you may also want back-up data, enjoy procedures, and like having guidelines for how to do things. Your dominant style is probably goalie with a backup style of datacrat. Once you feel comfortable that you’ve identified your own style, the next step is to identify the style of the party with whom you will be negotiating. It is only then that you can begin to adapt your style to theirs so you can be assured that you both will be on the same wavelength. Identifying other people’s styles Using the descriptions above, you can determine another person’s style by spending some time observing their behavior. If you don’t have that luxury, talk with people who know that person well and get some insights by asking questions related to how they communicate. Here are some of the questions you can ask to help determine other’s styles:

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•

Do they talk quickly, or slowly and deliberately?

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How do they like to see or hear information?

•

Do they like to be the center of attention or stay in the background?

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Do they like to take risks or not?

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Do they take time making decisions or make them quickly?

CHAPTER 2: VARIOUS NEGOTIATING STYLES •

Do they enjoy small talk or get right down to business?

•

Do they enjoy analyzing details, facts, and figures?

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How competitive are they?

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How important are relationships to them? How much time do they put into relationships and social events?

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How comfortable are they with opinions?

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What kind of a listener are they?

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How creative and dynamic are they?

By answering these questions you will get clues to the style of the person and begin to have some understanding of how to best communicate with her in a negotiation. So, what are some of the ways to approach others who have different styles from yours? Here are some tips for dealing with the various styles: Datacrats Stick to business; use action words. Provide lots of solid evidence in writing. Deliver on what you promise. Don’t be casual, loud or informal. Never be vague. Avoid using language that expresses a lot of feelings. Never offer opinions as evidence. Goalies Be clear, specific and brief. Give them the facts, get to the point. Package the facts for quick decision-making. Don’t waste their time. Avoid trying to create a personal relationship with them. Relators Break the ice with personal stories or comments. Be casual and nonthreatening. Provide assurances and guarantees. Don’t rush into a business agenda. Don’t force quick answers or specific decisions. The interaction of negotiating styles will—almost by definition—play a bigger role in the early stages of a negotiation than the later ones. (The reason is pretty simple. If the styles conflict too much, the negotiations don’t get to the later stages.) What role do communications styles play in the larger framework of a negotiation?

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NEGOTIATE LIKE THE BIG GUYS According to University of California Irvine professor John Graham, negotiations consists of four major processes or stages: •

relationship building (non-task sounding),

•

task-related exchange of information,

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persuasion and compromise, and

•

concessions and agreement.

Understanding these processes and the emphasis placed upon each by potential business partners can assist in a successful conclusion. The strategies and tactics differ among cultures as do the time spent in, and importance of, each phase. The first stage, relationship building, includes all those activities that might be described as establishing a rapport or getting to know one another, but does not include information related to the “business” of the meeting. During the second stage, the negotiators consider the information exchanged regarding the parties’ needs and preferences as well as the parties’ expected utility from the available alternatives. The persuasion and compromise stage of negotiations focuses on efforts to modify the views of other parties and sway them through the use of various persuasive tactics. The concessions and agreement stage is the culmination of the negotiating process where an agreement is reached. Often this is the summation of a series of concessions or smaller agreements. To reach an agreement that is mutually acceptable, each side frequently must give up some things; therefore, concessions by both sides are usually necessary to reach an agreement.

Tools for handling preference clashes In most cases, clashes between people with different communications styles will occur over regular negotiation issues. Here are a few things that any negotiator can do to resolve clashes: Demands and concessions Many demands and few concessions by one party will lead to the same by the other party. But people with differ-

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CHAPTER 2: VARIOUS NEGOTIATING STYLES ent styles will often react to concessions in ways that surprize the people with whom they are negotiating. The best solution in this case is to keep a slow and steady approach. Small concessions—even if these are just matters of etiquette or language—made consistently will make an impression. Information and precedents If you have dealt with the other side before—or know the industry in question—you will bring a history of the past interactions and practices. Understanding the past helps you predict both tactics and responses. People are skeptical of oral arguments, so collect things like surveys, studies and article clippings, make copies, and highlight or underline key facts to make them leap off the page. This will allow you to negotiate with greater confidence knowing it is available. Typically, negotiators who prevail are the ones who have the most facts to back up their position. Experience Skilled negotiators are better listeners. They ask more questions and focus their arguments more directly. They are less defensive and avoid words and phrases that can irritate the other side. And they keep a clear eye on the kind of issue in dispute. The difference between principle and positional issues is simple—but often overlooked. Principle issues reflect the values, objections, decisions and interests we feel support our contemplated transactions; positional issues represent the actual amount, place, time or concessionary equilibrium we finally reach. Take control gracefully The person who controls the negotiation is usually the one who has set the guidelines. So, many experienced negotiators will start a dialogue with something like this: “Before we get started, I’d like to go over the situation as it stands, and outline what we hope to accomplish here.” Then go on to state things as you see them. The other person will generally agree, interjecting only to make a few minor modifications to what is basically your point of view. When you begin to negotiate, you’re in control of the situation—because you defined it. 49

NEGOTIATE LIKE THE BIG GUYS Don’t press for maximization When negotiating with someone who clearly has different communication preferences, aim for your goal but be prepared to accept any offer between the minimum and the maximum. In some cases you may be surprised to find that the maximum is approved without argument. At other times, your opponent may not even grant you the minimum. If this happens, you may be forced to consider more drastic action. In short, there are several group of guidelines which help any negotiator...and any negotiation. These include: •

learn to compromise,

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alow room for adjustment,

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begin with a plausible demand or offer,

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frame the outcome in positive terms,

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make small concessions gradually,

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use deadlines,

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maintain emotional control,

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make a last and final offer, and

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allow for face-saving.

A case study in clashing styles The October 1996 federal court ruling Minnesota Mining and Manufacturing Company v. Rauh Rubber, Inc. et al. considered a dispute between commercial products giant 3M and a small, family-run salvage company. The case illustrates one common tactic that big companies use in dealing with small ones: avoiding clear communication while doing business and hoping its legal resources can strong-arm the small company if there’s a dispute. However, it also illustrates how confused big companies can be. If a small player and sticks to its decisions, it can prevail in a dispute. 3M makes everything from Post-It Notes to chemical adhesives used in manufacturing cars. Rauh Rubber, a company based in Akron, Ohio, buys scrap materials for resale or recycling. Joseph Rauh is

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CHAPTER 2: VARIOUS NEGOTIATING STYLES President and a 40 percent shareholder; James Rauh is Vice-President and is also a 40 percent shareholder. James Rauh first visited 3M in 1989 to discuss selling rubber products the big company. During that trip, Rauh met with Jack Lavold, the 3M employee responsible for selling scrap materials, quality control rejects and production overruns. 3M began selling Rauh Rubber scrap materials from various 3M plants around the country. The deals were done on a handshake—there was no formal contract between the companies. In 1990, 3M asked Rauh to sign a “base” contract setting loose terms to the various separate scrap deals. One of the things this contract would have done was prohibit the resale of 3M scrap materials except as provided for in written addenda. Rauh refused to sign. The companies kept doing business, anyway. And the relationship seemed to work. During a four-year period between 1989 and 1994, 3M sold over 4 million pounds of scrap material to Rauh Rubber. In September 1993, 3M began selling Rauh Rubber scrap reflective materials from its Brownwood, Texas plant. 3M was under considerable pressure to dispose of the scrap reflective materials—it could no longer landfill the stuff without significant increased expense. Rauh Rubber purchased approximately 677,000 pounds of this scrap reflective material. The sales to Rauh Rubber were negotiated by 3M employees in Texas; the invoices which accompanied the materials sold to Rauh Rubber were generated by 3M in Texas but required payment to 3M in Minnesota. That was the normal procedure. These reflective materials—adhesive sheets with the brand name Scotchlite 8930 used for road signs, guardrails, etc.—were still useable. So, James Rauh—using either his own name or the alias James Thomas—contacted various 3M customers and offered to sell the reflective material at a deep discount from standard rates. (He made these offers on behalf of GAIA, a corporation closely related to Rauh Rubber and owned by the same family members.)

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NEGOTIATE LIKE THE BIG GUYS While these moves might seem questionable to some people, they are fairly standard in the salvage business. Salvage companies look for oppotunities to resell useable name-brand materials at cheap prices. The sales are usually cash-only and made with the understanding that brand company may not warrant the quality of the materials. Word got back to 3M that Rauh was trying to sell the material for its intended use. Because 3M rarely offered salvagers written contracts, its policy was to cut off shipments if it didn’t approve of the salvager’s use of scrap materials. Consistent with this policy, Rauh was “cut off” in September, 1994. James Rauh made several trips to 3M to try to resolve the dispute over his company’s resale of the salvaged materials. But the sides couldn’t reach any resolution. And Rauh kept selling the Scotchlite 8930 material. In March 1996, 3M filed a lawsuit against Rauh Rubber, GAIA Enterprises and James and Joseph Rauh. 3M claimed trademark infringement, trademark dilution, breach of contract and deceptive trade practices. 3M argued that it had sold the materials to Rauh Rubber with the express understanding that they would be used exclusively for recycling into rubber products—and not for their intended purpose. 3M alleged that Rauh Rubber violated this agreement by offering the materials for sale to 3M customers for their intended use. It asked the court to issue an injunction ordering Rauh to stop selling the materials immediately. The federal court in Minnesota considered 3M’s breachof-contract claims first. The key question in these claims: Was a contract ever formed? Conventional legal theory holds that a contract is formed when an offer is accepted. Said differently, formation of a contract requires a meeting of the minds on details of an agreement. This is why oral contracts are so problematic. Who knows where the minds of the respective sides have met? Both 3M and Rauh Rubber agreed that no written contract existed for the business they did together. 3M argued that it had an oral agreement with Rauh Rubber that the salvage company would not resell 3M’s scrap 52

CHAPTER 2: VARIOUS NEGOTIATING STYLES reflective material. It would only grind the scrap up to be recycled and used in other rubber products. 3M claimed that Fred Kelly—a employee at its Brownwood, Texas plant—secured this agreement with James Rauh. As evidence of the agreement, 3M pointed to: 1) the fact that James Rauh had given Fred Kelly samples of rubber products made from the 3M materials; 2) language on invoices accompanying the scrap materials which stated, “reflective sheeting for recycle into rubber products” or “general recycle;” 3) a trip report from a visit Fred Kelly made to Rauh Rubber in March, 1994, at which time James Rauh asked for permission to use the scrap as a reflective material and Kelly told him management would not approve of the use of the scrap for reflective sheeting purposes; and 4) a letter from Jack Lavold—3M’s person in charge of scrap sales—sent in October, 1993, after sales of reflective materials to Rauh Rubber had begun. The Lavold letter included a recap of 3M’s understanding of its agreement with Rauh Rubber. Though not concerned with the Scotchlite 8930 material specifically, the letter stated that all materials received from any 3M plant anywhere in the world with 3M trademarks could not be used for their intended purposes and must be changed in some form. 3M argued that this letter served as a confirmation of its oral contract with Rauh Rubber. And Minnesota business law did seem to support the practice of “confirming” terms of an oral agreement after the fact. But this practice wasn’t fool-proof. And the court concluded that 3M would be unlikely to succeed in any claim that Lavold’s letter constituted a confirmation of an oral contract. The court wrote: Although its language attempts to sweep in all 3M products, [the letter] does not directly refer to the scrap reflective materials.... Furthermore, Lavold was not involved at the time in any negotiations with Rauh over the reflective materials, so it seems unlikely that he was writing to confirm any such negotiations.

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NEGOTIATE LIKE THE BIG GUYS The court’s interpretation of Lavold’s letter was supported by testimony given by each side. James Rauh’s testimony was consistent on the point that he hadn’t agreed to any limitations on what he could do with the salvage material he bought from 3M. After he received the letter, Rauh called Lavold and said that he didn’t want any materials that 3M deemed “sensitive” or that he couldn’t use in their original shape or form. His actions were consistent with this position: Rauh never acted as though he was bound by a contractual prohibition; he began investigating resale of the materials soon after obtaining them. Furthermore, 3M’s witnesses were not consistent on the point. Jack Lavold testified that, in some circumstances, 3M and Rauh Rubber had negotiated specific written restrictions on the use of salvage materials. But there were no such restrictions for the reflective materials at issue. Lavold was not aware whether anyone at the Texas plant had conveyed to Rauh any restrictions on the use of the reflective materials. It shouldn’t have been a surprize if they’d forgotten to say something. The 3M employees in Texas had little experience negotiating with salvagers. Fred Kelly, the primary contact at the plant, was unaware of 3M’s prior dealings with Rauh. Kelly testified that he told James Rauh that he could only grind up the materials and use them in recycling—but his testimony was not confirmed by Lavold, by written communications or by Rauh’s testimony. In fact, the testimony of 3M employees suggested that, after the company found out that Rauh was reselling the Soctchlite 8930, there was confusion about what to do. No one was sure whether there were written restrictions in place that could stop Rauh’s sales. No one was sure who had been responsible for negotiating the restrictions. 3M’s main documetary evidence—the invoices generated at the Texas plant and instructing payment to the Minnesota headquarters—did not contain the terms of the agreement alleged by 3M. They simply stated that the materials were for recycling. And there was more damning evidence. Internal memos showed that, when 3M learned that Rauh Rubber was reselling scrap reflective materials, it realized that it didn’t

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CHAPTER 2: VARIOUS NEGOTIATING STYLES have a contract with Rauh Rubber. 3M employees in Minnesota and in Texas each thought the other group had taken responsibility for negotiating contract terms with Rauh Rubber. A letter was drafted confirming 3M’s understanding of its agreement with Rauh Rubber—but the letter was never sent. The court noted, dryly: “3M has not shown that a jury would likely find that there was a meeting of the minds on the contract terms [it has] claimed.” The court did make one finding for 3M. It concluded that the company had sold Rauh Rubber a combination of surplus stock of first-quality Scotchlite 8930 and some of the product that had been rejected by its quality-control inspectors. The first-quality materials could be considered “genuine” 3M product; the rejected materials could not. The court concluded: Given that Rauh Rubber cannot distinguish genuine from non-genuine goods, [it] must treat all materials as if they may be defective.... the Court will require Rauh Rubber to clearly label the products as rejected or scrap material in a manner that will preclude confusion as to the source or quality of the goods. This injunction will also prevent any deceptive trade practices pending a final determination on the merits of 3M’s claims. In the end, Rauh Rubber did well to avoid signing any of 3M’s contracts. Is this a lesson that can apply to other small businesses? After all, Raugh was buying scrap materials from 3M; most small companies negotiating with giants are trying to sell their goods or services. And most small companies are anxious to sign a contract, so that they can feel the business arrangement is secure. “Buy or sell...it doesn’t really matter,” says one California lawyer who advises small companies in the entertainment industry. “In many situations, if you can get the business— and get paid—without a contract, you should. A track record of doing business is the best protection a small company can have. The value of a contract tends toward the bigger company. And to the one who wants out of the deal. Remember, we’re not talking about employment contracts, now. We’re talking business-tobusiness...commerce.” 55

NEGOTIATE LIKE THE BIG GUYS Clearly, this is not the conservative approach. And the idea of avoiding the certainty of something in writing may seem counter-intuitive—especially to someone who’s just starting a small business after years of working for someone else. But the Rauh case shows the advantage of a small company thinking like a big one—even if clashing communication styles lead as far as litigation.

Specific applications Certain common business situations tend to follow predictable cycles of communication style give-and-take. For example, banks and other financial institutions are usually dominated by datacrats. For this reason, your work as a borrower has only begun when the bank decides to give your company a loan. It’s in the bank’s interest to make the entire loan agreement as demanding as possible without becoming absurd. As the old banking refrain goes: The perfect loan is one whose covenants the borrower immediately violates, although she makes every payment on time. This is the reason that loan officers spend so much time negotiating and renegotiating loan covenants (rather than the simple matters of loan amount and interest rate). Financing experts agree that business owners won’t jeopardize a loan because they negotiate covenant issues like cash flow requirements and financial ratios. If a requirement is inappropriate for your industry or your business, tell your banker why—before you sign a loan agreement. Be prepared with documentation (especially past financial records) and suggestions about more realistic standards. Here are some steps that should help translate your small business perspective into words and deeds that bankers can understand:

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•

Inquire about the bank’s expertise in—and funding experience with—your industry. Covenants from industry specialists are often more realistic.

•

Ask to see a sample list of covenants before the date of the closing, so that you can avoid a situation in which desperation for funds—or a lack of careful analysis—

CHAPTER 2: VARIOUS NEGOTIATING STYLES persuade you to simply sign anything. Make certain that you can live with the bank’s terms about the consequences of going out of compliance. •

Analyze your company’s past performance during the most recent one-, two- and three-year periods to see if you could have complied with all loan covenants, especially key ratios, if your loan had been in place before now.

•

Negotiate your legal and administrative fees. It is important to strike up a deal that’s good for both parties. There are several types of fee arrangements, and each has its own incentives. Explore all options, including hourly rates, flat rates, retainer fees and contingency fees.

On the other end of spectrum, manufacturers of gift products often try to enforce minimum orders on small retail stores. The requirements are a sorely contested issue for space- and budget-limited retailers. Many gift shops argue that minimum orders have prevented them from reordering from the same manufacturer. To reduce minimum requirements, retailers recommend proactively starting communication with vendors. They also say more shopkeepers should speak up about their concerns, negotiate better terms and clean up their own act with sharper credit, open-to-buy and merchandising strategies. These moves are often difficult for small shopkeepers, who’d prefer to focus on the human factors of running their stores. In general, it pays to be take the offensive when dealing with hard-ball negotiators. This includes some basic steps: •

Speak up, complain. If vendors hear the same complaint from enough retailers they may change their policies.

•

Honesty and diplomacy pay off. Soft sell vendors on your small business needs. Tell them how much you like their line and how you need flexibility with their terms.

•

Once you have described your needs verbally, follow up with a written note spelling out your requests. 57

NEGOTIATE LIKE THE BIG GUYS •

Negotiate with different contacts: the company owner, the manager or a rep. Get the sales rep to explain to the manufacturer that his line is losing customers because of high minimums.

•

Establish excellent store credit. Vendors are generally more willing to bend payment terms for stores with sterling records.

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Offer to prepay the order to get better terms; or negotiate the minimum into split shipments.

•

Place orders at slower sales times for companies. They may be more flexible on minimums at these times.

Summary The first and most important thing to do in a negotiation is to prepare. Gather all the facts, statistics, precedents, case histories, documents and other evidence that supports your position in the negotiation. But that only gets you to the first meeting. Another important step is to establish rapport. This doesn’t mean agreeing on a time to meet, or which movie star you like. It means understanding the other side’s preferences and responding to them in an appropriate way. Consider why you want a given outcome, not just what outcome you want. Ask the same questions about the interests of other parties. How much does the other side need or want what you have to offer? What would make them really happy? Does their behavior demonstrate honesty and sincerity, indicating you can trust them to follow through on their word? By establishing rapport, you will determine whether each party to a negotiation is on the same page. If you’ve got different items on your agendas, this can make the entire process more difficult. Learning is the next step in the process. It’s important to remember that you often learn more with your mouth closed and ears open than you do the other way around. Listen to what the other parties have to say and take their opinions seriously into consideration. Don’t just try to wait them out so you can jump in when they stop talking. If you listen,

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CHAPTER 2: VARIOUS NEGOTIATING STYLES your response is far more likely to be something to which the other party will react favorably. Focus on what the other parties say, both on their words and their underlying meaning. This will help you understand the interests upon which agreement can be based. When your response makes it clear that you’ve really been listening (and after the other party gets over the initial shock), they, too, may be more prepared to listen. Active listening can change the rules of the game and raise the level of civility in the negotiation. It is also important to treat the other parties with respect. If you don’t take them seriously, they may not take you seriously. If your assumptions are proved incorrect, think of ways to deal with the discovery. An element of the negotiating process that should be ongoing is analysis. You should be analyzing what’s going on all through the process. If you need a few minutes by yourself to re-think your approach, ask for a couple of minutes. If all else fails, say you need to use the bathroom. No one can argue with that—and it’s a great place for calm thinking. Be conscious of the difference between positions and interests. If you can figure out why you want something— and why others want their outcome—then it will be easier to negotiate an outcome. Interests can be the building blocks of lasting agreements. The relationship is an important aspect of a negotiation. Most of your negotiation is with people you run across time after time. The same is true for borrowers, directors and representatives of affiliated institutions. If you understand the relative priority of the relationship, it can be easier to know when giving on a particular point may yield shortterm costs but long-term gains.

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION

Chapter 3

MASTERING ADVERSARIAL NEGOTIATION For the small business owner or entrepreneur, skillful negotiating can mean the difference between staying in business and bankruptcy. If you are shy about aggressive negotiating, you may be needlessly giving away the store. Or if you are overly aggressive or rigid in negotiating, you may be turning off potential customers or business allies. Either way you lose. Skillful negotiating doesn’t mean you’ll always get everything you want. But it does mean that, more often than not, you’ll get a fair deal for yourself—and one that meets your needs. The payoff for becoming a skilled negotiator is that you stop before you give away the store and you learn how to do business in a way that allows you to build long-term satisfying relationships with customers, vendors and other acquaintances. Learning how to negotiate takes patience, preparation and practice. Learning from past mistakes and incorporating that knowledge into your next negotiation will enable you to improve your performance. Negotiating is a skill that can be sharpened...but there aren’t any shortcuts to doing that. It’s like the old joke: A tourist visiting Manhattan stops and asks a street cop, “How do you get to Carnegie Hall?” The cop takes a sip of coffee and answers slowly: “Practice.” Skills are simply behaviors so fully integrated to your psyche that they don’t require active thought. The perfect

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NEGOTIATE LIKE THE BIG GUYS golf swing can be reduced to posture and a series of movements that result in the most powerful and accurate shot. After much repetition, these things become a natural extension of the player. It’s the same for negotiating skills. Looking closely at the behaviors that work, repeating them, and eliminating the ones that don’t work can result in overall improvement in your skill at negotiating. In this chapter we will look at the behaviors that make up the skills of effective adversarial negotiating.

Necessity versus preference While few people choose adversarial negotiating as a their preferred method of communicating business needs, there are times when it’s inevitable. Sometimes the other side will choose to be adversarial because he thinks that will be the most effective way of dealing with you. Other times, he’ll fall into an adversarial role because he’s nervous and anxious and doesn’t know any other way to respond. Also, once in a while, you may decide that the fastest...or only...way to get a deal done is to take an adversarial position yourself. This approach always runs the risk of pushing everything past the breaking point; but sometimes it’s the only way to bring a process to closure. To operate effectively in any of these situations, you must recognize an adversarial negotiation and know how to play the game. Adversarial negotiating has a connotation of being rancorous and nasty. It isn’t necessarily like that. A cleaner way to describe it is as a negotiation in which two sides acknowledge that their interests and goals are different. This may mean their interests directly conflict with one another; or it may mean their interests don’t converge...and simply head in opposite directions. From the beginning, it’s important to remember that adversarial negotiations are less personal than they may seem later, in the heat of the give-and-take. Even if a negotiation breaks down into table-pounding and name-calling, the frustration and anger is usually...actually...directed at the facts and the process rather than the people.

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION That said, some people by their nature enjoy playing the adversarial game. They want a clear winner and a clear loser. They’re driven to best other people. They enjoy matching wits and seeing how much they can get. It is almost like a chess game to them what with the plotting, posturing and “psyching out” of the opponent. They may even like the adrenaline rush of a heated exchange. With adversarial or competitive bargaining—also described as distributive, adjudicative, or zero-sum bargaining—you do usually have a winner and a loser. Very rarely do both or all parties in this type of negotiation walk away feeling equally pleased with the results.

What is adversarial negotiation? The skills involved in effective adversarial negotiating begin with the opener. The opener is your initial statement or position and typically reflects the most you can realistically hope to achieve. For example: You’re considering purchasing a small business that has a price tag of $500,000 but you don’t want to pay more than $475,000. The seller’s opener is the $500,000; your opener might be $420,000. Both prices say something about what each party expects from the negotiation. An opener has to be attractive enough for the other party to remain in the bargaining—but not so revealing that the other party can outmaneuver you. And not so insulting that the other party leaves the table because you don’t look serious about negotiating. The seller may respond to your opener with a counter bid that comes down slightly from the asking price. Continuing with our example, the seller may come back to you with a counter price of $490,000 in the hope that you will increase your offer. It is at this point that some game playing and tactics begin. But, before we get down to the details of haggling, let’s consider a few other basic concepts that you need to keep in mind as you prepare for adversarial negotiating. These include:

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NEGOTIATE LIKE THE BIG GUYS •

top line—the most you can realistically expect to get or if you are the buyer, least you can expect to pay;

•

bottom line—the point at which if the negotiation falls below it, you will walk away;

•

bargaining room—the difference between your top line and bottom line, sometimes referred to as “wiggle room”;

•

fallback position—the point right before your bottom line; your last resort offer if you can’t get what you want;

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needs—outcomes that are critical to you; these are items on which you have placed high priority;

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wants—outcomes of lesser importance; these are items that would be nice to have, but not necessary;

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concessions—a list of all the negotiable items, both wants and needs.

As you decide your bottom and top lines, make sure there is enough of a difference between the two to allow you plenty of bargaining space or wiggle room. If you don’t leave enough of a difference, you will box yourself and your opponent into a corner. Going back again to our example, your bottom line is $475,000. You don’t want to pay more than $475,000 and if the seller holds the line at $477,000 you will walk away. Your top line in this example is $420,000. Your top line in this case as the buyer becomes your opener. The difference between your opener and your bottom line or what you are willing to pay is $55,000. That difference gives you and the seller a lot of bargaining room. Of course, you never tell the seller the most you are willing to pay because then you lose your bargaining power.

Wants, needs and tactical concessions Keep in mind that an effective negotiator is never negotiating price alone. If you find yourself in that position, you need to stop the process and ask some questions of your opponent. Price will always be one of the bargaining chips, but in most typical negotiations, many other items are up for discussion. These items are the wants and needs, and together they make up the list of concessions that both you and your opponent will be discussing as part of the total package. 64

CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION Knowing your concessions and the value of each one enables you to come up with your fallback position. Concessions also give you more bargaining power and allow you to put together a package that meets your bottom line. Let’s look back at our example. Your bottom line may be $475,000. However, a fallback position may be that you will pay $477,000 if the seller is willing to give you the current office space rent free for a year, remodel the bathrooms to fit code, and put a new roof on the building. You are in a more powerful bargaining position in adversarial negotiating when you know all the needs and wants of the other party. As you remember from the previous chapter, the only way you will know that information is to do your homework before you walk in the door. Maybe the seller has been trying to sell her business for two years. That information alone gives you an advantage going into the negotiation because you might deduce that the seller is getting impatient and may be willing to take less. If you don’t know that information or don’t find it out until you are in the midst of negotiating, you may end up offering more in your opener than necessary. Information is power; the more information you have, the less likely it is that tactics can be used against you.

Steps in adversarial negotiating Although the negotiations themselves can get very complex, the actual mechanics of adversarial negotiating are fairly straightforward. Basically, there are five steps: •

opener,

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exploration,

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bargaining,

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agreement,

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follow up.

We’ve glanced at some of these steps so far. Now, we’ll consider each in some detail. Opener There’s no certainty that an adversarial negotiation will close. So, in order for the process to have some shape, it

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NEGOTIATE LIKE THE BIG GUYS needs a point of departure. This is the statment or position that begins the give-and-take. The key thing to remember about the opener is that it must be enticing enough to engage the other party in bargaining, but not so revealing that it jeopardizes your position. Carol Green, a Long Island, New Yok-based labor relations professional with many years in the newspaper business, says, “If you can get the camel’s nose in your tent, you’ve got a negotiation.” The bait to get that camel’s interest is the opener, so it must reflect something that the other party wants to hear. The idea is to convince the other party to put her opener on the table first. That way you know what you are up against. However, make sure you don’t get discouraged if her opener is not nearly what you had anticipated. Remember, the other party is trying to get the most she can for the least cost. As we’ve noted, this statement is a point of departure. After friendly discussions with a client about working on a retainer basis three days a week for a year, a management consultant was distraught to get the client’s first offer—the opener. Her initial response was to be insulted that the client thought she would accept such a pittance per day after it had paid her normal fee for smaller contracts in the past. She felt the opening offer reflected a lack of seriousness on their part about the idea and felt foolish that she had gotten her hopes up of having an ongoing retainer relationship with them. She was ready to ask them to simply continue using her on an as needed basis so she could get her normal consulting fee. This was a thoughtful woman. She asked for some time to consider the offer. In time, she realized two important things: 1) the client was guaranteeing her almost 150 days of work a year, thereby eliminating her marketing costs for all those days; and 2) this was simply an opening offer and reflected the client’s understandable desire to get the most for the least.

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION She prepared her response to the client’s opener with her own opener reflecting the most she hoped to get. It’s important to remember that in your opener you need to leave plenty of room for bargaining between it and your bottom line. After establishing her bottom line (which she kept to herself), the thoughtful woman presented the client with her opener fully prepared to do whatever bargaining it took to land the deal. The two sides went back and forth about four times over a six week period before they struck a deal. While the woman did not get her normal fee, she did get more than her bottom line and walked away happy with the deal. The client was also pleased. While it had to pay her more than what it started out with in the opener, it was able to get her services without having to pay her normal fee. This was an adversarial negotiation that ended well. Another aspect of the opener is to try to create a reason for the other party to settle early. Here is where such tactics as the time squeeze or the others are interested tactics may work. The more you can increase your opponent’s need to settle, the faster the negotiation and the more likely you are to gain what you need. For example, if the thoughtful woman’s client told her in the opener that it was also considering others for the retainer deal, the woman might have taken a very different approach. Exploration This step—which usually follows the opener—finds both sides attempting to discover the details behind each other’s opening offer. The object is to make some conclusion about how much the other side is willing to move. The exploration phase is aimed at finding out the other party’s perceptions, needs and wants. Through questioning and offering bits of information strategically, you are trying to get the opponent to give you as much information as possible. Using open-ended questions that begin with the words who, what, when, where, why and how, you can skillfully uncover information that may prove useful to you. Once you know the needs and wants of the other person, and the priority he has put on each, you are in a better position to make your next offer. 67

NEGOTIATE LIKE THE BIG GUYS The exploration phase requires some self-revelation, but be careful not to give away too much information at this stage. If you reveal too much, you don’t leave yourself much bargaining room. Clarification questions are also an excellent tool to get your opponent to reveal more of his game plan. Questions that start with “Do I understand you to say that...?” or “Am I correct in my interpretation of what you just said?” You are trying to find out what things are of greater value to your opponent because maybe those things are of less value to you, and you can trade them for things that have greater meaning to you. The more information you are able to get, the stronger your bargaining position. Bargaining This is where the parties begin to put together the gathered information and establish parameters within which they can do business. Depending on how well you did uncovering key information in the exploration phase, you will want to begin to trade concessions that are of less value to you for things of greater value. The idea here is to trade as few of your wants for as many of your needs as possible. That’s why it is important to have your list of wants and needs put in the order of priority and kept in front of you during the bargaining phase. You can see at a glance what you have traded for what you have gotten in return. You will want to take notes during the bargaining phase so you can keep track of what your opponent has offered and traded. She may bring up items that you hadn’t anticipated in your preparation. You must keep track of all issues that are on the table during the bargaining phase so you don’t mistakenly agree to things that are not in your best interest. The bargaining phase is also the time to bring up any “promises” made or offered in discussions preliminary to the actual negotiation. The thoughtful woman mentioned in the example above was attempting to work out a retainer consulting position had been “promised” in preliminary discussions that all her expenses would be paid to certain trade shows she was required to attend. When it came to the actual nego-

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION tiation, there was no mention of it in the contract or the offer the client made to her. She raised the issue in the negotiation only as a matter of confirmation and the client acted as if it had never even been discussed before. What she realized later, was that this client wanted her to work with them so badly that he made all kinds of “promises” in their first discussions only as a way to entice her to consider the possibility. She had assumed he was as good as his word and entered the contract negotiations believing that it was simply an oversight that all the “promises” weren’t anywhere in the written document. Luckily she had done her homework and written down all the pre-negotiation promises he had made, and they became part of her list of needs and wants. The lesson is—don’t assume anything. If it is not in the contract, it’s not part of the deal. Taking notes throughout the process helps you keep track of all the variables that have been discussed. It also provides a thorough reference when it comes time to write the agreement or contract. The whole idea of bargaining is to move the opponent closer to your position without giving up too much in the process. This is the stage where tactics are used to shift power and “nudge” the other party toward your camp. Agreement This phase is where you reach a settlement on how to resolve the conflict. Traditionally at this stage the parties shake hands as a visible signal that they agree on the outcome. If you have negotiated well, you have gained more than you lost by this phase. It may take more than one meeting to come to agreement. In traditional labor/ management negotiations, settlement can sometimes take months or even years. Carol Green, the mediation consultant mentioned earlier, was involved in labor relations at the Denver Post when there were nine labor unions posturing with management at contract time several years ago. “Management thumped its chest. The union did the same,” she said, explaining that both had constituencies who expected a show of power. “They both started at extreme ends of the bargaining spectrum and it took months to work our way to the middle. Eventually, we did and reached 69

NEGOTIATE LIKE THE BIG GUYS an agreement. But I think it could have been done more quickly had both parties not been so involved in performing for their audiences.” Trust, time, relationships, and complexity of the issues under conflict all impact the length and level of emotions in the negotiation. Extra long and arduous negotiations can result when trust is low, time is available, relationships are adversarial to begin with, and the issues are complex. Follow-up Once agreement is reached, it is advisable to do a verbal review of the settlement so that all parties have one more chance to check their understanding of the arrangements. Following the review, it is time for the next step. However, be prepared for some misunderstanding to occur at this point. This is especially true if the issues are complex and the negotiation has been protracted. And it is another good reason to have a notetaker for both sides, plus your own notes.

Tactical moves and responses Negotiating tactics are used to gain a powerful bargaining position in an adversarial negotiation. Tactics are designed to lead you to believe certain information to be true, whether it is or not. Sometimes tactics are used to cover up the truth. The following fact patterns include common tactics and responses that competitive game players use in adversarial negotiating. Tactic One: Others are interested One party tells the other that she can go to other buyers or sellers (depending on her position). This is designed to leave the opposing party believing this is the last chance to get whatever it is he is bargaining for before someone else gets it. It sounds something like this: “Well, if you aren’t interested in this deal, I have others who are.” or “I have another bidder waiting in the wings if you aren’t willing to meet my terms.” If, in fact, others really aren’t interested, it is simply a bluff on the part of the person who uses it. At this point, you should have done your homework and know if you have 70

CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION competition. If you feel fairly certain from your research that there are no “other parties,” you can call the person’s bluff using what is called “a leveling statement.” A leveling statement articulates what you believe to be true without putting the other person down or calling her a liar. It might sound like this: “I have a sense that I am the most serious of the parties who might be interested in this deal.” or “My sense is that I am the only one who is seriously interested enough to negotiate with you.” If your research—or intuition—suggests that there really are others interested in the deal, you should counter by asking open questions about the other parties and how serious they are. You might not get the correct information, but the person with whom you are negotiating may give you some indication of where you stand with respect to the others who may be interested. It could be that you are the only one interested enough to come to the negotiating table at this time. Whatever information you can get from the other party will be of help at this point. This raises an important issue in adversarial negotiations—gathering information is even more important than in more collaborative negotiations. Part of the reason to start a dialogue following the “others are interested” tactic is that it gives you the chance to measure the body language of the other party. You may get more of the truth of the situation by watching her reactions when you use leveling statements or ask open questions. Any incongruence at all between the words the person is saying and her body language is an indication that the person is probably bluffing or at the very least, only giving you part of the whole story. If you discover that there really are other interested parties, you may want to counter by buying more time. Once you get some time, do a little investigating to see how interested or serious the other parties are before you go back to the negotiating table. Tactic Two: The time squeeze This is similar to “others are interested” in that it tries to give the impression that a deal must be done today or you will lose whatever it is you are negotiating for. Such a topic is used to intimidate you into hurrying the negotiation with the hope that you will do something unfavorable

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NEGOTIATE LIKE THE BIG GUYS to your position out of desperation to meet what might well be an arbitrary deadline. It sounds like this: “If you can’t make up your mind today, we don’t have a deal.” or “I need your answer now if we are going to go ahead with this agreement.” The main counter for the time squeeze is to try to buy more time. You may have to offer a concession in exchange for the extra time; just be sure it is a concession of value to the other party and of lesser value to you. Another way to buy time is to take notes. It gives you a chance to think and you may need to refer back to them later if the discussion gets complicated or if you begin hearing inconsistencies in the other party’s position. If you feel the time squeeze is being used on you, be patient. Try to relax, breathe deeply, slow down and think. Remember, that the time squeeze is designed to get you rattled so you will make a mistake. If you slow down and think, this tactic won’t work to the other party’s advantage. Tactic Three: Good cop/bad cop This age old tactic has been perfected by automobile dealers who woo you with the well-mannered, helpful salesperson—the good guy. As soon as the deal gets to pricing, the good cop must check with his manager—the bad cop—who then comes out to do the real negotiating. Typically, the bad cop’s aim is to get a car off the lot that day at a price higher than the good cop gave you in the preliminary discussions. The rationale is that the good cop primes you by building a relationship so you feel kindly toward him and the dealership (the company, etc.), and then this tough guy comes in to do the dirty work of negotiating the final price and terms. Once again, leveling statements can come in handy as a counter to the good cop/bad cop tactic. You might say something like, “I recognize that one of you is playing the good guy and one the bad guy. Now let’s put that game aside and negotiate person to person.” Another counter offensive move is to ask who has the power to say “Yes” and choose to negotiate only with that person. Do not try to negotiate with both the good guy and the bad guy. It can cause real confusion and twoagainst-one odds are not in your favor.

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION You also can try to delay the negotiation until the negotiator with the power agrees to be the only one to talk with you. Tactic Four: Fake walk One of the parties walks away from the deal, in the hope that the other—you—will give chase...or capitulate. If not, the walker often calls back later to say she has “thought it over” and wants to meet again; the hope on the part of the fake walker is that her earlier tough stance that forced a walk may soften you up to accept less. This tactic backfires a lot—because the walker who calls back comes across as more interested in the deal than she had portrayed at the bargaining table. A fake walk also may be used to buy time if the walker feels the deal is swinging away from where she needs it to go. Walking away buys time to do more research, but you run the risk of losing the deal to someone else in the meantime. Walking out also can be a non-verbal signal that some impasse has been reached and it is going to take some important concession to get back to the bargaining table. Sometimes the person using this tactic simply threatens to or acts as if she is going to walk away from the negotiation, but has no intention of really leaving. Using the tactic this way gives her some idea of how desperate you are to conclude the negotiation. This tactic is often used in labor-management negotiations where the two parties know that some kind of settlement is in the best interests of both, but one party is trying to gain the power by implying she can get a better deal elsewhere. If you have this tactic used against you, patience and silence are the best counter-offensives. The walker is simply trying to intimidate you to give in on something. You can see how serious she is by keeping quiet and seeing what happens. When the walker sees that her tactic is not having the desired effect, she will probably come back to the bargaining table in a less rigid position. If you’re anything less than committed to closing the business, let the person go. This poses some risk that the person wil actually break off talks. More often than not,

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NEGOTIATE LIKE THE BIG GUYS though, she will come back or telephone later to say “I’ve thought it over and I want to talk more.” If you want to keep talks going, stop the walker from leaving—but suggest that everyone take a break. All sides can use the break as a cooling off period. If you call for a break, it doesn’t allow the other party to get the upper hand. One more approach is to table a particular issue. You are probably negotiating several items and the one that causes a walk may simply be the most emotional one. By moving to another issue, you and the other party can cool off, switch gears and keep talking. Tactic Five: Delaying tactics Another favorite way to buy time is to delay; any number of excuses will qualify as a delaying tactic: “I need to make a phone call.” “We don’t have all the interested parties here.” “I am waiting for some important paperwork. It’s on the way.” “I need to talk with my lawyer before we proceed.” Competitive negotiators always have a number of ways to delay the negotiations if they feel it isn’t going their way and they want to change the dynamic. If delaying tactics are used against you, you can use a leveling statement to name the game, i.e. “I sense you are delaying so you can try to get an advantage. I want you to know that my position will be exactly the same when we come back together.” Another counter to delaying tactics is to refuse to stop at that moment, but rather settle on a time later on when both of you will take a break. Or set parameters around the delay that you both agree to so no one gets the upper hand. Tactic Six: Intimidation Any number of behaviors can be seen as intimidation, such as yelling, pounding fists on the table (or shoes, as Nikita Khrushchev, the then Premier of the Soviet Union, did in the early 60s at the United Nations), glaring, anger, bullying, screaming, crying, etc. Any outburst meant to throw off the other person’s pace or attention can be seen as intimidation. It is meant to make the other person capitulate and often works, especially on people who abhor confrontation. Threats can also be seen as intimidation.

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION Leveling statements are a great way to diffuse intimidation, i.e. “It seems to me that we can’t proceed until things have calmed down a bit. I will just wait until we can resume in a more rational way.” Be descriptive, not judgmental as you make your leveling statements. In other words, don’t point the finger or resort to name calling as you make your comments. A judgmental statement would be something like “You are a real hothead!” A descriptive statement would be “You seem to be very upset about this issue.” Judgmental statements only serve to enflame the disagreement further. Descriptive statements are more likely to be met with an explanation of the behavior. Patience and silence also are good countering techniques (as they are generally, when faced with any adversarial tactic). Let the person rant and rave, and don’t be pulled into the emotional turbulence. If the person is using personal attacks, be patient and breathe. Do not rise to the bait or you may end up foiling the negotiation process. Using silence will keep you from reacting and saying things you might later regret. Simply say, “I will wait until we can discuss this calmly.” Tactic Seven: Divide and conquer Children are very good at this tactic. If they get an answer from one parent that they don’t like, they go to the other parent. As long as the child can keep the two parents away from each other, the child may get the answer he wants. A competitive negotiator will try to negotiate separate deals individually with the other parties in the hope that by giving one a better deal than the other the one will try to convince the other of giving in to the demands of the competitive negotiator. Economists and game-theory gurus are fond of calling this process “the Prisoner’s Dilemma.” Doctoral dissertations have been written on this subject.... In layman’s terms, the Prisoner’s Dilemma means that the divided parties tend to capitulate, since all other choices have risks that outweight benefits. An effective way to ward off the Prisoner’s Dilemma is to refuse to negotiate separately. You must make a commitment with all those on your side of the table that no separate deals will be worked out. Plan a strategy that says “if 75

NEGOTIATE LIKE THE BIG GUYS we disagree on our side of the table, we will call a break and work it out rather than let the opponent try to drive a further wedge between us.” Anticipating the use of divideand-conquer tactics will help you avoid their effects. Tactic Eight: Quick concessions Your opponent quickly offers you a number of small concessions of trivial value to him in the hope of getting something of greater value; this tactic is meant to make you feel guilty by saying, in effect: “Hey, I was nice and gave you all kinds of stuff and all I am asking for is this one thing.” He will argue that he’s willing to split the difference in your disagreement. That statement implies both sides are contributing equally to a solution. Beware of people who push a negotiation into an adversarial tone and then want to split differences. They’re probably angling for the better part of the split. Use leveling statements that tell your opponent that, while you appreciate the concessions he/she just gave you, they were not of much consequence in the overall scheme of things. Be prepared to give back the concessions, especially if they really are of little meaning to you in view of the bigger issues. Be aware that the other party is doing a guilt-trip on you and don’t give in to it. Tactic Nine: Playing powerless This tactic basically says “Sorry, it’s out of my hands.” Or “I can’t change things; it’s not my decision.” When this is true, it generally means you are negotiating with the wrong person. When it’s false, you’re dealing with a variation of the good cop/bad cop tactics. If you find you provoke this response, a good way to call your opponent’s bluff is to say: “I will only negotiate with someone who can say ‘yes’ so get that person here right now if you want this negotiation to continue.” If she really does have the power, you have put her on notice that you won’t play games. If she doesn’t have the power to negotiate, you have stopped the negotiation until the right person is available. An even better—though more labor-intense—way to deal with this issue before you ever get to this point is to determine that you are negotiating with the right person before 76

CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION you even sit down at the bargaining table. Ask open questions about the breadth of your opponent’s negotiating authority. What are her limits? Who does she have to consult and for what? Refuse to negotiate even the smaller issues with this “powerless” person because some of the so-called smaller issues could greatly impact the bigger issues. Tactic Ten: Red tape This tactic uses the excuse of bureaucratic rules to tie things up in red tape and make them so complicated that the other party will give in out of pure frustration. An effective way to deal with this is to refuse to deal with it. Ask for the person to bring the rules to you in writing. Unless he can produce it in writing, refuse to abide by it. Tactic Eleven: The straw-man device Your opponent raises a false issue and pretends that it is of great significance in the bargaining to get concessions on a real issue, then withdraws the false issue. This is an issue of integrity and the most effective counter is open questions to dig into how important this issue really is to the person. You might ask questions like: What is it about this that makes it so important to you? Why is this issue of such importance all of a sudden? What would happen if you don’t get this issue resolved? What impact does this issue have on the overall picture? Where does this issue fit in terms of priorities? If you’re not satisfied with the answers and still feel that the person is raising a phony issue to get concessions on a real issue leveling statements are a good counter-offensive. Those statements may sound like this: “I sense that this issue is not as important to you as you seem to be making it at this moment. What is really on your mind?” or “I am finding it difficult to see that this issue is of such great significance to you. What’s the real issue here?” By stating your skepticism in this way, you allow the other party to “save face” and get to the real issue. You are calling his bluff in such a way that he can go back to the real issues without being humiliated that you caught him in a gambit.

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NEGOTIATE LIKE THE BIG GUYS Tactic Twelve: Wince and flinch You wince or flinch showing your shock at whatever your opponent just proposed with the hope that she will read your nonverbal cue and change the proposal without you having to say a word. The idea is that if you don’t express surprise, the other party will assume that the proposal is within reason. With your wince or flinch, you are communicating that it is not. Body language carries more weight than words in almost any face-to-face communication. Registering shock or dismay in a negotiation can have the effect of making the opponent nervous about his/her position, and might even make her back down before you even say a word. If you find this tactic being used on you, silence is a good counter-offensive. Just sit quietly and wait for the other person to speak. Or you can use a leveling statement such as, “You seem surprised by what I’ve just said.” When she verbalizes what is on his/her mind, then use open questions to determine what is beneath the surface of the reaction. Whatever you do, don’t react too quickly to your opponent’s use of the wince or flinch. Remember it is designed to get you to back down on you proposal. Just keep your cool and remind yourself that it is a tactic. Most adversarial tactics are used in an effort to shift the power or undermine a position of strength. When you have the power in the negotiation, be alert to having these tactics used against you. And when you are not in a position of power and plan to keep the negotiation adversarial, use these tactics to try to gain an edge on the other party.

The disadvantages of adversarial negotiating In business, most Americans have been trained to get as much as possible in each specific bargaining venture. In fact, some managers and employees are compensated for how much profit they can generate in the short run. In the office furniture industry, for example, salespeople usually have their commissions and bonuses tied to nearterm profitably of their companies. In other words, if the salesperson can negotiate fewer lower discounts to their 78

CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION customers, they’re paid a higher sales bonus. Since most office furniture is sold in large lots, this compensation structure encourages adversarial, competitive negotiating. It’s the way cars used to be sold-and most buyers dislike it. Like everything in life, adversarial negotiating has its benefits and its disadvantages. From hurt feelings to the loss of customers and other business relationships, the potential disadvantages stack up—anyone who’s been involved in adversarial negotiations and lost knows the bitter taste of this downside. Put in more objective business terms, the problem with adversarial negotiating is that it tends to sacrifice longterm value in pursuit if short-term gain. It has the potential to damage a relationship irrevocably over the long term; so, be certain how you feel about the relationship before you enter into an adversarial negotiation. One New York-based public relations consultant found herself in an adversarial negotiation with a middleman representing a Fortune 500 telecommunications company. Her contact at the large company—with whom she had done business in the past—asked her to work with an outside public relations firm on a major media affairs project. Trusting the client, the consultant agreed and began to build relationships at the outside firm. After initial telephone discussions that included various agreements about how the consultant would fill the role of primary spokesperson on the project, she ended up in contract negotiations that became quite adversarial. Despite the happy talk, the outside agency didn’t really want the consultant to have a significant part in the project. The consultant answered in kind, playing hardball and increasing the adversarial tone. She went back to the Fortune 500 client to complain about the sneaky outside agency. But she hadn’t gone into the project prepared for adversarial tactics. She hadn’t looked at the situation from the right perspective. Her relationship with the Fortune 500 company wasn’t as strong as she’d thought. Her contact didn’t back her up against the outside agency. The outcome was terrible. Not only did the consultant walk away from the project with the outside agency as a result of the confrontational negotiating process and her mis79

NEGOTIATE LIKE THE BIG GUYS read of the strength of her relationship, she lost her business with the Fortune 500 company. The client didn’t just avoid her calls during the negotiation; no one returned her calls afterward. Big companies will do this sometimes...avoid an unpleasant termination of business relationship by shuffling the bad news off to a third party. The New York consultant wasn’t looking for problems when she went into the project—she didn’t guess that the outside agency had been instructed to sqeeze her for “the best possible price.” This is often corporate jargon for getting rid of a small vendor. Another downside of adversarial negotiations: If the posturing spills out of the conference room and into the marketplace, customers can be lost. The world of professional sports—too often used as an example of business negotiating—actually works well as an example in this instance. The professional baseball strike of 1994/1995 resulted a in cancelled season, which resulted in lower ballpark attendance and television ratings for the next several years. Tens—and maybe hundreds—of millions of dollars in long-term gate receipts and adversiting revenue were the price that millionaire athletes and billionaire owners paid for their petulence. And this lesson seemed to be lost on professional basketball. Its 1998/1999 season didn’t start on time because of a similar stand-off. Loss of reputation is another damaging side effect of adversarial negotiating—whether you win or lose the specific dispute. It’s tough to put a value on reputation. What is the impact of its loss on your business? How will it affect your future business opportunities? Will someone...sometime ...take a pass on doing business with you because they heard some bad things? One last thought: Adversarial negotiating takes a lot of time. Because a fair resolution is not a stated goal of the process from the beginning, either party may try to convince the other that it is willing to lose everything rather than capitulate on a particular point. Some people may think this is hardball, aggressive negotiating. That’s not really so. Most negotiators—at least 80

CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION the ones who know what they’re doing—consider hardball tactics aggressively pressing for benefits when you have an advatange. This is pressing the upside of the business. Threatening to destroy the business is like threatening to burn down your own house. It suggests you’re unstable more than it suggests you’re bold. But this is the edge of the envelope. Even if the parties in an adversarial negotiation are stable, they’re still inclined to posture and position.

A fashion-statement case study The December 1998 federal court decision Steven H. Levin dba SHL Creations v. The Gap, Inc. dealt with what might seem like simple adversarial tactics on the part of a corporate giant. Although the facts of the case might outrage an entrepreneur, it’s important to understand why the court—though ultimately ruling for the small player— considered it a close call. The case also highlights the point that the best adversarial negotiating doesn’t always come in a face-to-face meeting. It often has more to do with careful preparation...and a close reading of all paperwork. In 1993, Steven Levin—whose company specializes in packaging products for specialty marketing—came up with the idea for a GapKids line of clothing for Barbie dolls. He contacted The Gap, Inc. to gauge its interest. He was told that he could submit the idea for consideration, but that he would have to sign a submission agreement first. The Gap mailed Levin a form “Submission Letter,” which provided in part as follows: 1. A submission to The Gap, either orally or in writing, will not in any way establish a confidential relationship with The Gap, nor will it place The Gap in the position of receiving a disclosure in trust.... 2. No obligation is assumed or may be implied on the part of The Gap by receipt or examination of the submission to compensate Submitter or otherwise enter into an agreement with the Submitter, unless or until a formal written agreement has been entered into and

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NEGOTIATE LIKE THE BIG GUYS then The Gap’s obligations will be only as expressed in that agreement. 3. In the absence of a formal written agreement between The Gap and Submitter, all rights and remedies of the Submitter arising out of the disclosure of information to The Gap...shall be limited to any rights and remedies as may now or in the future be accorded to the Submitter under United States patent, trademark or copyright laws. The Gap will have no liability to the Submitter for receipt, review, use or disclosure of any part of the information disclosed to The Gap except as may arise under valid U.S. patents, copyrights or trademarks. Levin called his contact at The Gap and said that he was willing to submit the idea, but only if The Gap would agree not to use the idea without first negotiating a formal written agreement—as referenced in the Submission Letter. He told his contact that he would put this condition into a cover letter that would amend the Submission Letter, and that he would then submit the cover letter, the Submission Letter and the written presentation of his idea. The cover letter stated that Levin understood that “The Gap will negotiate a formal written agreement with SHL Creations before using the idea.” In April 1993, Levin’s contact at The Gap called him and said that the company would agree to the terms of the cover letter if he made two alterations: one relating to The Gap’s prior consideration of the idea and the other relating to The Gap’s obligation to negotiate a formal agreement before using the idea. Levin agreed to make the proposed changes and mailed a second cover letter. The second letter stated: I understand that I have no rights whatsoever if (i) someone at The Gap has previously considered my idea or any idea reasonably similar to or related to my idea prior to review of my submission or (ii) someone outside of The Gap has previously submitted my idea or any idea reasonably similar to or related to my idea to The Gap. If, however, neither my idea nor any idea reasonably similar to or related to my idea has (i) previously been considered by someone at The Gap or (ii) previously been submitted to The Gap, and The

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION Gap desires to use the idea, it is my understanding that The Gap will attempt in good faith to negotiate a formal written agreement with SHL Creations before using the idea. Levin signed the agreement and submitted it along with a written presentation of the idea, which also contained an idea for a Gap Barbie doll. But he did so only after The Gap had agreed that it would “attempt in good faith to negotiate a formal written agreement” with him before using the idea. Shortly after, The Gap advised Levin that his idea was not “compatible” with its “current plans.” Levin heard nothing more from The Gap. Three years later, however, The Gap started marketing a Gap Barbie doll through its GapKids stores. Levin filed suit for breach of express contract, unjust enrichment, breach of implied contract, violation of property rights and breach of a confidential relationship. According to Levin, The Gap had realized gross revenues in excess of $4.5 million from using his idea, and he was entitled to a percentage of that income. The Gap denied the allegations and moved for summary judgment, arguing that the submission agreement that Levin signed precluded him from being compensated for the idea. Levin contended that The Gap explicitly agreed not to use his idea without “attempt[ing] in good faith to negotiate a formal written agreement,” and that The Gap breached that contractual obligation by using his idea without making any effort to negotiate a formal written agreement. According to the New York court, Levin did not state a legally cognizable claim for breach of an express contract because California law (which was controlling, according to The Gap’s forms) does not recognize agreements to negotiate or agreements to agree. In California, “[p]reliminary negotiations or an agreement for future negotiations are not the functional equivalent of a valid, subsisting agreement.” Here, at best, said the court, The Gap merely agreed to negotiate in good faith; it did not enter into a “valid, sub-

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NEGOTIATE LIKE THE BIG GUYS sisting agreement.” There was no express agreement that Levin would be paid anything if his idea were used. Rather, the parties merely agreed that they would negotiate, in good faith, if The Gap used the idea. Levin also contended that even if the Submission Letter and cover letter do not together constitute an express contract, he was entitled to relief because The Gap was unjustly enriched at his expense when it knowingly and voluntarily accepted his idea, implicitly agreed to compensate him if it used the idea, and then used the idea to its advantage without honoring its implied promise. This argument carried more weight. According to the court, a reasonable jury could find that the circumstances preceding and attending Levin’s submission to The Gap, together with The Gap’s conduct in accepting the submission, created an implied contract that The Gap would reasonably compensate Levin in the event it used his idea. The court wrote: “The Gap knew, or should have known, that Levin was not interested in submitting his idea unless he had some reasonable assurance that he would be compensated if The Gap used his idea. Levin contended that the cover letter provided this assurance.” The Gap argued that the agreement to negotiate, as reflected in the cover letter, was unenforceable and that the Submission Letter was enforceable by itself. This would mean that Levin’s rights were governed by the Submission Letter alone. The court rejected that argument, claiming that that the agreements reflected in the cover letter were essential to the contract, that consequently the contract was not severable, and that therefore the entire contract is unenforceable. The court concluded: If The Gap’s arguments are accepted and the agreement to negotiate is void then in essence The Gap promised Levin nothing in return for his agreement to submit his idea. If The Gap is correct that Levin was bound by the Submission Letter even though The Gap was bound by

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION nothing in return, then the contract would have been completely one-sided and arguably void for lack of mutuality of consideration. Levin was unwilling to submit his idea unless the Submission Letter was amended and he submitted his written presentation only after The Gap agreed to the understandings set forth in the cover letter. The court dismissed Levin’s claim for violation of property rights, because California law does not recognize an idea as a “property right.” Levin’s final assertion was that Gap had breached a “confidential relationship.” The court disagreed because Levin had acknowledged that he did not have a confidential relationship with The Gap and that his submission of his idea did not create such a relationship. The first paragraph of the Submission Letter, which Levin signed, provided that “[a] submission to The Gap, either orally or in writing, will not in any way establish a confidential relationship with The Gap, nor will it place The Gap in the position of receiving a disclosure in trust.” Even though most of his claims were thrown out by the court, Levin was able to make two stick. The court ruled that he could proceed with his claims for unjust enrichment and breach of an implied contract. As it turned out, two out of five were enough to give The Gap reason to come back to the negotiating table—this time to talk about a settlement to Levin’s claims.

Summary Typically, an adversarial bargainer views the negotiation as a one-shot-deal approach. This “whatever I can ‘win’ now is all I care about” approach can succeed in the short term; but, in the long term it could end up hurting you because most people will avoid you if they feel that negotiating with you is a losing proposition. It’s the same with business negotiating. If potential customers or suppliers think you’re going to try to steamroll them, they will likely look to another person or company to do business. You can begin to resemble the mythical washing machine repairman who never gets any calls.

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NEGOTIATE LIKE THE BIG GUYS A common result of competitive negotiating is that one party leaves the negotiation grumbling, “If that so-and-so thinks I’m going to live up to that bargain he rammed down my throat, they’ll have to take me to court!” In any negotiation, you have a choice about how you want to proceed. Most likely, in your business there will be times when you would like to negotiate collaboratively because of the importance of a long-term relationship with the other party. However, the other party may come to the table with a strong position and feel that adversarial negotiating is the way to proceed. Sometimes, people don’t realize there is another way to handle a negotiation. If you find yourself in a situation where you want to negotiate collaboratively, but the other party for whatever reasons, starts out negotiating in a traditional competitive way, you can take some steps toward moving the negotiation to a more cooperative process. Before you do that, be aware of the risks you are undertaking. Collaborative negotiating is built on trust and putting all your cards on the table up front. If you aren’t sure where the other party is on the trust factor, you make yourself very vulnerable by moving toward collaboration. The risk that the other person may take advantage of your good faith is ever present. Once you put all your cards on the table, you have nothing left to bargain with if the other person chooses to remain competitive. And the other party now knows all your negotiating strengths and weaknesses, your bottom line and your concessions. However, if you are willing to take the risks involved, you can begin to move away from competition and toward collaboration by starting out with the question: “What do you see as the main problem here?” or “What would you like to see happen as a result of our discussion?” Get the other party to articulate the problem and see if it matches your view of the problem. If you have similar outlooks, you are off to a good start. Moving toward collaboration should be somewhat easy. If the other party’s view of the problem is not even close to yours, state your view, then ask the other party: “Where do you see commonalties?”

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CHAPTER 3: MASTERING ADVERSARIAL NEGOTIATION Look for some common ground in each of your views and try to restate the problem from that shared outlook. If you can’t agree on the nature of the problem, try to look at the outcomes you are both seeking and see if there is common ground there. The idea is to have a discussion that leads to common interests and away from rigid positions. Interests are always negotiable, positions far less so. We all bring so much ego to our positions, that we feel compelled to defend our positions to the hilt. Whereas interests are not so tied up in ego, therefore we can be more flexible about them. Once you can both agree on the common interests you can begin the process of collaborative negotiating.

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Chapter 4

CHAPTER 4: COLLABORATIVE NEGOTIATION

COLLABORATIVE NEGOTIATION Conflict or disagreement is a normal state of affairs in human relationships. All of us have a variety of preferences, needs, wants, ideas. They are not always held in common with others and often result in conflict. There are many ways to settle conflict. The method you choose depends on the relationship that exists between the parties and the amount of agreement there is about the end results. There are various forms of compromise; the use of third party mediators or umpires; win-lose power struggles; and problem solving to mention a few. Negotiation is just one method of resolving a dispute or disagreement. Negotiation is considered the most effective because a great variety of solutions are created. Compromise, or splitting the difference, as a result of negotiation is considered the most common form of conflict resolution. Negotiation becomes critical whenever there is low agreement between the parties on the outcome of the differences—and no matter what the trust level in the relationship. However, when there is low trust, adversarial or positional negotiating is the norm. It is only when trust is high and the relationship is open that collaborative negotiating works. The adversarial approach to negotiating—which pits one opponent against another—has been the model in business for decades. It has often been used where the parties have clearly opposing positions and might likely continue to be adversaries for a long time following the nego-

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NEGOTIATE LIKE THE BIG GUYS tiation. It worked in a world where the big companies had the luxury of plentiful in-house resources, deep pockets, power to bring an opponent to his knees, long time frames for product introductions, and loyal customers who only bought brand names. It worked in situations where each party had something the other needed, but was unwilling to relent on his position. Power, games, manipulation and trickery were the tactics used to gain the upper hand and outmaneuver your opponent. Most often the resolution involved each side giving something to get something. The idea of course is that you give up as little of what is important to you to get as much of what is important to you. And that is where the time-consuming game playing occurs. Savvy consumers and small business owners know when they are being tricked. And they don’t like it. For the most part they want straightforward relationships with people they can trust. For this reason, a collaborative approach may be more appealing to some business owners. Collaborative negotiating focuses the two parties on the problem to be solved and engages them in creative brainstorming to come up with a solution that maximizes the gain for both parties. No one is trying to outmaneuver the other; both are putting their energies into coming up with an outcome where each can win. This approach takes less time and results in a stronger, more trusting relationship between the parties.

The basics of collaborative negotiation At the start of a negotiation it is important to discuss your respective interests fully. Exchange information. You should not assume that you know someone else’s interests. Ask why you each want what you want. And keep asking until you know all the answers. Of course, this approach requires a certain level of trust, a good working relationship, and a collaborative attitude by both parties. And its effectiveness and utility increases when each party expects and desires a future relationship. If these factors are present—and the parties recognize them—they can increase the likelihood of good solutions. 90

CHAPTER 4: COLLABORATIVE NEGOTIATION Other crucial elements include: •

Position. The key to any negotiation is to position your case advantageously. This is your opportunity to clearly communicate your wants and needs to the other party. Good positioning can tilt the playing field in your favor.

•

Power. It is important to know the full range and strength of your power in any negotiation. The first step in a negotiation, is to identify the sources of your power.

•

Knowledge. This is crucial to a successful negotiator. If you become too involved in meeting your own objectives in a negotiation, you will fail to learn anything about the other party. If you fail to learn anything about the other party, you could wind up leaving a number of negotiables on the table. You might think you have an amazing deal—only to learn that if you had asked a few questions, the other party would have given you the deal of a life time.

•

Satisfying Needs. When negotiating, there are two attitudes that might make it difficult to satisfy needs over wants. The first is concern about personal performance—which focuses energy on self and reduces focus on the opponent and learning about his needs. The second is knowing your opponent’s position—you have to know the needs and motivations of the other party before you can counter them.

•

High Aspirations. When negotiating, your goal should be as high as possible—within reason. One of the worst mistakes a negotiator can make is misjudging the upper limit of the range of reason. It’s always easy to lower aspirations. However, it is often difficult to raise them once they are known.

•

Have a plan. This is an important part of the negotiation process that requires the most creativity, skill and personal strength, and has the potential of being the most satisfying to negotiators. However, because this process can be easily mismanaged, it’s important to understand that inexperienced negotiators generally follow one of two patterns: Make a judgment about how much they can concede, and then concede everything in one lump as soon as the negotiating gets tough. Or, give nothing at all until the negotiation is

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NEGOTIATE LIKE THE BIG GUYS about to be deadlocked, or about to completely unravel. All of these activities require you to manage information well. But managing information well can mean different approaches in different situations. In adversarial negotiation, managing information well means: 1) ensuring the availability of the information that will support your case; 2) understanding the relevant information with depth for more effective discussion; 3) taking advantage of every opportunity to acquire new information as the negotiation proceeds; 4) supplying information to the other party that will support your position; 5) withholding information that will damage your position. There are limits to the amount of information you withold. Limits are imposed by agreements, ethical principles and consideration of a negative backlash; 6) ensuring that supporting the information is presented at the most appropriate time in the negotiation and in the most powerful manner; 7) gleaning as much information as possible from the other party before decisions are made; and 8) discounting information that will empower the other party’s position. In collaborative negotiation, managing information means: 1) giving both parties enough information to develop a productive solution; 2) sharing higher proprietary information—when ethical and relevant—to build higher trust (information on upcoming products, management, pricing decisions, etc., which will benefit the other party); 3) sharing needs and negotiables openly so that mutually beneficial solutions can be developed; and 4) disclosing information or feelings that lead to higher trust and collaboration.

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When to use collaborative negotiation Consider the following scenario. Your kids, Jane and Chris, are fighting over the last Oreo cookie. Each desperately wants the cookie, but there is only one left. So what happens? After the threats fly back and forth (and after a little assistance from you), they decide to compromise. Jane and Chris each will get half the cookie. One cuts the cookie. Then the other chooses his or her half. Neither is particularly happy with the outcome, but both figure that half of a cookie is better than half of nothing. Is this fair? Yes and no. Both Jane and Chris got some of the Oreo cookie. But there’s still a problem. When Jane walks away, she eats the chocolate part of the Oreo and throws away the icing in the middle. Chris does the opposite. He eats the icing and feeds the chocolate part to the dog. Because of the competitive, adversarial and positionbased negotiating approach used to solve this problem, half of the cookie went to waste. If a more interest-based approach were used, this wouldn’t have happened. If there had been a truly collaborative atmosphere, your children would have known that each wanted a different part of the cookie and nothing would have been wasted. In order to answer the question of when to use which negotiating approach, you first have to answer several other questions: •

How important is this issue?

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How important is my relationships with this party?

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What do I want the relationship to be at the end of this negotiation?

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What am I hoping to have happen as a result of this negotiation?

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How much time do I have to negotiate?

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Where does the power lie in this negotiation?

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What are the resource limitations?

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What is the amount of leeway I have and how much does the other party have?

If the answers to these questions indicate that this is an important issue and you want to continue to do business with this party, collaborative negotiating is favored over the adversarial approach. For example, if your landlord has the opportunity to rent your space plus the long-empty space next door to a major client, but it means you must move to a different space, there is a conflict. You may want to help out your landlord because you hope to stay in this building for a long time and continue your favorable rent situation. But it will mean a big hassle for you to move, to say nothing of the price of reprinting all your marketing materials, business cards and stationery. Sitting down with your landlord to put the problem out on the table and tackle it together will likely produce outcomes favorable to both of you. Together, the two of you will probably come up with several viable solutions that will allow you to both walk away feeling like winners. Moving to the same side of the negotiating table may even make your relationship closer. On the other hand, if you get mired in your own self interests and refuse to consider anything that is not entirely in your favor, you are putting the relationship and all future dealings with your landlord in jeopardy. Advocates of traditional, competitive negotiating might say that in this situation you are the party with the least to lose and you could take your landlord to the cleaners— asking for a rent reduction, full payment of moving and reprinting expenses, and a larger, more appealing space to be renovated at the landlords expense. However, this approach doesn’t take into consideration your future dealings with the landlord and the long-term implications of gaining the upper hand in this one instance. How will the landlord likely feel if you “take him to the cleaners” and what will that mean to your future relationship? What influence might this landlord have over potential business or clients for you? How could the landlord impact your reputation? If you have difficulty answering these questions, simply put yourself in your landlord’s shoes as you ask the questions.

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CHAPTER 4: COLLABORATIVE NEGOTIATION If an issue is important and you don’t have a big stake in the relationship, then you will probably choose adversarial or positional negotiating. For example, consider how most people purchase a house or a car. These are important things; however, unless the salesman or real estate agent is a friend or relative, the risk of jeopardizing the relationship is probably not that great. And the car salesman is probably not that interested in maximizing the gain for anyone other than himself and the dealership. However, smart, forward-thinking car dealerships are concerned with long-term relationships because they know that the average family will spend over $325,000 on cars during their lifetimes and they want you to be a repeat customer. So they have moved away from the obvious game playing and manipulation, in favor of a more straightforward approach. Saturn is the most obvious example of this new thinking in the car industry, where the sticker price is the price and the predictable game playing is gone. Many other dealerships around the country are experimenting with this approach with great success. In sales and marketing this new principle driven strategy is seen in the consultative selling approach. We learn what our customers want rather than simply selling them what we have. When our customers complain we make in-depth inquiry into the sources of dissatisfaction rather that simply waving a policy manual at them. When we seek to negotiate behavior in the workplace, we honestly attempt to understand the reasons behind employee conduct rather than making threats about their continued employment.

The mechanics of a collaborative approach The collaborative approach is quite simple and may resemble some familiar problem solving models because it is based on a problem-solving approach. It involves the following steps: •

define the problem; 95

NEGOTIATE LIKE THE BIG GUYS •

look for common ground;

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brainstorm possible solutions;

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choose a solution that maximizes gain for both.

Let’s look at each one in more detail. Define the problem It is important to gain agreement from both sides on what the problems are. If you can focus on the problem and not on the people or the positions, it is much easier to use a collaborative approach. While you can’t set your emotions completely aside, it will help if you can put them in abeyance until there is a clear definition to the problem. Think of the problem as a threedimensional item that we are putting on the table and looking at together from the same side of the table. By the way, literally sitting on the same side of the table helps eliminate the opposing stances of the parties involved. Sitting side-by-side on the same side of the table and coming at the problem from the same physical vantage point adds a significant subliminal message to both parties that they are not opponents in this endeavor. Try to define the problem in clear and concise language, then get agreement from the other side. If they don’t agree, seek their input in defining it. Use their language as long as it matches your understanding of the problem. Where you are unclear about what they mean, seek greater clarity and definition until both sides feel comfortable. Once you agree on a definition of the problem, move on to the next step. Look for common ground This step involves looking for and listing all the things where you have shared interests. For example, in a labor negotiation the opposing parties both share an interest of having workers stay on the job. Sometimes shared interests can be arrived at by having each party write a list of their interests, then looking for the common ground on each party’s list. Remember that an interest is different from a position. A position is a stance or opinion on an issue, while an interest is an outcome or result you would like to see. Posi-

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CHAPTER 4: COLLABORATIVE NEGOTIATION tions typically involved egos, where interests involve goals or outcomes you would like to see achieved. In this step of the process it is important to stay focused on interests and put positions aside. If you find that you are tempted to slip back into your positions, look at your lists of interests and focus on trying to find common ground. It will be more tempting to fall back into your position if you hold the power in the negotiation because you know you stand a good chance to win. However, at this point you have to remind yourself about why you chose to negotiate collaboratively and ask yourself what you stand to gain in the short term versus what you will lose in the long term. Brainstorm possible solutions Brainstorming, when practiced properly, is a creative strategy used to get everyone’s best ideas out on the table. It is most effective when participants’ ideas can be captured on a flip chart pad visible to everyone involved. A key part of the process is to piggyback or build on others’ ideas and it can only be done if everyone can see all the ideas already voiced. For brainstorming to work most effectively, it is best to divide the process into three parts: 1) idea generation, 2) idea evaluation, 3) choosing a solution. Let’s look at each of these three parts individually. Idea generation This part of the process requires that everyone just call out any idea, not matter how outrageous, that comes into their heads. In the case of a negotiation, the ideas are typically solutions to the problem. The ideas or solutions get written up on a flip chart and the action is fast and furious. This part of the process can go on for as long as 15 to 30 minutes, depending on how many people are involved and how long people keep generating ideas. Often people piggyback on others’ ideas, or build on them so that a new idea comes out of it. A good facilitator will keep the energy high and the ideas flowing. A key part of this step is not to evaluate any of the ideas or solutions, but simply to voice and capture them. Criticism or evaluation will slow, and eventually

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NEGOTIATE LIKE THE BIG GUYS stall, the creativity of idea generation. The facilitator may need to keep reminding people that this is not the time to evaluate or judge the ideas, but simply a time to let the mind go in a free flowing, creative manner. Having more than about 10 people can get unwieldy, so it’s often a good idea to have a facilitator for every 10 people and break larger groups down into small ones for this whole process. Idea evaluation This step involves going back over the list of ideas or solutions generated and using a set of criteria established by the group to determine the feasibility of each idea or solution. In this phase you are trying to narrow down the list to the top three to five best and most realistic ideas or solutions on the list. The participants develop the criteria by which they will begin the elimination of solutions that just aren’t realistic given the circumstances of the parties involved. The criteria can be anything from budget to people resources to time to politics. The goal of this phase is to pare down the list to three to five possible solutions. This step can take anywhere from a few hours to several days, depending on how many ideas were generated in the first step and how many people are involved in the entire process. Choosing a solution The top solutions are then run through a rigorous indepth analysis using even more stringent criteria developed by the group. The goal of this phase is to come up with the solution that maximizes the gain for both parties. The final step in the collaborative negotiating process relates directly to the brainstorming process. If you follow the brainstorming process outlined above, this gets you to the final solution to the problem. This step finishes the approach, leaving only the written contract. Once the solution is agreed upon, put it in writing just as you would for an adversarial negotiation. Not only will it assure that everyone has the same understanding of the solution reached, but also it will serve as a touchstone in

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CHAPTER 4: COLLABORATIVE NEGOTIATION six months if people forget some of the points of the agreement.

Benefits of collaborative negotiating Collaborative negotiating has the major benefit of keeping the relationship between the two parties intact. In fact, when it goes especially well, the negotiation can have the added benefit of strengthening trust between the parties. Collaborative negotiating is a simple, straightforward approach, therefore it doesn’t take as much time to learn. The collaborative approach can be easily explained and followed because there are no strategies or games involved. It is straightforward communication involving the skills of listening and brainstorming. Another benefit is the collaborative approach—when run well—doesn’t take as much time as adversarial negotiating. The process is not clogged with game playing, stalls and time-wasting antics. The time that is spent is devoted to brainstorming all potential solutions that can get the most for both parties. Therefore, it is a productive use of time, rather than a lot of unnecessary waste. Because creative problem solving is at the heart of this negotiating process, the potential exists for coming up with a variety of possible solutions that may never have surfaced previously and certainly wouldn’t have come up with adversarial negotiating. In collaborative negotiating, parties are focused on creating maximum gain for both; often that goal gives the impetus for unleashing ideas that have great benefits for both parties. Ultimately the collaborative process can be more satisfying, both morally and psychology. Because the parties are engaged together in problem solving, they feel part of a team working toward a mutual victory. The process is more open and honest and devoid of the negative feelings that can occur when manipulation is being used. The stress of cat-and-mouse games is alleviated so that the process can actually be more fun than adversarial negotiating. “I knew he was on my side,” said one small business owner of a vendor he was working with. “He cared about the future of my business because it also affected his fu-

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NEGOTIATE LIKE THE BIG GUYS ture business. It was in both our interests to come up with the right solution for both of us. That took all the pressure off me having to wheel and deal to get what I needed. I actually enjoyed the process.” Another benefit of collaborative negotiating is that it can minimize future conflicts. If you know that someone is not out to take advantage of you, you are more likely to approach future conflicts with confidence that things will be worked out cooperatively. If the last negotiation was positive, you will probably see future conflicts more as problems, rather than major battles.

Power and collaboration The issue of power and who has the most to gain can influence which approach to negotiating is the most beneficial for you. If you don’t hold the power in the negotiation, in other words, if you have the most to lose, it is in your best interest to choose collaborative negotiating. Choosing this approach and engaging the other party maximizes the opportunity for both; you—as the tactically weaker party—are more likely to come out better with this approach than you might with another. If you hold the power and you can walk away at any time, you might choose adversarial negotiating, especially if the relationship with the other party is not of importance to you. However, if the relationship is important, you will probably want to choose collaborative negotiating despite the fact that you have the power. Adversarial negotiating has the potential for damaging the long-term relationship because it puts trust on a back burner and focuses on getting the most you can for the least, and winning at the expense of the other party. Should the other party lose, he may not want to have anything to do with you in the future. And if you lose, you may feel the same. If you have the power and choose to negotiate collaboratively, you are choosing to use your power to achieve a longer term goal. By answering the key questions listed on page 102—especially the first four—you will easily sort out what approach to use in negotiating. Analyzing your answers will help you take control of your future business success. A tearout

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CHAPTER 4: COLLABORATIVE NEGOTIATION worksheet in the back of the book will guide you in the process of choosing the right approach for the situation.

Disadvantages of collaborative negotiating The primary disadvantage of collaborative negotiating, and one we have already touched on, is that if the other party misleads you into thinking she will negotiate collaboratively and then reverts to adversarial, you have all your information on the table. It is very tough, if not impossible, for you to negotiate competitively once you have given out all your information in a spirit of trust and honesty. The only thing you can do from there is to continue to try to get the other party on your side of the table to work out a deal cooperatively. This is especially true if the other party has the power. If you hold the power, it is a little easier to get them into collaborative negotiating. Remember that collaborative negotiating is built on a foundation of trust, however. So it may be difficult for you to trust that party in the future. It gets back to decisions about the relationship you want with that person. How important is the relationship and what are the long-term ramifications of the relationship?

Summary Our society is extremely competitive. In most endeavors, we measure success by who wins and who loses. And because of this, we often instinctively take a competitive, adversarial approach to negotiation. Society has traditionally resolved both personal and professional conflicts through some form of organized battle. The United States, for example, has an adversity-based legal system in which each side assigns a professional fighter, or lawyer. The judge is the ref, and the jury decides who wins and loses. A collaborative approach, on the other hand, vastly increases the likelihood that both parties’ interests will be satisfied and a true win-win solution found. Collaborative negotiation is a far more realistic approach for reaching wise, fair, durable agreements using efficient,

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NEGOTIATE LIKE THE BIG GUYS respectful, mutually-rewarding processes. Thus, as a negotiator, you need to consider not only your own immediate personal interests, but also the consequences for other parties of the agreement. Collaborative negotiation is simple, straightforward and easy to learn. Small business owners who are planning to stay in business for a long time would do well to learn the collaborative approach since it is the one that is more likely to help build long-term relationships. That doesn’t mean that you shouldn’t know how to negotiate adversarially. One day, you may find yourself in a position where your opponent is using that approach on you and you will know how to handle it. But, in the global business community in which most of us operate, collaborative negotiation will help you assure an outcome that works today and builds business for the future. When you think of negotiating, you probably assume one of two things: either you’ll win or you’ll lose. But successful negotiation is one in which both sides feel like winners...at least to some degree. Ultimately, the goal of collaborative negotiation is not to win, but to succeed. Don’t go into a collaborative negotiation feeling like you have to win on every issue. Of course it’s important to score major victories, but it’s important to acknowledge the small points too. Ask yourself, “What can I give up that will please the other person without giving up what I want out of this?” In a collaborative negotiation, you can be both assertive and cooperative. This type of negotiation is most beneficial when the negotiating issues and the relationships are important to both parties. Collaboration is a good strategy when both parties are powerful and committed to mutually exclusive goals. For example, a company offers you a price that is between their proposed price and your counteroffer. In this scenario, each party wins, and each party loses.

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CHAPTER 4: COLLABORATIVE NEGOTIATION If collaboration is tried and fails, the parties can attempt mediation in order to reach a resolution that is acceptable to all. Mediators will commonly encourage an atmosphere in which participants may comfortably express themselves. The mediator cannot move forward until each participant is heard. Each is allowed to state his or her perspective, what he or she seeks in a solution and why. Although collaborative negotiations are somewhat time consuming, they are investments that will pay dividends for years. A series of two or three meetings can make a world of difference when it comes to conflict resolution. With collaborative negotiation, each party pursues its own set of goals. Thus, the goal to be satisfied is the conjunction of all the goals of all the parties. However, it might not be possible to enumerate all the goals of the agents because during the course of the interaction, new goals may be generated. Keep in mind: A collaboration may not always be cooperative. In fact, in most negotiations conflicting goals exist.

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE

Chapter 5

ANTICIPATING AND HANDLING PRICE PRESSURE Every small business owner faces the task of setting prices or fees when she is establishing a business. Setting a fair, yet profitable, fee for products or services is almost always a challenge. For many people, putting a price on their work—indeed, on their heads—is tied deeply to their own feelings of self worth. If they haven’t taken the time to do their homework, most new service providers and consultants set their prices too low initially. Setting the price for a product is a little more scientific and objective. However, you need to do your homework in order to price products realistically, yet competitively for the market in which they will be sold. Establishing too low a figure might reflect negatively on one’s level of skill, expertise or experience thereby jeopardizing future business. For consultants and service providers, pricing is a statement of what you think your skills and expertise are worth in view of the current marketplace where you are working. A fee that is too high might price you right out of the market and jeopardize future business. What is that right number for your product or services? Once the fee is established, it is often the first thing clients ask you to cut as the negotiation begins. New entrepreneurs and struggling business owners are often too quick to agree to a price reduction the first time it is requested because they fear they will lose the business. Yet if the price was fair in the first place, why should they feel they need to drop it on the first request?

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NEGOTIATE LIKE THE BIG GUYS So how does an entrepreneur set prices that are fair yet competitive? How do you know if your prices are too high or too low? Should it be a flat rate or a per diem or an hourly rate? What are the pros and cons of each approach? And once the prices are set, how do you maintain the integrity of the pricing structure? What are the inherent dangers of cutting prices for a client? What else can a business owner negotiate instead of fees? And what are some of the options for negotiating when a client really can’t afford your fees, but you would like to add him to your client list? Many times a new business owner will capitulate when a customer balks at the prices. “Afterall,” she thinks, “I need the business and I don’t want to lose a potential customer.” However, there are many long- and short-term ramifications of dropping your price when a client raises an objection about it. And there are other ways to handle that objection. We will consider a number of these in this chapter.

Setting prices and fees Another challenge with regard to pricing is how do entrepreneurs anticipate and handle rush jobs and the inherent costs involved. If you are in a business that by its very nature requires rush jobs routinely, it can quickly deplete your profits if you haven’t figured the costs to you and given notice to the client about the added costs involved. Job cancellations or changes also present a challenge to pricing. Smart business owners have cancellation clauses and change policies to help protect them from indecisive or undisciplined clients. But what do these clauses and policies look like and how can they apply to your business? Some business owners and consultants travel for clients. How are travel expenses and time billed? And what are other expenses associated with doing the work that should be anticipated? And finally, what kind of contract or letter of agreement should a business owner use to assure that she and the client share the same understanding and expectations of what will be delivered in the end? What should be included

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE in this contract or written agreement to reduce the chances of future disputes or disagreements? All of these questions will be addressed in more detail in this chapter. Quite often it can be these issues involving pricing and contracting that inhibit a business owner’s success, and not her ability to deliver a product or service.

Using a business plan as a tool Deciding your pricing structure comes as a result of doing some homework. Most business consultants recommend completing a business plan prior to launching a new venture. The value of a business plan is not only that it gets you ready for the banks and investors, but it also helps you focus on information you need to get started on a path to success. A business plan doesn’t have to be complex or complicated in order to be of value. If you are not seeking financial assistance, you can use a simple approach that helps you examine basic questions to get your business moving in the right direction. A simple, effective approach is found in the tear out pages in the back of this book. When making a business plan, one of the first things to do is to define your market. Is your target customer a Fortune 500 company? Is it a nonprofit? Are you targeting small business owners who have revenues of $20 to $100 million? Or are you going after business start-ups? Whether you are selling a product or services, defining your target market is critical in determining your pricing structure. You will charge differently in the nonprofit arena than corporate America. Defining things clearly will help you make better use of your marketing dollars. So you must answer the question: Who is my customer? Remember that large corporations will probably be willing to pay a little more than nonprofit agencies, which are typically strapped for cash. If you find yourself answering the question of who your customer is with “Anyone could be my customer,” then you need to narrow your focus. The old adage “You can’t be all things to all people” applies here, especially if you are a small business owner with limited resources and time.

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Canvassing the marketplace Once you have determined your target market, find out the going rate in that market for your product or services. You can do this by talking to others in your business to see what they charge. Sometimes a competitor will be straightforward enough to tell you. Or you can talk with potential customers to see what they are currently paying. If you come from the industry and have been on the purchasing end of the equation already, you may have an idea of the going rate for someone in your business. Asking friends what they are paying for your type of product or service is also a good way to find out what the market will bear. Trade and industry publications sometimes run articles about the prices of services or products. Professional organizations often do price comparisons and publish that information for members. Once you have chosen your target market, next decide what you need or expect to make in terms of a salary. A good starting place is to look at what your industry might pay for your specialty or level of expertise as a full-time employee. A fashion consultant in the home furnishing’s industry who has her own business was approached by a large company to work for them full time. She had already done some consulting work for them and charged her normal fee. Following their initial expression of interest, she did her homework by finding out from executive recruiters in the industry what the going compensation package would be for a full-time employee. While she had no interest in becoming an employee, she was interested in a retainer offer that would allow her to keep her business and work for them two days a week. However, when she got the initial offer for a year’s retainer, it was significantly below both her per diem as a consultant and what she knew they would have to pay to hire her expertise on a full-time basis. Armed with that information, she was in a far stronger negotiating position, especially when it came to compensation. It helped her establish her bottom and top lines for the negotiation process, plus it gave her tremendous confidence that her compensation request was realistic and

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE fair for both her and the company. She was also in a strong position because her business was doing well and she didn’t necessarily need to have the retainer business to be successful. The company probably would have used her consulting services anyway, so she could still grow her own business. If you can’t find out what the going compensation package would be for someone with your expertise. Another way to determine what you need or expect to make is to back into it.

Determining your price or rate Sterling “Bud” Dimmitt, Director of Entrepreneurial Services for Lee Hecht Harrison, one of the largest outplacement firms in the world, recommends that for new consultants a good formula starts with your targeted annual salary. He teaches his new business owners to divide their desired pre-tax income by 260 days (or 52 fiveday weeks) to get a daily rate. Multiply that number by 2 to allow for the 50 percent nonbillable time involved in marketing and selling, managing and operating the business, and professional development. The result would further be multiplied by a percentage to cover a profit on labor to which he believes the consultant is entitled for the risk associated with starting a new business. The formula looks like this:

Annual salary divided by 260 x 2 + 20 percent = daily rate For example:

$100,000/260 days = $385 x 2 = $770 + $154 (20 percent profit) = $924 per day This formula should give you a starting point to calculate your rate. It also allows you to determine pricing for multiple day projects. Dimmitt offers an alternative method of calculating fees, specifically consulting fees—one that is required especially when doing work for government agencies or companies with government contracts. In these situations, he 109

NEGOTIATE LIKE THE BIG GUYS says, details of the cost basis used to arrive at a price is usually necessary. Operating expenses for the business would be computed as a percentage of direct consulting labor costs. An example of this approach would be:

Labor rate ($100,000/260 days) = $385/ day Overhead at 100 percent = $385 Profit (20% of $385 & $385) = $155 Daily billing rate = $925 The overhead rate of the above example would be detailed, including the value of the consultant’s non-billable time spent on managing, marketing, selling and professional development. A key question to ask yourself in the process of determining your price is: How do you value your own expertise? Whether you like it or not, your price is a reflection of how you see yourself. And clients will respond to that image. If you price yourself too low, the subliminal message is “I am not good enough to warrant the competitive rate in the current marketplace.” If you price yourself too high, clients may value you more but may not be able to afford you. So ask yourself: Where do you fit in terms of the value you can add to your clients? How highly do you rate your own skills and expertise? Answering those questions will help you set fair, competitive and profitable prices for your products and services.

Pricing structure options Daily rate One of the most common ways for a professional to bill and one that is excellent for work done on the client’s premises is per diem billing, or a daily rate. However, as Dimmitt reminds his new business owners, build in sufficient allowance in the daily rate if the client expects you to 110

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE bill only when you are on the premises and you must spend time on outside preparation or research. Figuring out your daily rate means deciding what your services are worth, then adding in all business expenses (take your annual expenses and divide that number by the number of billable days you have), estimated taxes and profit (typically about 20 to 25 percent). The advantages of a daily rate are that it is easy to market when you have only one rate. It is also easy to project your business success provided you sell the number of days you require in order to meet expenses and make your profit. A per diem is typically simple for a client to understand. And finally, it is an acceptable practice in many businesses, so a client is less likely to question it. The main disadvantage is that budget-minded clients may want you to deliver a full day’s worth of services in only a half day. So, many small service firms charge the same for a half-day session as for a full day. It often takes just as much time to prepare for a half-day session as it does for a full day, and this has to be reflected in your pricing. Some consultants charge a program development fee, plus a per participant fee ranging from $100 to $500 per person, especially if you are providing highly specialized, proprietary participant materials. Hourly rate In many professions it is customary to charge by the hour. Attorneys, expert witnesses, event planners, temporary administrative support, etc. tend to charge by the hour. But for most other professionals, an hourly rate is not de rigueur. An hourly rate is determined much the same way a daily rate is calculated, taking into consideration business expenses, taxes and profit. The good thing about an hourly rate is that it is simple— what you see is what you get...as long as both parties agree on the number of hours worked. Bud Dimmitt tells his novice business owners that an hourly rate is sometimes preferable for work done on the client’s premises, and which would not require outside technical effort or specialized preparation. In the event it does, he recommends the practice of suggesting a dollar cap or time limit on the job to reassure the client that the hours expended will not accumulate unchecked. 111

NEGOTIATE LIKE THE BIG GUYS He says that an hourly rate works for starting a project, becoming acquainted with the work, or even making a detailed proposal development. In certain occupations, however, hourly rates have been around for a long time and are the accepted way of doing business. “Hourly rates are traditional with attorneys,” said Charles H. Waterman III, a partner in the Columbus, Ohio law firm of Bricker and Eckler. “Abraham Lincoln said, ‘A lawyer’s time is his stock in trade.’ and that is still the case. Premium work requiring specialized expertise still gets a premium hourly rate.” While certain modern office efficiencies and the repetition of certain types of cases offer the possibility of what the legal profession calls “value billing,” Waterman points out that corporate clients have become so accustomed to the hourly billing procedure, that they do not want change—even if it has cost advantages. One disadvantage of an hourly rate is that is can be equated with lower level workers and the entrepreneur may be treated that way by the client. There may also be a lingering question in the client’s mind about whether you worked as quickly and efficiently as you could since the more hours it takes, the more you get paid. The consultant must plan her time effectively and bill for half days or more to avoid the inefficiencies of scheduling time on an otherwise minimal profit basis. Project pricing Most small service-based businesses focus on project pricing because this the easiest way to value work performed in the corporate world. Of course, many business people quickly discover that the projects require more time than they originally calculated—and they can end up losing money or getting less than their hourly fee. The important thing to remember about project pricing, as with any work you are going to do for someone, is that you have to clearly spell out the deliverables so that each party has a shared view of what the project involves and what the outcomes will be. The business owner must get very skilled at project estimating and proposal writing to be sure she makes a fair profit on the job and clearly spells out what is or isn’t included and the specifics that you will deliver at the end of the project. 112

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE It is important to build some cushion time into the project for unforeseen delays or additional time you weren’t aware of at the beginning of the project. You can build change clauses and rush job clauses into the contract, but often these clauses are hard to enforce and they sometimes become the grounds for dispute, especially if the parameters of a change or rush job are not clearly defined. For example, a training consultant was writing a leader’s guide for a customized course for one of his financial clients. In his contract he had spelled out that the client was permitted two revisions following the first draft. Midway through the project after he had finished his first draft of the program, the client totally changed direction and instructed him to start over with a new focus. All the work he had done so far was wasted. Instead of writing and negotiating a new contract with additional fees for the new work, he told the client he would comply with their wishes, but they would get only one revision on the new program. The client agreed verbally, but did not abide by their agreement and required two revisions on the new materials. The project ended up costing the consultant valuable time he could have spent on other business. When the consultant raised the issue with the client of their not complying with their end of the bargain as spelled out in the contract, the client got very nasty and made his life miserable through the rest of the project. Needless to say, he never worked for them again, nor did he want to. And he has told many other consultants to avoid doing business with the company. Changes in the scope of the project definition are common and the most sensible way for a business owner to handle them is to generate an addendum to the contract spelling out the new requirements when changes in the original deliverables or time required are necessary. Retainers Retainers are common in some businesses that need ongoing counsel or consulting expertise, but don’t need it on a daily basis. When negotiating a retainer, be sure to outline the total amount of time covered by the retainer and the desired outcomes in a contract. If the client requires additional time during the life of the contract, either prepare an addendum to the contract or get an agreement to bill separately at a per diem rate. 113

NEGOTIATE LIKE THE BIG GUYS “Some clients are more needy than others,” says Beth Phillips, president of Phillips International, a consulting company that specializes in helping American companies open new markets abroad and European companies export to America. “The most important thing to do before you establish your retainer is to listen carefully to the clients for clues as to how often they will need you. If you have experience, most likely you know how long the actual work will take you. It’s the hand-holding part of the work that is difficult to determine. That’s why listening helps.” Be sure to outline in the retainer contract what expenses are covered by the client, especially in the event of travel, materials, courier or shipping costs, etc. Sometimes clients will want all expenses covered by the retainer, and in that case your fee would be higher. While retainers provide a nice guaranteed revenue for business owners, they can often lead to conflict if details are not spelled out in the contract. Try to anticipate any contingency that might arise in the scope of the contract and cover it in writing so both parties have it to reference in the event of a dispute. Retainers are difficult to price unless you can put time frames around the services. If the retainer is based on a certain number of days per month, clearly define what is meant by day. Does it mean 8 a.m. to 5 p.m.? Do you count travel time as part of the day? Does it mean a certain number of hours? Contingency fees Many executive recruiters operate on a contingency fee basis, meaning that they don’t get paid until a candidate is hired to fill the client’s open position. It is similar to the way many sales people are paid in that they don’t get a commission until they have sold something. This is a difficult way to operate a business because it is quite unpredictable. It is not recommended unless you are in a business where this is a prevalent practice. Success fees A certain percentage of the total project fee can be paid by the client for achieving specific objectives designated at the beginning of the project. It is becoming more common for consultants, brokers and attorneys to negotiate 114

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE these kinds of fees —over and above the project fee or hourly fee they routinely charge—especially if there is risk involved or the deal is a large one that stands to make a significant gain for one or the other or both parties. “I am negotiating large deals that will make millions of dollars for the companies involved,” says Lois Ebin, president of Hudson Strategic Partners, a deal-making company that spends most of its time putting Asian clients together with American investors. “I often negotiate a success fee for myself, over and above my per diem, because I can spend two to three years on one deal. If that deal happens, the success fee is like a bonus that many salespeople would get on a large sale.”

Compensation and leverage Determining how you want to be paid is part of setting up your business. It also provides you with an important negotiating tool. Your ability to be flexible in how you get compensated gives you leverage in a negotiation, but make sure you know the costs you pay for that flexibility before you offer your pricing structure as a concession. And how does a small business owner know whether his prices are too high or too low? Sometimes client feedback will provide the answer. If you are getting price resistance on a regular basis, you may want to do some research. Keep in mind that price resistance may not be verbalized. You may have to read the client’s body language to see her real reaction. A raised eyebrow or mild look of surprise when you mention your fee can give away what she is thinking. If you see this reaction, try to get some feedback from the client. Ask questions like: “You seem surprised. What do you normally pay for this type of work?” or “What did you expect to pay for these services?” or “What had you budgeted for this project?” Be careful not to drop your price at that moment in response to what the client says. Often it is a negotiating tactic used by the client to get you to do the work for less. He is hoping you will instantly meet the number they put on the table. We will discuss the ramifications of dropping your price later in this chapter. 115

NEGOTIATE LIKE THE BIG GUYS Test the answers you are getting from clients on people who do your same kind of work to see if you are in the ballpark. If there is a pattern of resistance and it impedes your ability to get work, you will probably want to reassess your pricing structure. Maybe it is out of alignment with the rest of the marketplace. If you get a lot of price resistance, it also is possible that you have targeted the wrong client. Maybe this is not the right client for you and the best thing you can do is recommend someone who may better suit their needs. The interesting thing about prices or fees that are a little higher than most in your field is that customers often equate high price with high quality, and often don’t mind paying a little more for what they perceive as a better quality product or service. Establishing a reputation for yourself can enable you to charge slightly more than what the going rate is for your products or services. Some new entrepreneurs position themselves on the low end of the price spectrum in the beginning because they feel that being new business owners they need to break into the market and gain acceptance through lower prices. By doing this, they are unintentionally devaluing all the experience they have had prior to becoming a business owner. While some clients appreciate budget prices offered by beginners, their perception of the value they are getting can also be diminished if they feel they are also getting lower quality. It is very difficult to change a client’s perception once you have established yourself in a certain genre with her. Clients may perceive that a low price is indicative of a lower quality product or service, or a person desperate for business. Most clients don’t want to work with someone who is desperate. If your prices are too low, you will know it by how customers treat you. The less they pay you, the less well you are treated by them generally. It flows naturally from the idea of valuation—if they value you and what you bring to the table, they treat you with respect. If not, they don’t. It’s also difficult to raise your prices to the appropriate level once you’ve set a low rate because clients are accustomed to paying a certain amount and that is what they see as your worth. If you try to raise prices to a more com-

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE petitive rate, you will most likely face price resistance and may lose some clients who just don’t see your product or service as being worth the new higher price. While you can’t be totally inflexible about your fee structure, being confident of your fees gives you an edge when clients want to negotiate price.

A consultant who fought for his fee The May 1997 federal court decision James M. Bradley v. Dean Witter Realty, Inc. et al. dealt with a small consultant trying not to be mistreated by a big company. James Bradley was a hotel and hospitality industry consultant based in Massachusetts. In 1993, Dean Witter retained his firm, Bradley Associates, to provide financing and management advice regarding the Hyatt Regency Westshore in Tampa, Florida—a troubled Dean Witter investment. Bradley met with several Dean Witter representatives to discuss his contract. Bradley told Lord that his usual retainer was $350 per hour but that, as an alternative, he would accept a smaller monthly stipend plus a substantial incentive fee. Bradley described the incentive fee as a percentage of the improvement in the investment status of the property. Due to the hotel’s serious financial condition, both Lord and Hardman indicated that the incentive fee approach would be preferable to higher monthly payments. After the meeting, Dean Witter sent Bradley a contract. The agreement provided that, in exchange for various consulting services, Dean Witter would pay Bradley a base fee of $10,000 per month from July 19, 1993 until October 19, 1993, as well as compensation in the form of an incentive fee (with a payment scheme), acceptable to both parties, in the sole discretion of each, to be structured during the term of this Agreement, which will be based upon (i) the improved net present value of the Hyatt-Westshore to its owner as a result of debt and management restructuring and/or (ii) the consummation of a Hyatt-Westshore management contract with a new management company, it being agreed that if the parties are unable to agree on an acceptable incentive fee,

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NEGOTIATE LIKE THE BIG GUYS this Agreement shall terminate and Dean Witter shall not be obligated to pay Bradley any incentive fee. In August, Dean Witter sent Bradley a memorandum proposing a structure that offered Bradley “five percent of improved Cash Flow After Debt Service (CFADS) for the years 1994 through 2003 following the restructure of [a major] loan and Hyatt Management Agreement.” The company also proposed an alternative, lump-sum payment in the event of a sale “during the five-year incentive period.” Bradley made some “adjustments,” to the memo, including a proposal that his consulting firm should participate in 10 percent of Dean Witter’s financial services position before a return on guarantee funds, and sent it back to Dean Witter. In September 1993, Bradley and Lord modified the incentive fee over the phone to provide Bradley Associates with 10 percent of the CFADS for the first five years through 1998, and then five percent thereafter. According to Bradley, he was under the impression that a basic agreement had been reached and that the “fine points” could be worked out and incorporated into the document later. This easy-going approach was not a good idea. This is an all-too-typical response. It’s natural for a small player to feel excited...and even slightly daunted...by a rich contract with a corporate giant. But, as a small player, you can’t let the excitement or nerves cloud your business decisions. We’ve noted elsewhere in this book that contracts are sometimes best avoided if possible; however, Bradley’s situation was different. The big pay-out he’d negotiated was prospective—a slice of earnings to be generated in the future. This is the kind of business that needs to be locked down while the small business has the most power—namely, before or during a project. Dean Witter and Bradley began negotiations regarding the terms of the incentive fee via telephone and fax machine. However, no formal document memorializing the terms of the incentive fee agreement was ever constructed. During Bradley’s engagement, the hotel’s performance dramatically improved. Using a Bradley Associates strategy, Dean Witter was able to enjoy smaller interest pay118

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE ments on the hotel’s mortgage. Moreover, the hotel experienced substantially increased cash flow after debt service during the time Bradley was consulted. The improvements continued and, in January 1995, Dean Witter’s management agreement with Hyatt was successfully renegotiated. In early 1995 Bradley sent a letter to Hardman. Bradley expressed pleasure at having spoken with Hardman about the status of the hotel, and stated that, in light of the pending restructuring of the management agreement with Hyatt: it is appropriate that you prepare a more formal document regarding the incentive structure that you, Ed and I agreed to on 9/7/93 which calls for incentive income to Bradley Associates or my estate of 10 percent of owner cash flow through 1998 and 5 percent thereafter. This was a measured and careful reminder of the agreement Bradley believed they’d reached. The only problem was that it came too late. Dean Witter responded to his letter by insisting that no incentive fee agreement had ever been reached. It refused to pay Bradley any amount above the base fee for his consulting services. In June 1995, Bradley sued Dean Witter, seeking to recover payment of the incentive fee he believed had been promised to him by the company. Dean Witter moved for a summary judgment dismissing Bradley’s claim. These were old-fashioned, strong-arm tactics; Dean Witter was apparently going to try to run over the consultant who’d hesitated to strike while he had the most power. Bradley contended that Dean Witter had breached its contract when it refused to pay for services rendered. Dean Witter countered staunchly that its management had never reached a binding agreement regarding the payment of the incentive fee. It contended that a summary dismissal of Bradley’s claims was appropriate because New York’s Statute of Frauds barred any oral incentive fee agreement between Dean Witter executives and Bradley—as well as any agreement based on written memoranda made in furtherance of the fee negotiations. Under New York’s Statute of Frauds, certain agreements are required to be in writing and signed by the party to be charged if they are to be enforceable. 119

NEGOTIATE LIKE THE BIG GUYS According to Dean Witter, the alleged oral agreement regarding an incentive fee was not enforceable per New York’s statute because: (a) the incentive fee arrangement by its terms was not performable within one year and (b) the underlying contract was “a contract to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein.” The court ruled against Dean Witter’s first contention “because the parties allegedly agreed not only to a graduated incentive fee payable over time but also, alternatively, to a lump sum if the property was sold during the incentive period—a condition that could have occurred within one year of the alleged oral agreement.” In addition, the court ruled that several memos and the document entitled “Bradley Incentive Fee Calculations,” both of which were sent to Bradley by Dean Witter via fax, constituted a contract in writing. The court also sided with Bradley’s inference that the names on the cover page of certain faxed documents were intended to authenticate the contents of the documents to withstand a motion for summary judgment on statute of fraud grounds. Bradley argued that the New York law’s writing obligation was excused by his continued performance after the termination of the formal agreement in December 1993. The court agreed with this argument. He also argued that, by failing to complete the incentive fee agreement, Dean Witter breached the implied covenant of good faith and fair dealing. However, the court ruled against Bradley on this claim because he failed to provide any evidence to show that Dean Witter acted “arbitrarily, capriciously, or in bad faith” at any point during negotiation. In addition, under the terms of the contract, Bradley had not been given any right to an incentive fee. The contract simply stated that “if the parties are unable to agree on an acceptable incentive fee, this Agreement shall terminate and Dean Witter shall not be obligated to pay Bradley any incentive fee.” Bradley also claimed that Dean Witter made false representations to him during the incentive-fee negotiations 120

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE regarding its intention to pay him an amount in addition to the base fee. But, in order for this claim to hold, Dean Witter would have had to promise to do something without any intent to fulfill that promise. However, Bradley offered no evidence from which a jury could reasonably infer that Dean Witter fraudulently misrepresented its intention to pay him. Accordingly, the court ruled against Bradley’s fraud claim. Bradley also brought a claim against Dean Witter based on the Massachusetts Consumer Protection Act, which prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” (For those of you who do business in Boston, the court ruled that a company may be liable for its conduct in Massachusetts even if the underlying contract is governed by the laws of another state.) Bradley’s Massachusetts claim arose out of Dean Witter’s alleged breach of its promise to pay an incentive fee as an inducement for Bradley’s continued work at a reduced rate beyond the period covered by the written agreement executed in June 1993. Dean Witter argued that the “unfair and deceptive” business practices claim alleged a simple breach of a promise to pay the incentive fee without the immorality required by Massachusetts courts, and that it was exempt from liability under the Consumer Protection Act because the challenged conduct did not occur primarily and substantially in Massachusetts. The court disagreed. It contended that Bradley successfully raised the specter of unethical conduct within the meaning of Chapter 93A when he alleged that Dean Witter coaxed him into working at a significantly reduced rate of compensation for several months after the original consulting agreement ended with the mutual understanding that Bradley would be rewarded by an incentive fee if the hotel were successful. Moreover, Dean Witter’s technicality claim—that the allegedly objectionable conduct occurred outside of Massachusetts within the meaning of the consumer protection statute—was overruled. Finally, Dean Witter argued that it was entitled to summary judgment in regard to Bradley’s claims. But its argument ignored evidence indicating a triable fact issue as

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NEGOTIATE LIKE THE BIG GUYS to whether Bradley continued to work for Dean Witter either without compensation or at reduced rates of compensation after the initial written contract had expired. The evidence raised clear issues about: 1) whether Bradley’s continued assistance was made in good faith and with a reasonable expectation of compensation; 2) whether Dean Witter received a benefit from that additional, unpaid performance which it is not entitled to retain “in equity and good conscience;” and 3) whether Dean Witter made a clear promise regarding the incentive fee upon which Bradley reasonably relied in continuing to work beyond the contractual period. So, Dean Witter’s motion for a dismissal of Bradley’s claims was denied. The court nudged the big financial services company toward settling with the small consultant.

Maintaining price integrity Some business owners say that they routinely drop their prices if a client asks or if it looks like they might lose the business if they don’t comply with the client’s offer. Clients, especially those who pride themselves on being good negotiators, are schooled to try to get more for less. A price objection is common and there are many ways to deal with it other than immediately dropping your price to suit the client’s request. One useful rule of thumb: Negotiate everything else before you negotiate price. Patti Hogan, a New York-based managed care consultant, had the opportunity to do some consulting work for a hospital director. After about two hours of discussion, she gave him her price. He countered with an offer considerably less than what she had just told him. She kept talking, but began packing her briefcase, prepared to walk away even though she needed the work. As she began to walk out the door, he matched her price, but told her they were looking for a full-time employee to take the job and she would eventually not be needed. Patti said fine.

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE As she was leaving that afternoon, the hospital director told her the press release about her joining the hospital as a consultant was already prepared and then showed her to her temporary office. The moral of the story, as Patti tells it, is don’t lower your price. “He obviously had been prepared to hire me all along, and if I had not held my ground, I would have lost muchneeded income,” said Patti. Dropping your prices in response to a client’s request has many long- and short-term ramifications. In the short term, you don’t make as much money as you have deemed necessary to pay your bills and make a profit. That client will expect the same low prices thereafter, and may even tell other potential clients what he is paying for your product or services. So over the long term you are doing more and more unprofitable business. If that occurs with many clients, you could ultimately lose your profit and end up with your balance sheet in the red. Sometimes business owners will drop their prices in the face of a promise of future business. A client craftily holds out the carrot of lots more business down the road if you can come to agreement on a “good price” for this first job. The question becomes how often that promise if fulfilled. The answer is not very often. A promise is as firm as the paper it is written on. In other words, a verbal promise means nothing, even among friends. Too many things can change down the road. You have no guarantees that client will even be there to fulfill the promise. And if they are still there, often when it comes time for them to fulfill the verbal promise, the decision is suddenly out of their hands. The business owners most willing to drop their prices at any sign from the client are those who haven’t done the homework necessary to have confidence in the integrity of their pricing from the start. Because they lack confidence, they automatically agree to a reduced price without getting anything in return. So be sure you have a good basis for your prices. What are the other things you can negotiate? There are many and they depend on your product or service. You can negotiate delivery time, payment terms, cancellation policies, substitutions, shipping, travel expenses, material costs, printing, reproduction, volume and scope of work. 123

NEGOTIATE LIKE THE BIG GUYS Take a look at all the elements you provide that comprise your product and service. Break out all the elements and make a list so you can see what your negotiable items are. Before you go any further, put a dollar cost to you on these items because you will need to know that in order to trade these concessions judiciously in a negotiation. For example, what is the cost involved in you reproducing participant materials if you are doing a workshop or presentation. Can you write off the cost or part of the cost as a business expense? Is it worth it to reduce your overall price if the client offers to print those materials? Don’t walk into a negotiation without knowing the cost of each of the items you may want to trade. Afterall, you don’t want to lose something big in exchange for an item that may cost you little in the end. You will be surprised at how many things you have available to you to trade with the client in lieu of reducing your price. Let’s take a look at each of those things and some options you can use in your negotiation.

Delivery time and terms Obviously if the client needs the product or services immediately and you can schedule it in without additional costs to you, do it. But if it will cause you hardship in any way—working overtime, bringing on additional help to process the work, etc.—negotiate the cost of these extras. If the client is flexible about delivery, schedule it in to suit your schedule, maybe even allowing fudge time in case a more immediate job comes up. Most businesses operate on a payment plan of net 30 days. Rather than dropping prices, you may give a client 60 days or 90 days to pay. Look closely at what this costs you before you offer it; ask your accountant to quantify the cost in some way so you know what it is worth. It is common on large consulting projects to require partial payment up front, a third midway through the job, and the final third when the final product is delivered. You can negotiate the payment plan to suit you, but be sure you understand what it costs you. Maybe you want to go to a policy of half up front and half at the end. No matter what your terms, find out the costs to you and use it as a concession if it doesn’t cost you too much to be flexible.

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE Sue Yellin, a business coach and well-known speaker, requires full payment for all services up front. “It is the difference between a ‘freelance mentality’ and a ‘business owner mentality,’” she says, indicating that her business has no receivables. “What business owner can say he has no receivables. I just made the decision that was going to be one of my terms, since I don’t want to have to spend my time being a collection agent.” She goes on to say, “If I have to use my energy collecting payment, that is energy I can’t put into the work I do for other clients. It’s not fair to my clients.” Do any clients balk at her policy? Not very often, she says, because they know what they are getting and they feel it is worth it. And if a client does balk at it, she tries to find out what the problem is. Often, she can dispel any qualms they have about paying her up front by simply giving references. However, most of the time it has something to do with a client’s own company policy with regard to consulting services—not the client’s concern about Yellin’s work. In that case, she makes a decision about whether to do the work under their terms or walk away because the client can’t meet her terms. Sometimes she finds middle ground which allows her to do the work and still get partial payment up front.

Other terms Cancellation Most companies have some kind of cancellation policy. If they have produced the product or set aside the time and people for a service and a client says, “Oh, sorry, we just don’t need it afterall” a penalty is usually involved. Many consultants have cancellation policies because in addition to selling their expertise, they are selling their time. If they have committed to holding certain dates for a client, it means they must refuse work for those dates from other clients. It is only equitable that the client be as committed as the consultant to holding the time. In order to determine your cancellation policy, figure out how long it takes you to sell your time or your product and build that into your normal contract.

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NEGOTIATE LIKE THE BIG GUYS A cancellation policy not only helps to protect your income from someone else’s poor planning, but also is a negotiable item and provides a good concession to trade instead of a price concession. Another way to work the cancellation policy would be to raise your fee if clients ask you to raise your risk. If they are able to fulfill their obligation without cancelling, you have earned the money for the risk you took. It is a gamble and you have to decide if you are willing to take it. Substitutions Sometimes a customer may ask you to make a substitution or you may want to offer a substitution if they can’t meet your price. Look at all the possible alternatives. Product substitutions may be easy—if expensive—to establish; service substitutions take a little more creativity. For example, if you are a service provider, you can charge a higher rate for those with more expertise and lower for more junior people. The big North American accounting firms all grew their businesses by this method, matching levels of expertise to clients’ needs and budgets. Shipping You can pay or the customer can pay. It is a negotiable item, just be sure you are certain of its value before you use it as leverage to get your price. And remember you can deduct it as a business expense. Travel expenses It is a general practice in consulting firms, legal practices, and most other service-oriented businesses that the client pays for travel expenses if the work a consultant is hired for requires travel. However, as was explained in an earlier example, travel expenses are negotiable. Some celebrity consultants have stipulations in their contracts that they fly first class, have limousine service while engaged in the work, and be put in only first class accommodations. These people are more like celebrity spokespeople than traditional suppliers or business partners. However, some suppliers—especially in fields like on-line marketing or computer software development— will be given the VIP treatment. If you can demand this treatment, congratualtions. But a caveat: Don’t let the champagne and livery lull you into

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE signing a bad deal. Big companies often try to awe small ones with luxurious trivialities—and then force hard terms on them. Travel expenses are deductible. Don’t be afraid to pay them if you have to. An upgrade to first class probably isn’t worth an extra percentage point of discount, reducing your retainer or offering another 30 days in payables terms. Materials, printing and reproductions costs These typically represent a small percentage of the overall expenses of a project. However, if you typically include those expenses in your overall fee and someone is balking at your prices, break out the actual costs and negotiate for them to do the work. If you do this, remember to figure the people power costs involved in addition to the actual materials, printing, etc. costs as part of the total value of the concession before you offer it up as a negotiable item. Volume discounts Sometimes clients will ask for a volume discount. If that is a common practice in your business, consider doing it but try to get something in return. Or at the very least build a “fudge” factor into your pricing that allows you to still make a profit on a volume discount. In the business I am in, I will consider it only if the client is willing to sign a contract for the said volume. Once again, you have to figure out the cost to you and the value in order to use it wisely as a negotiating tool. Scope of the work Sometimes the scope of the work changes from the time you submit the proposal to the time the work actually begins. Be sure to prepare addendums or change orders for those times. If you don’t, it can result in disputes and conflicts. Many small business owners charge a penalty for change orders that go beyond a certain number. Often the objective is to discourage last minute changes because it wreaks havoc in the business, but it is also to train clients to make a decision and stick with it. Once again, this is a negotiable point. You can add it into the total equation as you negotiate your fees. 127

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Non-traditional price factors There may be many other things directly related to your business or industry that are negotiable items. Be creative. Look at every aspect of doing business that you currently take for granted and look at it from a fresh perspective. Ask yourself the following questions about each aspect of doing business: •

Is it something I currently pay for as a business owner?

•

What is the cost to me?

•

What is the value to the customer?

•

How can I leverage it in a negotiation so I get my profit or something of greater value to me?

Of course, this whole review of negotiable items is based on the assumption that you will be negotiating in an adversarial mode (a collaborative approach won’t usually require the give and take trading of concessions). Remember that the adversarial mode presupposes that you are trying to get more for less. Thus, the main focus in deciding what makes the trade depends on the cost to you and the value to your opponent. A practice that is more common than many people realize, especially among small business owners, is bartering. Bartering involves trading goods and services without the outlay of cash. The International Reciprocal Trade Association (IRTA), a barter industry trade group in Chicago, estimates that $9.1 billion worth of goods and services were exchanged in North American alone in 1996 and that is up from $5.3 billion in 1990. Small business owners as well as large corporations are hopping on the bartering bandwagon. Lance Lundberg, founder and president of ICON International, Inc., a Connecticut-based bartering company, says that most of his clients are Fortune 500 companies looking to trade excess good and services for things they need rather than dump them on a close-out market for a loss. ICON resells the goods and services for cash to markets where there is demand, and makes a profit if they can sell it at full value. 128

CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE Bartering is particularly popular among entrepreneurs, often-cash-strapped small business owners, and start ups who need services and are willing to trade their professional know how or a piece of their business for the services and products they need to build their business. For example, Briana Joy Beveridge, a Phoenix-based personal organizing coach and owner of a company called Simple Solutions, wanted a new marketing brochure to launch her business to corporate clients. She found a small graphic design firm interested in bartering with her. The deal was that she would provide yoga classes for the staff once a week and in exchange they would design a firstclass marketing brochure for her. Each party got something of value to her and no cash exchanged hands. Briana would never have been able to afford the beautiful brochure she got, and the design company wouldn’t have spent precious resources on a weekly yoga instructor. One strong caution when you enter a bartering arrangement, especially where the exchange of services, rather than goods, is the basis of the deal. Put the agreement in writing so each party is clear about the time parameters, deadlines and deliverables. And put a dollar value on your services based on the normal fees you charge so that parties see that the exchange is equitable for each. Briana had nothing in writing and ran into trouble when after three months of teaching yoga, she still had no brochure. She was getting irritated because each time she asked when a draft would be ready, they told her the press of business kept pushing her project to the bottom of the pile. Afterall, they reasoned, the other projects were bringing in cash! In order to get them to bring her project to the top of the pile, she had to threaten to stop the yoga classes until she saw a draft of the brochure. In the end, she was able to work out a better deal and both parties felt good. But her relationship with the people at the design firm had been jeopardized because of different expectations and no written agreement about the arrangement.

Handling price objections Even though alternative approaches can be interesting, in the end pricing is all about money.

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NEGOTIATE LIKE THE BIG GUYS A common mistake made by a lot of small business owners is to get involved in price negotiations before they have really had the opportunity to “sell” themselves or their products. Of course it’s to the customer’s advantage to try to turn your product or service into a commodity because then the issue becomes narrowly focused on price. As long as the customer thinks he can get the exact same thing somewhere else, he will hold you hostage with price. Until you have had the opportunity to set yourself apart from your competition, you can’t establish why you are worth your fee. So, don’t be sucked into the mistake of giving your price or fees too soon in the sales process. Tell the customer you want to fully understand her needs before you get into the price. Then ask questions and listen closely to the customer’s answers. Often, he will give you the clues for how you can set yourself apart from your competition in this particular customer’s eyes. Once you have had a chance to “sell,” if the customer raises a price objection, ask questions like: “What did you expect to pay for this?” or “What budget have you set aside for this?” Get as much information as possible. Maybe the customer has unrealistic expectations; or maybe he is simply trying to get you to drop your price. Another possibility (as mentioned before) is that this is simply not the right customer for you. Whatever the reason for the objection, you need to find out what is behind it and make some decisions about whether you want to negotiate price. The issue here is not to make any promises about dropping your price simply because the customer raises an objection. Wait to see what his whole package of needs entails so when you get into the negotiation, you can trade for price instead of giving up your price. A last note: Remember to raise your prices periodically. Stay in touch with what is happening in the marketplace and especially with other people who offer the same kinds of products of services you offer. While you want to remain competitive, keep in mind that you deserve a raise, too.

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CHAPTER 5: ANTICIPATING AND HANDLING PRICE PRESSURE “If you were working for a large company, you would automatically get periodic raises, whether for cost of living or merit,” says business coach Sue Yellin. “Don’t forget to give yourself a raise.”

Summary Negotiating pricing and terms of the arrangement requires confidence. When you follow the preparation steps and have done your homework to determine that your pricing is valid, you will gain the confidence necessary to maintain the integrity of your pricing structure. With practice and experience, you will also gain greater confidence that you can negotiate deals that will help you grow your business.

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CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL

Chapter 6

NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL A negotiation is more than just meetings between people in a conference room. Much of the way that the other party will think of you is based on other forms of communication—in writing, over the telephone and, increasingly, by e-mail. In short, there’s a whole side to you...or any party to a negotiation...that comes across outside of the strict confines of formal negotiation. These other communications group together what can be considered—broadly—as negotiating etiquette. Experienced negotiators know the importance of diligence. They will take notes during discussions and often follow up verbal communications with some sort of memo or letter. The purpose of this chapter is to outline some of the dos and don’ts of written communication, social meetings and the other elements of negotiating etiquette. We will look at the common pitfalls of written communication, the political aspects of voice mail, the pro’s and con’s of follow-up memos, the legal implications of e-mail—and steps a small business owner can take to minimize misunderstandings related to all of these.

E-mail: New issues raised by technology One of the most profound changes most Americans would recognize today is the rise of information networking as exemplified by the Internet. In late 1995, Bellcore research-

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NEGOTIATE LIKE THE BIG GUYS ers conducted a survey of a random sample of 2,500 people. Eighty-five percent of the respondents had heard of the Internet, though only eight percent were current users. Four years later, the percentage of users had risen five-fold—and was still accelerating. The demographic details can also be revealing: Current Internet users were more likely to be male than female, somewhat younger, considerably better educated, and very much better off financially than respondents in general. Just a few months later, however, new studies suggest that both gender and income gaps may be narrowing. The social importance of information networking and the technological changes associated with it is confirmed by the development of new forms and elements of etiquette— in the case of the Internet, sometimes known as “netiquette”—for handling them. This remains a field that is evolving. A mass-market etiquette book by the author known as Miss Manners addressed some of the points; but, mostly, they are being worked out by society as we live with the changes. During the mid-1990s, the use of Internet-based electronic mail (e-mail) exploded. It’s the main reason that most nontechnical people get on the Internet. By some estimates, e-mail has surpassed conventional mail as the most widely-used method of written communication. The U.S. Postal Service handled about 160 billion items a year during the 1990s. The Electronic Messaging Association estimated Internet users sent more than two trillion messages in 1997. And this is only the beginning. By 1998, about one in three businesses were using e-mail to keep in touch with at least some of their customers. E-mail is the communication tool of electronic commerce, exchanging transaction information and data that support on-line sales. Combined with all of this potential are several problems, mostly related to the human side of the exchange. Because e-mail is so easy to send—most people can send messages in a fraction of the time that it would take to lick and attach a stamp. This means companies are receiving a constant deluge of correspondence—often, much more than they can handle. 134

CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL According to an on-line survey conducted by Pennsylvania-based Strategic Solutions, 28 percent of Internet respondents receive more than 21 e-mails a day. And the situation can be especially acute for large companies. Derek Scruggs, founder of Digital Bits, a Chicago-based company that develops software to manage incoming email, cites research showing 30 percent of Fortune 500 companies don’t answer e-mail directed to the Webmaster of their Web site. That may be the major faux pas of business e-mail manners, notes Derek Fisher, president of a Canadian company called RelayMail, which screens e-mail by using front Internet addresses forwarded to real addresses. “Many people put a lot of effort into writing e-mail they send to companies asking for information or details. Getting no answer at all is not the right response,” especially when competitors are just an e-mail away. There are solutions to these types of problems. A few hours of training on e-mail etiquette can save hours of grief for companies. For example, careless use of e-mail distribution lists, which send one message to multiple recipients, can blanket a company with trivia. A caveat: e-mail and collaboration tools are doomed to failure unless everyone in the company uses them, including those at the top. The same is true of calendaring features, which let users check the electronic datebooks of their colleagues. They won’t work effectively unless all the participants in a meeting have accessible and accurate electronic calendars on the network. The ease—and speed—of use has spawned another issue: People with short tempers sometimes send out irate messages that, in pre-e-mail days, they would have had time to reconsider. So, watch your emotions on-line. “The potential for hostility in e-mail is huge, and very disruptive for managing groups of people,” says Stuart Gannes of AT&T Labs. He adds that “people got on their high horse and became very preachy toward each other. These incredibly hostile arguments that were copied to everyone would erupt. You’re challenging someone in public. These things are like little wildfires.” 135

NEGOTIATE LIKE THE BIG GUYS E-mail communication is not face-to-face conversation, says Kate Sherwood, author of a popular Internet e-mail guide. “Sarcasm is particularly dangerous to use in e-mail,” as the recipient may miss the point entirely or make wrong assumptions about the sender’s intentions. In the end, face-to-face dialogues between individuals are simply less likely to escalate into angry confrontation than arguments on paper or on screen. People in the business world are way ahead of academia in recognizing the problem with this kind of behavior. But the influence of academia still encourages a lot of sophomoric rhetoric on the Internet. This is certainly something to be avoided in any business communication.

Privacy and security Among the other social issues we’re still debating for many information-networking technologies are privacy and security: We want access to more information on others than we are often willing to reveal about ourselves. For instance, there were some vehement controversies over introduction of Caller identification services—although, among other advantages, there is evidence that merely introducing Caller ID reduces the incidence of obscene calls. Also, it forces people to be more accountable when they dial the phone. The wide use of voice mail systems has also helped separate good from bad calls. These answering machines allow most business people to screen calls by simply not answering their phone. There’s no question that many people make a practice of not picking up their phones. They just check messages every hour or so and return calls. This practice makes concentrating on deadlines easier. It’s democratized the habit of not answering the phone—which used to be something reserved for people with secretaries. But is this cold-shoulder tactic a good idea? “I make a lot decisions about a person based on whether or not he picks up the phone,” says one California-based business lawyer. “Generally, you find that it’s the flunkies

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CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL who don’t take calls. The big shots are more likely to pick up the phone when they are in the office.” Much has been written about an employer’s presumed right to read the electronic mail passed on its system. In one sense, this is both as innocent and as threatening as eavesdropping on the traditional water-cooler conversations, except that technology has widened the scope of water-cooler society. Many people have very serious concerns about the security of information they send over the Internet. Among current users of the Internet, concerns about paying for goods and services by sending credit-card numbers across the Internet were expressed in one survey by older respondents. In a sample of general consumers from the same survey, three fourths of the respondents reported being concerned about fraud and error when shopping with their credit cards over the phone. The number jumped to 87 percent when the business called the respondent to solicit the order. Interestingly, 41 percent were concerned about fraud and error—even when they did their creditcard shopping in person.

Technology impacts communication styles In recent years, numerous studies have looked at the effect of the new electronic media on the organizational and communicative practices taking place in business and looked at written business communication. Using the Internet is the least expensive way for companies to implement e-mail, but ordinary Internet e-mail lacks important capabilities such as the ability to determine whether a recipient has read a message, or to transfer calendar information or other data between applications. Communicating in business has changed dramatically in the past two decades. The new communication media (computers, faxes, e-mail, voice mail) have affected the entire communication process: who communicates with whom, when, in what language, with what style and through which channel. This is particularly true of international business, where facsimile machines and e-mail reduce the impact of time zone differences. 137

NEGOTIATE LIKE THE BIG GUYS Business people take care of their daily correspondence while sitting at the airport by using a mobile phone and a laptop computer. These developments have done a lot to even the playing field between big and small companies. If you are a small business communicating with larger ones by e-mail or voice mail, you can do a lot to obscure just how small you are. At the early stages of a negotiation— if nowhere else—this may be a smart tactical decision. You just need to make sure that the services you are using have the features...and reliability...that will keep connections running smoothly. As long as they are running smoothly, your concern as a small company is to make sure your correspondence reads well. This is an important distinction, because many of the communications techology advances of the 1980s and 1990s seem to have eroded the overall quality of communication. (This is a sort of sibling issue to the angry emails we considered earlier.) Anyone who uses e-mail heavily...or even uses the fax machine a lot...knows how many typographical errors, incoherent sentences and confusing references instant communication can produce. Certainly, concern about security is one reason people adopt new technology slowly. But the casual—even sloppy—style of communication is another. How seriously can someone take a business proposal that describes the founding partners of a company as its principles?

The Fax Its not just e-mail that has changed the style of business communication. In many ways, facsimile machines were the first of the recent revolutions. During the late 1980s, the fax machine began to be used just about everywhere. The ease and speed of written communication achieved by the use of faxes affects the way of doing business at many levels and creates fundamental changes in the social and communicative practices of business people. Today, the telephone is often replaced by fax communication. Like e-mail, the fax minimizes the difficulties posed by time differences and the possible misunderstandings created by conversations over the telephone. 138

CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL The use of the fax has also affected job descriptions and organizational functions. People in organizations have become more responsible for their own communication. In addition, the introduction of the fax has emphasized writing skills among all employees. As one clerical respondent to a European survey said: “even the engineers are now able to take care of their messages themselves.” The amount of writing has also increased as the use of faxes have made writing easier, even in a foreign language. But this trend is another explanation for why the overall quality of business correspondence has gone down. The respondents to another European survey emphasized the fact that they liked using a fax machine because “nobody expects it to be perfect.” A victory for bureaucratic self-esteem; a defeat for clarity and precision. Defenders of e-mail spin this trend by claiming that more attention is paid to getting the message across—rather than getting hung up on bothersome details like grammatically correct and accurate language use. According to the Journal of Business Communication, the business fax is a distinct form of communications— reflecting the social practices to which it is situated. In fact, the Journal went on to identify five specific subcategories unique to the business fax, including: specific information, specific requests, “for your information,” first contact, and order. For better or worse, faxes do have a style of their own. The language used in faxes is different from the wordier, more formulaic style of business letter writing. The language is efficient (a term that stands out above all as the most important characteristic), with no unnecessary decorations, often informal, and more like spoken language.

Written Agreements Still Matter Don’t assume that—just because you have shaken hands upon reaching agreement, left congratulatory voice mails, sent upbeat e-mails and (if the last section is right) faxed the good news—the negotiation is finished. Following up on the agreement is as crucial to the process as the opener.

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NEGOTIATE LIKE THE BIG GUYS Throughout this book, we’ve considered the pro’s and con’s of getting business relationships set up in writing. This can be a good or bad thing, depending on the circumstances. The June 1998 federal appeals court decision Fitzroy Gardiner, dba Western Trading Enterprises, v. Virgin Islands Water & Power Authority holds out some hope for small consultants worried about corporate giants paying their fees—especially when there is no written contract. In fact, this case highlights how one decisive entreprenuer can out-negotiate a whole team of bureaucrats and administrators—especially when everyone is feeling pressure to get things done. When Hurricane Hugo hit the Virgin Islands in September 1989, it destroyed the potable water delivery system on the island of St. Croix. In the days following, the Virgin Islands Water and Power Authority (WAPA) and officials of the U.S. government immediately began efforts to restore the water service, using fresh water wells. Because the equipment being used at each well site was in high demand on the island, attempts to steal the generators and pumps quickly became a serious problem— despite a tightly-enforced curfew to prevent violence and looting. To solve the problem, Bruce Green, an employee of the United States Geological Survey assigned by FEMA to work on the Islands, and Romeo Cipriani, Superintendent of the Water Distribution System for WAPA on St. Croix, hired FitzRoy Gardiner and his company Western Trading Enterprises to perform round-the-clock security and maintenance service at the wells. With little time to spare, the parties hammered out an agreement. Gardiner orally agreed to provide both security and maintenance services 24 hours a day. According to Bruce Green, Gardiner was told at their initial meeting that WAPA would be reimbursed by the federal government for the payments to Western Trading. However, there was no written contract. Gardiner began to perform the services immediately. He had people in the field within hours. By all accounts, Gardiner and his crews were resourceful and highly successful. 140

CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL In order to assure uninterrupted service, Gardiner constructed shelters for his crews at the wells. His crews kept the equipment fueled and performed maintenance services such as changing oil, adjusting carburetors, and repairing and replacing filters, mufflers, starter cords and other parts. When three generators failed, Gardiner replaced them with his own. On October 25, 1989, Gardiner, Cipriani and Fred Rounsaville of the Army Corps of Engineers met to discuss Gardiner’s fee for his services. Gardiner agreed to lower his rates from $30 to $22.50 per person per hour during the day and from $35 to $27.50 per hour at night. In a memorandum discussing this negotiation, Rounsaville wrote that the “charges of $30 and $35 per hour” were “excessive and I requested a meeting with Mr. Cipriani of WAPA, the contractor and Mr. Green.” Rounsaville also wrote that he thought the new rates were still too high but that “I agreed to the hourly rates” because of the “importance of providing drinking water to the residence [sic].” Gardiner, according to the memo, threatened to withdraw all workers by nightfall if his terms were not met. Given the still-shaky shape of the island, this was a serious threat. Rounsaville’s memo states that “I discussed this with John Swanson and he agreed with my conclusion even though the rates were higher than usual the need outweighed the costs.” The United States federal government was still unhappy with Gardiner’s fees, however, and on November 2, 1989, Rounsaville and Gardiner agreed to lower the rates to $20 per hour during the day and $25 per hour at night, beginning with the sixth week of service. As discussed by Green, Cipriani and Gardiner at their initial meeting, Gardiner submitted his invoices to WAPA. On November 2, 1989, WAPA paid the invoices, which totalled $282,275 for the weeks ending October 7 and 14. Gardiner received payment for the last two weeks of October, more than $334,000, on or about November 7. After paying Gardiner for the last two weeks of October, WAPA refused to make any further payments. It had paid Gardiner $616,538 in total, covering the first four weeks of services. Gardiner billed WAPA a total of $1,245,178 for the ten weeks of services.

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NEGOTIATE LIKE THE BIG GUYS WAPA’s reason for its refusal: It claimed that it had never contracted with Gardiner—but that Gardiner had contracted instead with the U.S. government. Gardiner filed suit against WAPA in November 1990, alleging that WAPA breached its contract with Gardiner when it refused to pay the balance of the rendered services. On January 25, 1991, WAPA filed a third party complaint against FEMA, the Army Corps of Engineers and the United States Geological Society. According to WAPA, under the system set up for Gardiner’s payments, it paid Gardiner and then sought reimbursement from the United States. WAPA claims that it stopped paying Gardiner when it realized that FEMA might not reimburse it for Gardiner’s services. WAPA stipulated that each time it requested reimbursement for expenses, it had to file a “form No. 270,” which stated, in part that “FEMA is not a party to this contract.” Damage Survey Reports (DSRs), which accompany requests for assistance after a natural disaster, were compiled by Fred Rounsaville and submitted to FEMA. Although Rounsaville approved Gardiner’s rates and told WAPA officials that senior FEMA officials approved them as well, FEMA initially authorized payment of $830,000 to WAPA, more than $400,000 less than Gardiner was owed. This figure was further reduced by the Inspector General’s review of the billing after Gardiner had finished the work. After this audit, FEMA agreed to reimburse WAPA a total of only $443,000. Whatever the details, WAPA wanted these federal agencies to pay the balance of Gardiner’s invoices. Instead, the federal agencies allied with Gardiner and moved to dismiss WAPA’s claim. The court granted the motion. The case bounced around procedural appeals for several years. Finally, in August 1995, the court held that Gardiner and WAPA had a binding contract—but it reserved the issue of damages for trial. After a bench trial, the court found that WAPA owed Gardiner $628,640 for unpaid services performed by Gardiner under the contract and that WAPA was liable for prejudgment interest in the amount of $377,184. The court entered judgment

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CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL for Gardiner in the amount of $1,005,824 and also awarded Gardiner attorney’s fees. In granting judgment for Gardiner, the district court concluded that the actions of Cipriani were later ratified by the WAPA Board, resulting in an enforceable contract. WAPA appealed, making three basic arguments that the judgment for Gardiner was an error: 1) it pointed to evidence that FEMA officials ratified Green’s actions and made binding the alleged contract between Green and Gardiner; 2) it argued that in this emergency situation where the United States played a large role in negotiating and overseeing the contract, WAPA could recover if it proved an implied-in-fact contract, even if no “contracting officer” with specific authority to bind the United States approved the contract; 3) it maintained that, even if it had a contract with Gardiner, there was evidence that the contract included a term that Gardiner would only be paid to the extent that WAPA was reimbursed by the federal government. The appeals court recognized that federal officials had played a major part in negotiating and overseeing Gardiner’s contract to provide security and maintenance services. The federal government may have benefited from the security services because of its ownership of the generators. And federal officials also negotiated fee reductions on at least two occasions; in one instance WAPA claims that none of its officials were even present. WAPA sought and obtained assurance from Rounsaville that the rates were acceptable to FEMA officials. But none of these facts relieved WAPA of responsibility for Gardiner’s invoices. Specifically, the appeals court wrote: If this case concerned only emergency services provided in the first hours or days after the hurricane, we would consider this claim in a different light, particularly in view of WAPA’s evidence of significant involvement of federal officials in all aspects of procuring Gardiner’s services. But the federal government reimbursed WAPA in the amount of $443,000, which paid for more than the

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NEGOTIATE LIKE THE BIG GUYS first two weeks of services by Gardiner. WAPA had ten weeks during which it could have made sure that a contracting officer approved any contract between Gardiner and the United States or it could have asked Gardiner to discontinue his services. WAPA did neither. The appeals court affirmed the lower court ruling for Gardiner. WAPA was free to pursue any claim it had against the United States in a separate action. The appeals court recognized that this was a less convenient remedy for WAPA; nevertheless, it was a means of resolving WAPA’s claim of inconsistent obligations. In the wake of Hurricane Hugo, Gardiner ina position that small businesses dream of. He was ready to deliver a needed service in a timely manner. He negotiated a price decisively and set to work immediately. He avoided a written contract, preferring to adapt to changing situations. He let the big utility’s indecision and lack of specificity secure his claims. Of course, he had to fight to be paid completely. Most small business owners feel more secure about working with big companies when the business terms are in writing. It is for both of your benefits and to both of your advantages to have the document, especially if the project is complex or covers a lengthy period of time. You don’t want to rely on people’s memories when it comes to the final terms of the deal. This paper trail can be a formal contract...or it can be a less formal series of letters. The process can be fairly simple. Take notes during meetings that deal with the terms of business. Following the meeting, a written contract should be drawn up spelling out the following information in as much detail as necessary so that it is clear to both parties and will still be clear six months from now. That contract should cover the following: 1) all terms negotiated and the specifics of how each will be handled; 2) length of the contract; 3) definitions of any confusing terms or jargon;

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CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL 4) payment structure and time frames for payment; 5) a place for both parties to sign and date the contract. Sample contracts, letters of agreement and assignment agreements are included in the back of the book for easy reference. No matter what format you use, be sure it is clear, complete and covers all the points of the agreement you reached. A rule of thumb: Keep the contract as simple as possible. You don’t want to scare the customer away with an overly legalized document. You simply want to state in plain English all the things you and the client agreed to in the negotiation process. Follow-up consists of putting the agreement in writing. For every day business, you probably won’t have to go to such lengths as for more complex deals. Nonetheless, some kind of written follow up is advisable even for everyday business. Even for what seem to be informal deals, this part of the negotiation is important for several reasons: •

it gives credibility and substance to the agreement because it is now in black and white;

•

it serves as a reference point down the road when people’s memories get fuzzy;

•

it has the cache of a legal document, even if the language is not worked out by a team of lawyers; and

•

if people change their minds, a written contract will offer a foundation on which to build additional discussions that come after you think you’ve reached the final agreement.

Who should write the contract? You might want to volunteer for this assignment. Even though the other party will want to go over the draft with a fine tooth comb if you are the author, it is to your advantage because it gives you the opportunity to put your own spin on the wording. Obviously you should try to stick as closely as you can to the actual agreements that were reached, but it’s nice to add your own touch. If you are in the position of having to respond to a document written by the other party, go over it in great detail to be sure that it reflects all the items reached in the agree-

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NEGOTIATE LIKE THE BIG GUYS ment and that the spirit of the document reflects the spirit of the agreement reached. You can use a standard form called an Assignment Agreement (see tear out pages in the Appendix) which outlines the specifications of the work you’ve agreed to do. This simple, one-page Agreement enables you to weed out any misunderstandings early in the consulting process, and it serves as a reference if any questions arise later. For more complex assignments, use a Letter of Agreement (LOA) that reflects your understanding of the scope of the work and terms. Since all work is customized to the client, each LOA is very different, although the format is somewhat similar. And make sure you leave a place for the client to sign and fax the letter back to you upon approval.

Summary: Basic table manners Manners may be a deciding factor in a business transaction. Providing customers with courteous service is so important, some companies have gone to great lengths to ensure their employees are the epitome of politeness and social manners. This sometimes—though not always— spills over into the way that senior management does business. As more young people head out of college and into power lunches and client dinners, senior executives have begun to realize that something is missing from their new employees’ educational portfolios: fundamental social skills. After all, keg parties, frathouse barbecues and post-midnight pizza parties in the dorms aren’t typical corporate fare. What is important in the business world is impressing clients—or at least not making them ill with inappropriate behavior. “Nobody wants to be around a rude clod,” said Cynthia Lett, principal of the Lett Group, an etiquette training business based in Silver Spring, Maryland. “People like to do big business with people they like,” she said. A client isn’t going to be impressed if the company manager drinks out of the finger bowl at dinner.

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CHAPTER 6: NEGOTIATING ETIQUETTE: LETTERS, FAXES AND E-MAIL Proper dining skills are a key to good business relations, Lett said. Her clients are often junior associates who were embarrassed when they accompanied senior partners to a client dinner and were told their table skills were appalling. She often trains younger clients because there are things they need to know that “were never taught in school.” That may be changing. College recruiting and career offices are starting to offer etiquette programs to complement students’ degrees. The University of Dayton, the University of Virginia and Pennsylvania State University are among the schools now offering Dining Etiquette 101. “We kept hearing again and again that [employers] are finding students who get a good education, but that extra polish, finesse was not” apparent, said Anne-Marie Welsh, manager of public information at Penn State’s Erie campus. So to help remedy that, the college renovated an 18thcentury mansion on its campus about a year ago so professors could hold lectures and discussions during formal dinners. Each lecture there includes 10 minutes of training on dining etiquette. “Students are gaining confidence through knowledge about everything from how to make formal introductions to where to place name tags and when to put their napkins on their laps,” Welsh said. One twentysomething executive, finding herself taking clients to dinner more often than she had ever guessed she would, quickly realized that simple table manners were a factor in how negotiations proceed. “If they had a workshop in school, I would have jumped on it,” she said, admitting that business dining remains stubbornly important. “Most of the people are older than I am,” she said, but “it’s part of learning business.”

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY

Chapter 7

HOW TO HANDLE LYING AND DISHONESTY Some people lie. In a business negotiation—as in all aspects of life—there’s the chance that the other party, lacking any system of ethical behavior or integrity, may use false statements or partial truths to gain some sort of advantage. Since you usually don’t have any way to tell that they are lying, you may agree to conditions that change later...after a contract has been made. The obvious way to respond to lies that have led to bad business is to file a lawsuit. But business disputes can’t always be resolved as easily as an episode of The People’s Court. And many business people dislike lawyers and lawsuits as much as they dislike being lied to. If you choose to live with...and work through...the effects of a lie without a lawsuit, you can respond with business tactics. You can stop doing business with the liars and let people know about your experience. This can be as effective as a lawsuit. Then there’s the possibility that you’re the one doing the dissembling. In tough negotiation, there may be some situations in which you are tempted to lie. If so, keep in mind the kind of responses we’ll consider in this chapter—someone might do these things to you. Lying during a negotiation is a sure way to jeopardize any future business relationship with the other party and can damage your reputation severely. In small industry segments, as in small towns, reputation is usually an important thing. And one of the unex-

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NEGOTIATE LIKE THE BIG GUYS pected ironies of the computer age is the fact that reputation has become even more important among people who communicate often—by e-mail, etc.—but don’t often meet face-to-face. The Internet culture includes a surprizing mix of libertarian political philospohy and gossip. So, it shouldn’t shock anyone that business people brought up on e-commerce might be more inclined to bad-mouth than sue. But don’t jump to the conclusion that this makes mendacity a safer bet. It never is. Aside from being wrong by just about any ethical standard, lying is dangerous. Beyond the direct effects are indirect effects—harm done to society in general by increasing cynicism and decreasing trust. Cynicism and lack of trust entail significant costs for any society, resulting in more laws, regulation and surveillance—none of which add value to a business. Lying erodes the reliability of a specific negotiation—and all negotiations, in general. If all negotiations are suspect, value become difficult to establish. If value is tough to gauge, people will be less inclined to work hard...and pretty soon we’ve got an economy like the old Soviet Union. Of course, there are degrees of dishonesty. In most cases, the temptation isn’t to tell a bold-faced lie to the people sitting across from you. Those lies are too easily checked out. The temptation is to manipulate the truth—stretching it or altering it just enough to create...or even just to allow...the other side to draw an inaccurate conclusion. In a negotiation, either party can shade the truth by exaggerating, flattering or withholding certain information. To a philosophy professor, these things may be lies; to a business person, they’re an expected part of the marketplace. That’s why negotiators will often justify some dishonesty, saying things like, “A lie is not a lie when a lie is expected,” or “What’s right or wrong really depends on the situation.” But the philosophy prof may have a point. From an economic perspective, little white lies will eventually have the same kind of downward effect on financial values as boldfaced lies do. So, shade with caution if shade you must. (We’ll look at these matters in greater detail as this chapter proceeds.)

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY For the sake of clarity, this chapter will assume that you are the party to whom someone has lied. But most of the discussion could be applied just as easily to the party considering the lie—whether bold-faced or slight.

Various kinds of untruth Negotiators have an array of tactics—not always ethical— that they can use to bend the truth. This array includes: •

lies—statements made in contradiction to the negotiator’s knowledge or belief about something material to the negotiation;

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flattery—exaggerating the value of something... or someone...in the negotiation;

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deception—an act or statement intended to mislead the other side about your intent or future actions relevant to the negotiations;

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nondisclosure—keeping to yourself information or conclusions that would benefit the other side;

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creating confusion—purposely changing your mind and engaging in behaviors contrary to previous statements or positions in an effort to unsettle the opponent;

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distraction—using acts or statements that lure the other side into ignoring information or alternatives that might benefit it.

In addition to these untruths, negotiators will sometimes also engage in behavior which isn’t necessarily a lie...but which manipulates circumstances without regard for the truth. These tactics include things like information exploitation (using information provided by the opponent to weaken him, either in the direct exchange or by sharing it with others) and weakening the opponent (actions or statements designed to improve the negotiator’s own relative strength by directly undermining that of the opponent).

The ethical perspective Most people think lying to someone is unethical. And most—though maybe not quite as many—think that misleading someone with partial or shaded statements is unethical, too.

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NEGOTIATE LIKE THE BIG GUYS But ethics is a tough issue in business negotiations, which are essentially value-neutral. While most people agree generally about ethical rights and wrongs, negotiations dwell on specifics. In the end, most business people implement some form of moral reasoning to make decisions about what lies or manipulations they will tolerate. The most common moral system you’re likely to find in business negotiations is the Golden Rule: “Do unto others as you would have them do unto you.” In negotiations, the Golden Rule requires the parties to apply the same standards of fairness and equity to their own actions that they would demand of others. It’s a personal, narrowly-focused view of things...and obviously more reactive than proactive. The Golden Rule is also value-neutral; it might allow lies to be told (though, for most people, this wouldn’t be so). Still, it’s an effective way to deal with other parties whose beliefs or customs you don’t share. A more complex ethical base is universalism, which argues that the right or wrong of an action can be determined a priori (before any outcomes take place). Universalism is based on an assumption of certain individual rights and obligations. First articulated by the philosopher Immanuel Kant, this system doesn’t tolerate much twisting of the truth. Distributive justice holds that people have an obligation to exercise their own rights in a way that permits others to enjoy theirs. Justice occurs when all individuals get what they deserve; injustice, when people are deprived of that to which they have a right. People who follow this system often ask themselves, “Would I be willing to trade places with any of the other parties after this act takes place?” Like universalism, this system focuses on the process by which outcomes are achieved rather than on the outcomes themselves. Both systems try to establish principles that apply to all rational people—in this way they are more proactive than the Golden Rule. In contrast to universalism and distributive justice, utilitarianism judges the right or wrong of an action by its

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY consequences. People who follow this system believe that people should always try to produce the greatest amount of good for the greatest number of people. Under utilitarianism, a negotiator could justify manipulations—even outright lies—if the people likely to be affected by the business would benefit as a result. Because it allows untruth and judges actions only long after they’ve been taken, utilitarianism is the most problematic of the systems for people who are negoitating with one another. To see how each of these systems works, let’s consider a couple of negotiating scenarios. First, assume that a small publicly-traded company in acquisition talks with a larger one suspects that it’s about to be sued by a former joint venture partner. The lawsuit won’t be easy to resolve; in fact, it’s one of the major reasons management of the small company wants to sell. The larger company never asks, exactly, about possible lawsuits by former joint venture partners. So, while the small company never has to tell an outright lie, it clearly withholds some critical information. The deal is closed— and the large company buys the small one for a premium price. The Golden Rule would, in just about any negotiator’s reckoning, consider the small company’s action wrong—and a lie. Universalism would also consider it wrong, because the smaller company acted knowingly. Distributive justice would consider it wrong because the possible lawsuit was part of the reason for the sale. Utilitarianism would probably support the action, especially if the larger company could better absorb the cost of the lawsuit. Ater all, the small company’s shareholders got a premium price for their shares. Second, assume that a CEO negotiating to hire a VP of Marketing believes strongly that a company should never have a marketing person around for more than two years. He signs a promising candidate to a two-year contract, never telling her that he intends to let her go after the contract ends. A year later, the company runs into cash problems and the CEO has to lay off three hundred employees. But he keeps the VP of Marketing around, honoring the contract.

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NEGOTIATE LIKE THE BIG GUYS The Golden Rule might be a little hazy on this behavior. Most people would probably want full disclosure from the CEO; but, as long as he intends to honor his commitment, some people might not care. Universalism would not consider the CEO wrong, because he wasn’t violating any principle of honesty (in fact, he’s following his principle of a two-year limit—however wacky it might be). Distributive justice would come down against the CEO, because the VP of Marketing probably has a right to know the CEO only wants her around for two years. Utilitarianism, ironically, would judge the CEO wrong because his wacky two-year limit ultimately hurt the company, forcing it to lay off three hundred people.

Tolerating lies...and not tolerating them Most business people can probably recall being lied to or deceived by someone at one time or another. The effects of lying are similar to the ripple effect in water. A first lie is often followed by another one, intended to make the first seem logical or plausible. To avoid being caught, the liar may have to tell more lies—or series of lies—to keep everything in place. Eventually, the water is churning pretty heavily. In a negotiation, a lie is a statement made by a party that contradicts her knowledge or beliefs about something material to the negotiation. In context, lies are usually intended to deceive the other party about values, intents, objectives, alternatives, constraints and beliefs. Importantly, lying in negotiations is not usually intended to prevent a greater harm—or for any of the other common justifications for dishonesty. It’s simply a means toward immediate self-interest. It’s an act usually commited as an easier alternative to the hard work of preparing for negotiations, including learning about the other side and its operation, or of walking away from a negotiation that won’t work if the truth is told. So, lies may not be justifiable...but they may not be critical to the deal at hand, either. Many negotiators will let small inconsistencies in discussions—or turned up in the course of due diligence research—go. Should you tolerate lies in a negotiation?

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY The strongest argument against tolerance is that lies erode confidence in all parts of a deal. People rely on discussions and due diligence to make decisions that can make or break their companies. To make the best decisions, they must have the truth. If they’re deprived of this truth, they will tend to make flawed decisions. Some negotiators claim that that lying is permissible if you believe that your opponent is lying—that lying is the only defense against an opponent who lies. This argument is flawed, if only because it’s self-fulfilling. It holds that lies justify lies—which you can assume then justify more lies in response to the response. Besides, there are a number of other options, including the decision to terminate the entire negotiation. Or, you can expose the lie and insist an admission from the deceiving party. This may give you a tactical advantage and the ability to negotiate from strength. But, be careful of trying to use lies as negotiating tools. If you are lied to in a negotiation, the lie reduces your ability to make a decision that’s in your best interest...no matter how much the discovery of a lie may make you feel like you’re in charge. Ironically, a lie can also decrease the liar’s ability to get full value for his assets. Negotiating requires a great deal of flexibility. Lies—and the lies required to support lies— constrain the liar. This is the reason liars and crooks will often complain about their untruths boomeranging or biting them back. They couldn’t foresee the directions the negotiations would take when they started building their tangled webs.

Deception and misinformation Deception is an act or statement intended to mislead another about your intent or future actions relevant to the negotiations, including false promises or empty threats, excessive initial demands, careless statements of fact, and asking for things not wanted. Deception is clearly designed to profit at someone else’s expense—to lead others into acts that are not in their selfinterest, or away from an act that is.

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NEGOTIATE LIKE THE BIG GUYS An Ohio-based elevator service company leased $1.5 million in computer equipment from a Califrnia-based company called Amplicon Inc. According to the elevator company, an Amplicon sales representative had said— in a phone conversation—that buying the hardware and software at the end of the lease could cost as little as $200,000. When the lease finally expired, Amplicon fell back on the fine print of the contract—which didn’t say anything about a $200,000 buyout. Instead, the contract stated that the buyout price had to be “mutually agreeable.” The price that would be agreeable to Amplicon: $550,000. Amplicon was exploiting an oddity in American accounting rules. Because a written option to buy equipment for a set price at the end of a lease can be a liability that a company has to carry on its balance sheet, many prefer leaving the leases vague and having verbal agreements outside of the contract. Amplicon denied that it lacked good faith—or did anything at all wrong. The company pointed to its policy of having salespeople incorporate any price agreements into the contracts. But there was a growing chorus of disgruntled former clients who complained that Amplicon deceived them by talking about generous terms that the fine print of the contracts took away. During the 1990s, more than 100 leasing clients had initiated some kind of legal action against Amplicon. One angry former customer claimed that Amplicon’s leases “trap customers with ‘gray areas’....” Some courts have agreed, ruling that Amplicon’s leases were worded in a way that encouraged misunderstanding. One former employee testified that senior Amplicon managers “used to have great laughs” about customers not understanding their leases. Amplicon’s CEO insisted that the idea anyone at the company laughed at customers or tried to mislead or mistreat them was “nonsense.” He said—simply—that the company’s strategy is to offer low lease rates, by reserving the option to make additional money at the end of the term.

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY Clearly, this effort was not illegal. But some people familiar with the various Amplicon contracts insist that the contracts were misleading.

Flattery gets some people somewhere Flattery is another form of deception in which the negotiator exaggerates the value of something—such as its cost, condition or worth—or some person. Negotiators will often exaggerate the value of alternatives—what they are giving up or are prepared to give up, the importance of people and people issues, product or service attributes or the value of their case. For example, if you tell a company that you have a six-figure offer from another company—when no such offer exists, or the offer is less than six figures, this is flattery. Clearly, flattery is simply a euphemism for lying. Exaggeration may be considered as a milder form of lying in that there is a shred of truth in it; nevertheless, a statement that contradicts the truth is a lie. Because like a lie, exaggeration is intended to deceive and gain advantage at another’s expense.

Withheld information or nondisclosure There aren’t many nuances about lies. People involved in negotiations shouldn’t tell them. But there’s not as much consensus about withholding factual information that could be of use to the other side. Most business people think the standard for disclosure is different for a negotiation and court testimony. In other words, a negotiator often feels an obligation to tell the truth...but maybe not the whole truth. In response, you—on the other side of the table—need to be thinking about the important things that aren’t being said, as well as everything that is. This is one of the abilities borne of experience, either with deal-making generally or an industry segment particularly. Legally, failure to disclose material facts can make a contract or other agreement null and void. For example, if you fail to disclose a lien on property in an attempt to get someone to pay a higher price, that person probably will be able to come after you—for either a partial reimburse157

NEGOTIATE LIKE THE BIG GUYS ment or a complete refund and return of the property to you. Also, buyers who fail to disclose that they are unable to make payments on the financing of a purchase may be forced to give it back. On the other hand, you aren’t normally required to disclose personal information that could be conflcit with your position. For example, you don’t have to reveal that you’re willing or able to pay more for an asset than the seller’s asking price. Likewise, if you—as the buyer—suspect that the value of an asset being sold is greater than the asking price, you don’t have to disclose that fact to the seller. The law, as well as business convention, assumes that the seller has the competence to assess the value of the object. Differences in the valuation of assets is the heart of commerce. Making the right valuation is the essence of business success.

Distraction Negotiators are sometimes tempted to protect a weakness or conceal their interest in a particular issue by distracting the other side. As we discussed earlier, you need not disclose harmful information about yourself if the nondisclosure would do no harm to another. We can assume that the other is entitled to a fair outcome in the negotiation; however, he is not entitled to maximize his outcomes at your expense. He may attain them through his skill, your ineptitude or other factors; you are not depriving him of his rights by limiting his outcomes to something between fair and maximization. Distraction provides the other side with information—if its negotiators are skilled enough to uncover it—about your perceptions of what you believe to be important and what you believe he considers to be important. If you evade answering certain questions, you may signal that you’re doing so to protect a weakness. Burying issues that you see as important or surrounding critical questions with questions you consider trivial reflect your own judgments. They may not be correct; they do not limit the 158

CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY opponent’s options; they provide an opponent with opportunities to learn from them; they certainly involve risk on your part.

Confusion, undermining and other tactics There are a number of tactics experienced negotiators may use that flirt with dishonesty—but are generally considered ethical. Most of these tactics are intended to improve one side’s position relative to the other, without doing direct harm to the opponent. (In fact, we’ve considered some of these tactics before— particularly in the chapter on adversarial negotiating.) Sometimes in the course of negotiations, circumstances alter the appeal of the assets to one of the parties. The need is diminished or increased; an attractive alternative appears or vanishes; the party’s ability to pay changes. This is a fact of business life that everyone understands. Some negotiators will use this fact to their advanatge, claiming that their situation has changed and—usually— that they are no longer interested in buying or selling the assets in question. You may recongnize this tactic as the Fake Walk we discussed earlier. Strictly speaking, the Fake Walk is a lie. In most cases, though, business people accept it as a predictable negotiating tool. As we’ve mentioned before, the best response to this tactic is to reiterate that your last position remains open and give the Fake Walker some time. She will likely come back and accept your last position or move closer to it. The Fake Walker shouldn’t try this ploy more than once or twice. If she does, she’s probably not as firmly committed to the transaction as she first seemed. And all the interruption will do more harm than good. At a third Fake Walk, you will probably do well to call her out on the tactic— name the game and try to bring talks to a conclusion. If you can’t compel her, it’s probably time for you to Real Walk from the table. A caveat: The Fake Walk is tolerable only during negotiations and before any agreement has been reached. If both parties have reached an agreement—signed or not—and someone tries a Fake Walk, the other should assume the

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NEGOTIATE LIKE THE BIG GUYS deal is too problematic to actually close. The best response here? Document that the other side has reneged on an agreement that was in place and back away from the table. You may want to talk to your legal counsel about the practical prospects of suing the other side. (This may not always be as satisfying as you hope it will.) Reneging on agreements is wrong from all standpoints. You would not wish others to do so to you. It does more harm than good, not only to your opponent but to the general level of trust among negotiators. And you certainly would not be willing to trade places with the person who accepted your offer. Some business people do it. They’re slimy; keep away from them. Another tactic that some big companies will use when negotiating with smaller ones is to start talks on a friendly note and then turn threatening once communication has begun. This is, in a nutshell, one of the things that computer software giant Microsoft Corp. was accused of in its anti-trust trial of 1998 and 1999. A series of executives from smaller software companies testified that Microsoft agreed to—and sometimes even initiated—exploratory meetings to discuss possible mergers or acquisitions. In these meetings, allegedly, Microsoft executives would turn nasty, threatening the smaller companies with bankruptcy and extinction unless they signed deals favorable to Microsoft. In some cases, the larger company doesn’t take its own threats seriously. The attacks—which some negotiators call “jabs,” stealing a term from boxing—are aimed at disorienting the smaller company’s negotiators. If brute financial force won’t work, the larger company may try guilt or embarrassment, digging up problems from industry gossips or the smaller company’s past to try to coerce a deal. “It’s like a bear hug,” says one California-based commercial litigator. “They lure you in, and then make the alternatives so difficult that you break down and give them the deal they want.” Is this ethical? Probably not. But it’s hard to condemn the larger company if the offer is legitimate and it has given and gotten its information through lawful channels.

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY Is this legal? Maybe. There is federal law that prohibits manipulative behavior under constraint of trade and antitrust theories. But, as the Microsoft anti-trust case suggests, proving actions are illegal—as opposed to just aggressive negotiating—is tough.

A case of accused dishonesty An example of the traditional style of big companies cooperating with small ones was the model of insurance companies selling their products through insurance agencies. But the 1980s and 1990s saw that collapse into yet another arena of corporate heavyweight versus scrappy bantam. The May 1997 federal appeals court decision James L. Miniter Insurance Agency v. Ohio Indemnity Company dealt with one such fight. Did the big insurance company lie to the smaller insurance agency? It’s a tough charge to prove. In 1984, the Miniter Agency—which was located in Quincy, Massachusetts—became broker for Connecticut National Bank (CNB) and procured a Vender’s Single Interest Insurance (VSI) policy from Fidelity and Deposit Insurance Company. A VSI is a policy that insures banks and financial institutions against potential losses arising from the difference between the actual value of a vehicle being financed and the lender’s security interest. In 1988, CNB merged with Shawmut Bank. That year, Fidelity stopped issuing VSI policies in Massachusetts; Miniter moved Shawmut’s VSI coverage to Travelers Insurance Company. Eventually, Travelers discontinued VSI coverage too, which led Miniter to solicit a VSI proposal from Ohio Indemnity Company. In 1990, Ohio agreed to provide VSI to Shawmut; so, Miniter and Ohio entered into an agency agreement to complete the arrangement. According to Miniter, the agreement was a nonexclusive agency agreement under which Miniter had no obligation to issue insurance exclusively for Ohio and Ohio had no obligation to accept only policies brokered by Miniter. The agreement contained several critical provisions.

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NEGOTIATE LIKE THE BIG GUYS First, it provided that Miniter would receive commissions of 20 percent of the premiums paid on policies issued by Ohio to “policyholders obtained” by Miniter. Second, it provided that—should a conflict arise as to who was entitled to commissions on a particular policy—“the policyholder’s written statement designating his agent or broker shall be binding” upon Miniter and Ohio. Third, the agreement provided that Miniter’s right to commissions would cease upon proper cancellation of the policy. Finally, Ohio orally agreed not to contact or deal directly with Shawmut without involving Miniter. Miniter felt that he had done a good job of negotiating these provisions from Ohio. But that stuff about the “written statement” from the policyholder opened the door to a lot of trouble. Once again, this was an example of an illadvised contract leaving most of the advanatge to the bigger partner in a business relationship. In September 1990, Ohio issued the first of two VSI policies to Shawmut. The first policy provided “run-off” coverage, meaning that should either Shawmut or Ohio cancel the policy, Ohio would be obligated to continue coverage for any vehicle insured during the life of the policy. In order to provide run-off coverage, Ohio needed to hold a portion of each premium in reserve for potential future claims. In late 1993, Ohio executive David Juredine told Miniter’s Arthur Donley that Ohio wished to stop providing run-off coverage to Shawmut. A few months later, Juredine told Donley that Ohio would make a one-time, lump sum payment to reimburse Shawmut for the run-off reserve if Shawmut would relieve Ohio of the liability. About the same time, Gary Grondin, the Shawmut vice president who handled VSI coverage, began telling his contacts at Miniter that Shawmut wanted to reduce the premiums Shawmut paid for its VSI policy. Grondin asked Donley to solicit proposals from other carriers. In May 1994, Ohio informed Miniter that it could offer a lump sum payment of approximately $2 million to Shawmut. Later that month, however, Ohio faxed Miniter the following: Dear Art: Please disregard previous and current correspondence (UPS overnight already mailed). The 162

CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY amount of unearned premiums mentioned is inaccurate. The new figure is being calculated. On May 26, Ohio faxed Miniter a new lump sum offer of $1.8 million, contingent on Shawmut’s agreement to eliminate the run-off coverage. From late May into July 1994, Grondin and Donley discussed the offer. But, at a meeting in mid-July, Donley informed Grodin that Ohio had reneged on its offer. He suggested Shawmut move to a different carrier. Grondin asked Donley for something in writing to this effect, in response to which Donley produced a letter from Ohio. After that meeting, Grondin refused to consider proposals Miniter had solicited from other carriers. He cancelled a subsequent meeting with Donley. In general, Shawmut began to lose patience with Miniter—beleiving it had been deceived and “taken for a ride.” Soon after, Shawmut began to negotiate VSI coverage directly with Ohio. On July 28, 1994, Ohio and Shawmut came to an agreement on a new VSI policy. The terms of the second policy designated the Shawmut Insurance Agency as the broker and required Ohio to pay commissions of 30 percent. The new policy did not include run-off coverage. But it did include the disputed lump sum payment to Shawmut of just over $2 million. The same day, Grondin informed Donley by telephone that Shawmut was terminating its relationship with Miniter. It looked to Miniter like Ohio had broken its agreement and gone directly to the big client. Miniter sued Ohio for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, interference with advantageous relations and breach of fiduciary duty. The district court granted summary judgment to Ohio, dismissing Miniter’s claims. Miniter appealed, arguing that an issue of fact existed whether Ohio had improperly “obtained” Shawmut for purposes of the agency agreement. It also argued that, by introducing Shawmut to Ohio and brokering the first policy, it had obtained Shawmut for the second policy. So, Miniter argued, it was entitled to a commission.

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NEGOTIATE LIKE THE BIG GUYS The appeals court agreed with the district court’s ruling that the language of the agreement was clear and unambiguous—and that it provided without caveat that the policyholder’s “written statement” designating its agent bound Miniter and Ohio. Specifically, the appeals court wrote: The agency agreement provides that the agent’s right to commissions shall cease upon cancellation of a policy. The parties do not dispute that Shawmut cancelled the first policy, terminating Miniter’s right to commissions. The agency agreement further provides that the policyholder’s designation of its agent or broker shall be binding on Miniter and Ohio. Shawmut’s written statement designating its in-house agency as its agent, therefore, controls disbursement of commissions under the second policy. Miniter and Ohio had agreed orally that Ohio would neither communicate nor deal directly with Shawmut without including Miniter. The district court had concluded that Ohio did not breach the no-contact agreement on the basis that Shawmut had decided to terminate Miniter prior to initiating direct contact with Ohio. The appeals court agreed with this conclusion. How could Miniter have been so far off base—thinking it had done a good job of negotiatin a deal when it was positioned to be shut out of a lucrative piece of business? “It’s easy,” says one California-based commercial insurance broker. “These brokers have existed for a hundred years as overpaid middlemen. The insurance industry isn’t as fat with profits as it used to be. There isn’t enough. And the insurance companies know it. There’s not much that strong negotiating can do when there’s not enough water to go around. And not too many of these guys are strong negotiators.”

Summary Even when it works in the near term, lying has a personal cost for negotiators. If the lies, deceptions and flattery results in successful agreements, the negotiators will probably repeat the behavior again. And again.

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CHAPTER 7: HOW TO HANDLE LYING AND DISHONESTY In the course of rationalizing the behavior—so as not to think of themselves as liars—these negotiators may begin to think of the lies as clean, aggressive tactics. At that point, it’s only a matter of time until the law catches up with the bad business. And, even if the law is delayed, the invisible hand moves quickly. Unethical negotiators invariably sacrifice flexibility, creativity and openness to others’ ideas, trapping themselves in a rigid bargaining approach that will eventually be matched—and bested—by others. Once you’ve experienced dishonest behavior from the other side, you will usually prepare for unethical tactics in the future. Worse still, you will suspect that they are lying, even when they are not. And, although you resist, you may use the lies as an excuse for your own obstinate behavior. People on the receiving end of lies don’t usually hold their tongues, at the table or out in the marketplace. The resulting reputation for mendacity doesn’t make anyone a better negotiator—no matter how tough they may think they are. Of course, the worst effect of lying is to the process of business negotiation itself. The first step in most negotiations is to determine where the two sides see value differently. To do this, both sides have to exchange valid information; if either side lies, it becomes very difficult to define the best deals for all. And lies have a compounding effect. If a truth-teller believes the other side is lying, she’s more inclined to withhold information about the costs and values—and the process erodes faster still. Not only does dishonest negotiating impare the negotiators’ abilities to reach good agreements on current issues, it also interferes with discussions that would bring new, mutually profitable issues to the table. Said another way, liars make bad bargains which lead to lawsuits. Lawsuits alert prosecutors and judges to the details of commerce. Prosecutors and judges talk to politicians who pass laws and hire regulators. Regulators push the cost of doing business up...and productivity down. For everyone. 165

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Chapter 8

CHAPTER 8: ALLIANCES—THE NEW RULES

ALLIANCES— THE NEW RULES Go into any McDonald’s restaurant following the introduction of a new Disney movie in the theaters and you are likely to be offered the latest animated hero or heroine in miniature “action figures” for only $1.29. Or go to your local gym for a regular workout and receive a coupon for a discount on name brand exercise clothes. These are only two examples of some of the complementary businesses aligning themselves for greater customer exposure and increased profits. But it isn’t just complementary businesses that are joining forces. Some of the most unlikely alliances are popping up around the world these days. Look at the arrangement between IBM and Apple Computers—two arch rivals vying for the same customer. Or look at the airline industry where seeming rivals like Continental and America West are forming alliances in order to share resources and make a profit for both. Business alliances between two seeming competitors are becoming more common today. In fact, in a deal last summer, Microsoft actually invested $150 million in rival Apple Computer for a joint venture project that sent Apple’s stock price soaring. In a world where resources and markets are finite, alliances offer new life for some and growth potential for most. Peter Drucker, legendary business author and professor of social sciences at the Claremont Graduate School in California, writing in the Wall Street Journal, said “the greatest change in corporate structure—and in the way

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NEGOTIATE LIKE THE BIG GUYS business is being conducted—may be the accelerating growth of relationships based not on ownership but on partnership: joint ventures; minority investments cementing a joint-marketing agreement or an agreement to joint research; semi-formal alliances of all sorts.” He cites the examples of Japanese computer makers gaining access to software technology by buying minority stakes in high-tech California firms, and large American and European pharmaceutical companies gaining the latest research information on genetics and biotechnology by forming partnerships with start-ups or small, independent firms. He goes on to mention the even less formal alliances between giants like Intel and Sharp where “Intel will do the research and design; Sharp will do the manufacturing. Each company will then separately market the resulting new products—and apparently neither firm is investing a penny in the other.” Alliances are a way for large or small companies to merge their best resources and come up with something better than the two as separate entities or attack a new market that they couldn’t handle separately. For small businesses, alliances are also a way to leverage themselves to handle large projects or to merge the best of both to do something they couldn’t do on their own. Barbara Labatt-Simon, principal in Okon/Labatt-Simon, Inc., a small consulting firm specializing in aiding entrepreneurs search for capital, believes that many former corporate people have been so well schooled in competition, that when they hang out their own shingles they forget about cooperation as a viable means to an end. “My partner and I are always thinking ‘how can we work together with him or her?’ when we meet someone who does the same thing we do,” says Labatt-Simon. “However, many corporate soldiers-turned-entrepreneur owners immediately see someone like that as a threat to their own business. That shortsightedness can be detrimental to your business in the long run.” “You open up far more opportunities for business if you look at how you can blend your talents, than if you simply look at how to beat out the other person for a particular job,” says LaBatt-Simon.

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CHAPTER 8: ALLIANCES—THE NEW RULES Some alliances give business owners the chance to create what James F. Moore, chairman of GeoPartners Research, Inc. and author of The Death of Competition calls “an ecosystem so superior at capitalizing and organizing the resources in the opportunity environment that customers prefer it to competing ecosystems.” In other words, together partners in an alliance can create something valued far more than what exists in the marketplace already. Alliances are taking many forms in business today—giant corporations with other giants, giants with entrepreneurs, entrepreneurs with other entrepreneurs, entrepreneurs with customers. As with attire in corporate American these days, almost anything goes! In this chapter, we will look at reasons to form alliances, the benefits and pitfalls of alliances, how alliances work, how to choose your allies, and how to negotiate a fair deal for both over the long term whether it be between two small business owners or a corporation and a small business owner.

Why form an alliance? Traditional business organization structures such as partnerships and various types of corporations offer some of the same benefits as alliances and joint ventures. Most traditional structures are set up for tax and legal liability purposes, and have as a side benefit the leveraging of resources. Alliances, while often set up with intricate legal contracts and many lawyers, are just as often set up quickly for singular projects or one-time ventures. Alliances aren’t for everyone. But they certainly make sense for any business owner who wants to expand her markets and reach, tap into new sources of capital and other resources, expand current or add new capabilities, attract new customers or acquire new expertise in areas where none currently exists. For example, in early 1997, National Public Radio reported that Mobile Oil and Texas Instruments formed an alliance to design a key chain fob that also works as a convenient way to charge gasoline. You pull into a gas station, hold the watch fob in front of an electronic detector that reads your credit information, debits your credit

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NEGOTIATE LIKE THE BIG GUYS card and the pump unlocks to give you gas. Combining their expertises allows both companies to open new markets and create new products that alone they could not accomplish. “Companies with mature product lines often look for alliances to help them make use of manufacturing equipment and space to create new products,” says Carlton Chen, Vice President and Legal Counsel for Colt’s Manufacturing Co., Inc., makers of the famous Colt 45 firearm. “Alliances often involve sharing know-how and technology,” he continues. “An alliance is an agreement that goes beyond ordinary purchase and sale of goods and services, and it’s usually characterized by a demonstration of mutual commitment, sharing risks, and a willingness to assist each other.” There are any number of good reasons to join forces with someone else, especially for a small business owner, who may be limited by time, resources, and capital. “Big companies are fighting to get alliances with a community of small companies,” says Moore. “Big companies are trying to figure out the drumbeat of the marketplace that small companies have already figured out. The big guys are trying to align their beat so they can sustain their business. That’s why alliances are so attractive to them.” Before you decide to form an alliance, be it casual or formal, short-term or long-term, you need to answer some questions about you and your business:

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What is my business goal and will forming an alliance help me achieve it more effectively than if I did it alone?

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What do I bring to the party in terms of expertise, resources, etc.?

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What am I willing to share or offer the other party in the alliance?

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What type of company or partner would best fill the gaps for me?

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What resources do I need from the other party?

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How long will this alliance last?

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Who will manage the alliance?

CHAPTER 8: ALLIANCES—THE NEW RULES •

Will the alliance be informal or formal?

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How do I envision this alliance working?

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What will this alliance cost, not only in cash, but also in terms of my time, energy, and expertise?

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Is the upside potential worth the investment?

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What obstacles might get in our way of success?

Once you answer these questions, you have a better idea of where to seek the type of partner you need for what you are trying to accomplish. Then, the question is where do you find someone to fit your criteria.

Finding the right partner Michael Rooney, Vice President of Sales for EKMS, Inc., a Cambridge, Massachusetts research and software company, recommends looking in a variety of places. “You need to attend professional conferences, read trade publications, and go to networking groups to meet a variety of people who are potential partners for you,” says Rooney. “Make use of on-line technology by putting it on the Web, too. Get the word out anyway you can.” He recommends that once you have weeded out the responses to the most likely ones, use the telephone, email, professional contacts, surrogates or agents to find out more about the potential partners. Better yet, meet them face-to-face yourself. Get to know them and be precise about exactly what it is you want, he says. “Find out about their business, how they would approach this alliance, and what they are willing to put into it” says Rooney. “If what you want to do is expand your business to Thailand, find someone who has successfully done business there. Don’t be afraid to ask the tough and important questions as you get to know them.” Ask yourself what is important to you in a business ally. How closely will you be working with the other party? Are work styles or work habits important to you? Negotiate with more than one, says Tova Greenberg, Executive Vice President of EKMS, Inc. “Three may be more realistic,” she says, pointing out that you must be fair in

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NEGOTIATE LIKE THE BIG GUYS your negotiation and remember your commitment to partnership. Once you think you have found the right party, start with a small, informal project and test out the alliance. See how that works, and if it is successful, then go on to bigger more formal projects. Be sure to spell out in a written document the terms and conditions of how you will approach the project, who will do what, and how risks and rewards will be divided. If you are willing or able to put more resources into the mix, then consequently you may expect to get proportionately more of the returns. Resources like cash are more easily quantified than some others like sweat equity. Try to translate resources like time, knowledge and technology into quantifiable terms so there is a common understanding at the beginning. Conflicts down the road can result if one party feels he has “put more into this” than you have. If you have never formed an alliance, think of this process as taking baby steps that will enable you to run someday. If you have already participated in successful partnerships and alliances, continue to do the things that led to your success.

Different types of alliances Alliances are taking many shapes and forms in business these days. And the term alliance has many meanings. In this context, alliance means the coming together of two entities to share resources to maximize profits for each. It could take the form of two business owners, who sharing similar expertise, form an alliance to take on a project or piece of business too big for each individually, but profitable for both. Or it could mean two business owners with complementary products or services which when blended form a whole greater than the sum of the two parts. Another version is an alliance between a business owner and a customer where the customer knowingly tells you how to sell him more in the future, i.e. airline frequent flyer programs. Alliances are as unique as the people who form them. They are not restricted to small businesses or large corporations. In fact, some of the most useful alliances blend 172

CHAPTER 8: ALLIANCES—THE NEW RULES the two. Alliances are creative and collaborative, sometimes unusual and experimental. They can be based on complementary businesses or businesses that are the same. But they are almost always formed with a common goal in mind—to increase revenues or expand markets for both parties. Drucker says, “One reason the trend toward partnerships is accelerating is that no one company, not even the telephone giants, has enough money to swing some of the deals alone. And in many parts of the world, such as Coastal China and Malaysia, business cannot be done except through a joint venture or an alliance with a local partner.” Here are descriptions of a few of the many forms of alliances being tried in the business world today: Strategic alliances A strategic alliance occurs when two or more businesses look for something they wouldn’t have tried to do alone, either because of lack of resources or lack of expertise necessary to make a go of it. Ideally, they are not looking for instant revenues, and realize it may take a while for the alliance to have the desired results. For example, there is a small business in New York City called Partners in Human Resources International that was formed by three women who had related but different expertise. One was an expert marketer/salesperson in the out placement business; the second had a long and successful career in human resources; the third was in executive recruiting. About four years ago, the three of them got together and started a business they call a human resources consortium. They formed strategic alliances with other out placement, human resources, training and recruiting professionals around the Greater New York area so they could offer a wide array of services in a range of industries, thereby leveraging their strengths and expertise across a broader spectrum than they could have with just the three of them. While they have experienced growing pains, the business is highly successful. The strategic alliances they have formed have allowed them to grow their business without having to employ all the experts they required to meet their clients’ needs. The professionals they aligned with don’t have marketing costs

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NEGOTIATE LIKE THE BIG GUYS associated with getting new business because they are introduced to the client through Partners in Human Resources International. Each party in the alliance gains and both are better off as a result of the alliance. This is also an example of the concept of co-opetition. The idea is that former competitors work together to go after new customers rather than fighting over them. Even the giants see benefits galore and are forming alliances left and right in the business world. In August of 1997, Microsoft announced an alliance with consulting giant Arthur Andersen to promote computer systems for midsize businesses based on Windows NT platform and Back Office applications. Microsoft also made a deal with another Big Six accounting firm, KPMG Peat Marwick, to have them form a 500-person department dedicated to promoting Microsoft systems. Alliances are particularly attractive to small business owners because they don’t necessarily require the exchange of cash or an investment in a third and separate business. Alliances can be formed for one project or one year or one hundred years. They can be formed simply for marketing purposes, like the Disney-McDonald’s partnership, or to share research and information. The parameters are up to the individuals forming them. Joint ventures People throw this term around loosely. They shouldn’t. It means very specific things. According to the courts, a joint venture is “an undertaking by two or more persons jointly to carry out a single business enterprise for profit.... Like partners, joint venturers are fiduciaries with a duty of disclosure and liability to account for profits.” Furthermore, a joint venture exists only when there is an “agreement between the parties under which they have a community of interest, that is, a joint interest, in a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control.” An essential element of a partnership or a joint venture is the right of joint participation in the management and control of the business. Absent such right, the mere fact one party is to receive benefits in consideration of services rendered or for capital contribution does not, as a matter of law, make him a partner or joint venturer.

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CHAPTER 8: ALLIANCES—THE NEW RULES A joint venture can be formed when you want to create something that is more than what you do, so you and the other party in the joint venture put money together toward something you will both do. Most likely you will also maintain your previous business and so will the other party. For example, the Amoco Corporation and YPF S.A. of Buenos Aires, Argentina’s largest oil company, formed a joint venture late in 1997 to own and operate one trillion cubic feet of natural gas reserves in the Texas panhandle and western Oklahoma. The new company, called Crescendo Resources L.P., is owned 64% by YPF and 36% by Amoco. Alone neither one of these companies would probably be able to afford the reserves, but together they have the resources to make such a purchase. Joint ventures are great if the two (or more) parties are committed to the venture and each contributes to its success. They fail when only one party is willing to do the work, and the others just wait for it to happen. When large companies form joint ventures with small companies, it is critical to make sure the arrangement benefits both in proportion to the investment of money and effort. Virtual companies These are what you might call “elastic” organizations that grow or shrink depending on the size of the project they are currently tackling. Many of my colleagues have virtual companies in that they bring on independent contractors with specific expertise needed for a project. The only constant in the company is the owner or owners. The idea behind a virtual company is that no project is too big or too small for it to handle with skill, expertise and efficiency. Many small business owners use this approach to take on business during their busy season and reduce added costs in their slow season. Or they use it to bring in—for a limited time—specialized expertisethat either complements or expands their routine offerings. Virtual companies make a lot of sense for small business people because often they don’t have the steady stream of income required to keep a full-time staff on board at all times. A virtual company allows them the flexibility to grow or shrink as needed.

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NEGOTIATE LIKE THE BIG GUYS Host agreements This is a situation where a vendor sets up a site at the host company’s plant or place of business. It is more common in manufacturing situations, such as in the chemical industry, where a company has a manufacturing facility that requires the services of an outside vendor in order to run the facility. Toll manufacturing agreements In this situation, a manufacturing plant has excess capacity and another company wants to use the facility with their own raw materials. It can be a contractual joint venture where both parties share in the rewards and the risks. Bartering Donna Blazey, a Chicopee, Massachusetts graphic artist, left corporate life after 20 years to start her own business developing graphics for promotional materials, packaging, catalogs, presentations and games. As a somewhat new entrepreneur, Donna had to set up a whole new computer system. So she found a computer company and bartered with them—they set up her computer system and she designed their promotional materials. It was a win-win outcome for both. The local YMCA wanted to hire her to do their marketing package, but it didn’t have the money designated in the budget for that expenditure. No problem. Donna bartered a membership in exchange for her services. Another consultant, who worked for an office furniture company, bartered in a new ergonomic chair for her office as part of her fee. Bartering offers small business owners and their customers a wonderful opportunity to exchange services or products to meet both their needs, without money ever having to change hands. In fact, bartering has become so popular, that there are now bartering organizations to help people match up needs with services. Here is where the flexibility of the small business owner comes in handy. Many large companies have not thought to exchange their product for a product they need. Their systems are not set up for it. But according to the Department of Commerce, bartering in its various forms accounts for about 30 percent of 176

CHAPTER 8: ALLIANCES—THE NEW RULES the world’s total business. Approximately 250,000 businesses, large and small, are actively using bartering, according to their statistics. Many big corporations are beginning to see the benefits. Partnerships Partnership usually involves two parties who, after lengthy discussions, sign a written agreement to do business together. Typically it involves two parties who share similar or complementary skills, occupations or areas of interest. People new to consulting often find partnerships with others who share common skills and the same target customers a good tool for getting started. Partnerships, when they work, are a wonderful way to amortize expenses, leverage talents and increase the opportunity for profits.

The technology edge Today, partnerships don’t require the two parties to share a common customer base, or skills or resources. Because of technology, partners don’t even have to be in the same city or country. Today, customers and suppliers are forming partnerships to leverage the best of both and create new markets for each. Look at Wal-Mart and Procter & Gamble. In 1987 they set up a pioneering partnership effort where they shared extensive information and ordering systems designed to maximize profits for both. It has worked well. Partnerships are developing between unlikely parties— competitors! For example, the magazine U.S. News and World Report teamed up with rival television show 60 Minutes to go after a story of military incompetence in miscoding top secret inventory. Ten years earlier that would have been unheard of in the news business—two competitors joining forces to bring out a story. It wasn’t that long ago that news organizations were competing headto-head to scoop each other. Now they are combining resources to be able to bring the public a more complete story. It has resulted in a new word in the American business vernacular—co-opetition. Co-opetition is a term coined by Novell, Inc. founder Ray Noorda to describe the concept of working with competi-

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NEGOTIATE LIKE THE BIG GUYS tors, suppliers, and customers to discover new markets and expand existing ones. In their book, Co-opetition, authors Adam Brandenburger and Barry Nalebuff, describe co-opetition as a revolutionary mindset that combines competition and cooperation. A stunning example from the late 1990s, former competitors Apple Computer and Microsoft combined forces on several fronts, especially in sales and technology. In announcing the deal, Steve Jobs, one of the founders of Apple who had returned to save the company, told skeptical Macintosh loyalists that, “We want to let go of this notion that for Apple to win, Microsoft has to lose.” In fact, Microsoft’s injection of $150 million into Apple’s budget spelled new life for the struggling computer company. For one thing, Microsoft suddenly had a direct interest in Apple’s ability to survive and flourish. Rather than battling each other for market share, they could coordinate. It is the shortsighted business leader, either large or small, who seeks to crush a competitor today when joining forces helps create new and stronger markets, better products, and access to a customer base it never would have considered alone. As Moore points out in his book, “Longevity comes from finding ways to inject new ideas into the existing ecosystem.” Microsoft has done that in a number of ways throughout its history.

The mechanics of an alliance If you want to form an alliance, joint venture or virtual company, you want to take one step at a time. Don’t commit to anything until you have had a chance to get to know the other party. You want to check out not only their reputation, but their work patterns, skills, expertise and business practices. Deciding strategy is one thing, but getting in the door of a big partner is the critical first step. And, even when they get through the door, some business people make great pitches and never hear from the company again. In many cases, they have pitched the wrong people. 178

CHAPTER 8: ALLIANCES—THE NEW RULES Keep in mind that, while forming a business alliance is a big deal for a smaller company, it is an everyday occurrence for most larger corporations. The smaller company brings some perceived value to the table—new product, new market channels, new management styles. As the smaller company, your strength is the perception on their part that you have something they need. To leverage this perception, you need to lay out exactly what the alliance is going to do for them. Talk about market needs, not how great your individual company is. John V., a successful and reputable consultant, was constantly on the lookout for ways to leverage his business and learn from others. Thinking of himself as a good judge of character, he would become acquainted with someone at a professional meeting and immediately offer to bring her into a job he was working on. But John got burned several times because he didn’t take the time to get to know the person and her work. John almost lost a major health care client because he brought another consultant into the job who had an expertise he lacked. However, the other consultant was “one taco short of a combination platter,” as Robin Williams once said. The client picked up on that immediately and almost took his business elsewhere. Aldonna Ambler, president of Ambler Growth Strategy Consultants, a Hammonton, New Jersey management consulting firm recommends the “Six Meetings” approach if you are planning to explore a deal with someone to do business in one of the creative ways being tried these days: Meeting 1 This is the getting-to-know-you meeting. Share your mission and your vision. Discuss the possibilities. Ask yourself if you like the people and could you trust them. Find out more about their accomplishments and their view of what you could accomplish together. Talk about goals and expectations. Meeting 2 Ambler calls this the “what if” meeting. She advises potential allies to play out a couple of scenarios of how they could do business and what it might look like. “Listen for similarities in thinking,” says Ambler, who has been advising business owners for over 25 years. “What 179

NEGOTIATE LIKE THE BIG GUYS makes the other person tick? Ask yourself if you really compete or do you complement each other’s businesses.” It is quite a different thing to compete than to complement. You need to establish even more trust if you have been competitors. Meeting 3 This is the trial time where you pick a scenario and go live, so to speak. Use this meeting to make assignments, spell out who will do what and by when. “This is often where you find out just how committed the other person really is,” says Ambler, “because now we are talking time and effort. This is also where the obstacles come out.” The biggest time lapse occurs between Meetings 3 and 4 because, in theory, each party is out there doing some research on the scenario. “Marketing, sales, production and export resource people assist as needed between the third and fourth session,” says Ambler. “But attorneys are only added to the process after the fourth session if the potential alliance partners decide that we should proceed further.” Meeting 4 This is the meeting where the actual experts share their research findings and answers questions such as: Do we really know what we are talking about? Do we need someone else to help us keep going? Is this a viable idea given our talents and resources? This meeting needs a tight agenda because it will help you make the decision about whether to go forward or not. Meeting 5 This is the take-care-of-customers meeting where you test out the idea and get lost in the customer. This meeting is most effective if you focus on the details of your product or service in its marketplace. Look at it through the customers’ eyes and figure out how it is going to work for them. Meeting 6 This is the meeting where, if the alliance or joint venture is a go, you have the lawyers and the contract. You are ready 180

CHAPTER 8: ALLIANCES—THE NEW RULES to sign on the dotted line at this meeting. You iron out how to get paid and who gets what. Following this meeting, you implement your plan. Ambler notes that “negotiations take on a very different tone after people have been together over six sessions. It is amazing how many seemingly impossible problems can be resolved with commitment of time and patience.” A caveat: Always take notes during each of the meetings or have a designated note taker. No matter how well you might think you know the other party, as time passes even the best memories forget the minor details. And it is usually the small things that trip up the deal. At the end of each meeting get the notes transcribed and make them available to each party prior to the next meeting. You want to make certain before going forward that everyone is in agreement about what took place at each session. Otherwise, the potential exists for conflicts down the road. The note taker should pay particular attention to any agreements, assignments, decisions and next steps agreed upon by the parties. Notice that if you get to Meeting 6, Ambler recommends having the lawyers on hand. While you may not have the lawyers physically at the meeting, the clear implication is that you should treat this as a serious business interaction. The important thing is to spell out as much as possible clearly in writing and to each party’s satisfaction. Answering the following questions will help you be certain about who has responsibility for what: •

What resources am I willing to share and what will the others have to provide?

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Who will handle which aspect of the implementation?

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What are the responsibilities involved in each partner’s part of the implementation?

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What resources will we need that we don’t have?

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How will we get those resources?

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What will the arrangement require of me in terms of time, people, money, effort?

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How will we measure whether the implementation is going according to plan?

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How will we handle it if someone doesn’t fulfill his part of the bargain? 181

NEGOTIATE LIKE THE BIG GUYS Remember that as you are negotiating the agreement with your potential ally, it is advisable to use the collaborative approach. You want to enhance and preserve the relationship you are forming with the other party. Many of the same things you would negotiate with a customer are issues to discuss with your potential partner. Such things as payment allocation, payment terms, planning and implementation deadlines, delivery of products or services, packaging, future business, etc. are all items that should be addressed in your agreement with the potential partner. Be careful not to get fooled into believing that this contract should be a friendly, casual gentleman’s agreement completed with only a handshake. Business is business. A written contract is in order, just as with any other business arrangement. It doesn’t necessarily have to be blessed by an attorney, but it is wise to get legal advice where money is involved. Both—or all—parties should agree on the language and intent of the contract, then sign the document to demonstrate their agreement with the terms.

Pitfalls of alliances With all of the seeming benefits of alliances, joint ventures and virtual companies, for the small business owner what’s not to like? It all sounds so rosy when you think of the new markets, new customers, new sources of revenue that can come as a result of these new pairings. However, things can go wrong. Different visions Even though both parties may have sat down and communicated several times about each of their visions for the agreement, a misunderstanding about each party’s vision of what they want or hope to gain from the alliance can occur. Different visions can result in actions that can be misconstrued as power grabbing or attempts to control the business. Actions by one party that don’t fit the vision of the other party can result in conflict.

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CHAPTER 8: ALLIANCES—THE NEW RULES Disagreement about methodology Sometimes partners have very different approaches to the same problem. If both have had success doing it “their way,” and neither is willing to be open to the other party’s methodology, the result could be a deadlock. Mismanagement Sometimes it happens that one party thinks the other one is handling things and vice versa when, in fact, no one is overseeing the project at all. This misunderstanding can lead to feelings that the other party is abdicating responsibility or not handling his “fair share” of the work. It can also be disastrous for the project, possibly resulting in failure. Miscommunication A simple lack of communication can easily occur, especially when the two parties are in different locations. And if they are in different geographical locations where time zones, language barriers, cultural differences, etc. come into play, it can create seemingly insurmountable communication problems. Dishonesty or misrepresentation If one of the parties was dishonest in forming the alliance or misrepresented skills, resources, willingness to make the necessary commitment, etc., it can cause the alliance to fall apart. Any breach of honesty will call the relationship into question. The relationship is built on trust and— once that trust has been breached—it is difficult to regain. Greed If the project shows signs of more success than originally anticipated, one or the other party may suddenly feel entitled to a larger share of the profits than she agreed to at the outset. No follow-through If one or both of the parties fail to follow through on commitments made at the beginning of the alliance, the partnership will suffer and may not reap the rewards you had hoped.

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An alliance gone very bad It’s no surprize that big companies strong-arm smaller ones with aggressive tactics. But it is surprizing...sometimes...that a large company will try to strong-arm a smaller company that’s an ally or business partner. The October 1996 federal appeals court decision Taylor Equipment, Inc. v. John Deere Company considered the case of a manufacturing giant battling one of its own distrbutors. Deere manufactures construction and industrial equipment, which it sells to independent dealers who sell or lease the equipment to the general public. Because construction and industrial equipment is expensive, Deere provides its dealers “floor plan” financing. In this scenario, the dealer takes title to a piece of equipment—such as a $100,000 road grader—upon its delivery into inventory. But the dealer does not pay Deere until it sells or leases the equipment. And it pays no interest on this credit transaction for the first nine months after delivery. The Taylor case began in 1990 when Deere discovered that Midcon—a long time Deere dealer in South Dakota and Iowa—had sold $370,000 in equipment “out of trust” by failing to timely pay Deere after the sales. Deere notified Midcon’s owners, Paul and Cecelia Taylor, that Midcon would be terminated because of these defaults. According to the dealer contract between Deere and Midcon, Deere could terminate contract immediately for cause (defined to include defaults such as selling equipment out of trust) and either party could terminate without cause upon 120 days’ written notice. However, in lieu of immediate termination, Deere advised the Taylors that it would allow Midcon to continue as a dealer in good standing for up to eighteen months until they could locate a buyer for the dealership. On first glance, this might seem to be a generous offer. But Deere wasn’t really interested in any give-and-take. It had veto power over any sale of the Midcon dealership because, according to the dealer contract, Midcon could not assign its dealership without the prior written consent of Deere.

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CHAPTER 8: ALLIANCES—THE NEW RULES In the fall of 1991, Midcon entered into an “agreement in principle” to sell nearly all its assets to Interstate Companies of Minnesota, Inc. Although Deere had approved Interstate’s acquisitions of Deere dealers in Montana and Iowa previously—in 1987 and 1989—it told Interstate that it would not approve the deal until Interstate enhanced its financial strength with additional equity capital. Interstate declined to do so, and Midcon’s sale to Interstate fell through. The Taylors were never informed about the requirements Deere made of Interstate; so, they didn’t know why the deal fell through. In 1992, with Deere’s approval, the Taylors sold most of Midcon’s Sioux Falls assets to Midwest Machinery, Inc., and most of the Sioux City assets to Swaney Equipment Co. The Taylors did these deals on substantially less favorable terms than Interstate had offered. The Taylors left the Deere system angry. They felt that the company had leaped at the chance to dump them in favor of expanding relations with a handful of big dealer networks. And they felt they’d been mistreated in the way Deere had forced the sale of their dealerhsip to preferred buyers. And, perhaps most infuriating, they felt insulted by Deere’s pretense of support. Midcon filed suit, alleging wrongful cancellation under the South Dakota equipment dealer statute and breach of the implied covenant of good faith and fair dealing. Deere counterclaimed, alleging that Midcon had fraudulently obtained government customer discounts. The district court dismissed Midcon’s wrongful cancellation claim because the dealership had not—in fact—been cancelled. But it allowed the breach of implied covenant of good faith and fair dealing claim go to trial. Although Deere had not told Midcon why it refused to approve the proposed assignment with Interstate, discovery revealed Deere correspondence conditioning approval on Interstate agreeing to enhance its equity capital. This made the Taylors even more certain that Deere had forced the sale to advance its own plans. At trial, Midcon argued that Deere’s demands of Interstate were pretextual—that Deere had forced it to sell its 185

NEGOTIATE LIKE THE BIG GUYS businesses to two “key dealers,” Midwest and Swaney. These transactions were part of Deere’s secret plan to “rationalize” its dealer network by eliminating 50 to 100 small dealers during the 1990’s. Deere countered, stating that the refusal was based upon its good faith, and rational concern over Interstate’s financial ability to expand aggressively. Midcon responded with evidence that Deere’s equity capital demand was unusual and unreasonable. The jury credited Midcon’s theory and awarded it $1,715,710 in compensatory damages. The district court awarded $381,240.55 in prejudgment interest and denied Deere’s alternative motions for judgment as a matter of law or a new trial. Deere appealed the $2.1 million judgment, arguing that: 1) it was entitled to judgment as a matter of law on Midcon’s implied covenant claim; 2) the district court erred in excluding evidence of Midcon’s sales out of trust and government discount fraud, and Interstate’s subsequent financial woes; 3) there had been an error in the jury instruction on “good faith”; and 4) the court had awarded improper damages. In its cross-appeal, Midcon argued that the court should reinstate the claim for wrongful cancellation if it reversed the judgment for breach of the implied covenant. According to the district court, “the South Dakota Supreme Court would impose on [Deere] a duty to act reasonably in deciding whether to consent to a proposed dealership transfer.” The appeals court reviewed the district court’s construction of state law. Under South Dakota law, a covenant of good faith and fair dealing is implied in every contract. However, though every contract includes the implied covenant, it does not affect every contract term. The covenant is “a method to fill gaps” in a contract. It has “nothing to do with the enforcement of terms actually negotiated” and therefore cannot “block use of terms that actually appear in the contract.”

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CHAPTER 8: ALLIANCES—THE NEW RULES This is a common assumption that many small businesses make: They assume that the covenant of good faith and fair dealing is a broad protection against corporate giants intent on ripping them off. It’s not. The covenant is a narrow tool for interpreting how specific aspects of a contract are applied. The Deere/Midcon dealer contract was terminable by either party without cause. The court ruled that this suggested Deere’s right to disapprove an assignment of the contract was intended to be absolute, because Deere—in any event—would be free to terminate an unwanted successor without cause. The court noted that “courts have been reluctant to apply the implied covenant to block a party’s exercise of its contractual right to withhold approval.” To support this argument, it cited the decision Hubbard Chevrolet Co. v. General Motors Corp., in which a South Dakota state court had ruled that the implied covenant had “no role to play” in a dispute over the manufacturer’s refusal to approve a dealer’s relocation. “[The contract] gave GM the authority to approve or disapprove relocation for its own reasons,” the court explained; “we decline to allow a jury to reevaluate the wisdom of the parties’ choice to leave relocation decisions to GM.” If the Supreme Court of South Dakota applied this precedent to the facts in the Midcon case, Midcon’s implied covenant claim would fail. The federal appeals found this conclusion in line with other precedents. Specifically, it wrote: The purpose of the implied covenant is to honor the parties’ justified expectations. Absent contractual limitation, Deere has an absolute right to choose its equipment dealers. The dealer contract granted Deere an express, unrestricted right to disapprove a proposed assignment of Midcon’s contract rights. Deere did not agree to surrender its absolute right to choose Midcon’s successor. On the contrary, the no-assignment-without-Deere-approval term, did nothing but preserve that right. The appeals court admitted that there was some ambiguity. Another line of cases suggested that the implied

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NEGOTIATE LIKE THE BIG GUYS covenant plays a role—albeit a limited one—in a dispute involving exercise of a contractual right to disapprove assignment of a dealer contract. The Seventh Circuit Court of Appeals had explained this concept in its 1992 decision Original Great American Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd.: Contract law imposes a duty, not to “be reasonable,” but to avoid taking advantage of gaps in a contract in order to exploit the vulnerabilities that arise when contractual performance is sequential rather than simultaneous. Under this interpretation, Deere would be liable if it dishonestly withheld approval of the proposed deal, but not if its decision was simply unreasonable. This was exactly what the Taylors were trying to prove. According to the appeals court, Deere’s dealer strategies and its evaluation of Interstate’s financial statements involved sensitive business information. The district court should not have permitted the jury to find Deere guilty of “subterfuge and evasions” because it failed to disclose such information when it disapproved the assignment to Interstate. The appeals court ruled that Midcon had presented no evidence that Deere had acted dishonestly when it disapproved the proposed assignment to Interstate. Midcon’s case was built solely upon pretext and unreasonableness. Besides, the appeals court ruled, Midcon’s theories about Deere’s motives were moot. Deere’s reason for disapproving the deal—Interstate’s inadequate equity capital— and the alleged secret reason—a long-term plan to consolidate dealerships in the hands of key dealers—were both legitimate business reasons for not approving the deal. Thus, Deere was also entitled to judgment as a matter of law under the interpretation of the implied covenant. Midcon also argued that the district court erred in dismissing its claim that Deere cancelled the dealer contract in violation of South Dakota laws, which provide that a construction equipment manufacturer may not “unfairly, without due regard to the equities of the dealer and without just provocation...cancel the franchise of any dealer,”

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CHAPTER 8: ALLIANCES—THE NEW RULES and create a cause of action for damages resulting from a wrongful cancellation. Midcon contended that Deere constructively cancelled the dealerships in early 1991 when Deere advised that Midcon was $370,000 out of trust and would be terminated if the dealerships were not sold within eighteen months. However, Midcon continued to be an active Deere dealer until June 1992 when the businesses were sold to Midwest and Swaney. Because the implied covenant cannot override this express term of the contract, and because there was no proof that Deere failed to exercise “honesty in fact,” the appeals court reversed the decision. In the end, the Court of Appeals held that: 1) implied obligation did not affect express contractual term granting manufacturer unrestricted discretion to accept or reject proposed assignments, and 2) trial court did not err by summarily dismissing claim that manufacturer had wrongfully terminated dealership under state statute governing equipment distributorships. The appeals court reversed the judgment of the district court and the case was remanded with instructions to enter a judgment in favor of Deere. However, in a dissenting opinion, one of the appeals court judges wrote: Midcon had a reasonable expectation that [Deere] would exercise good faith and fair dealing in making its decision as to whether dealership agreements could be transferred. Subterfuges and evasions violate the obligation of good faith in performance of a contract even though the actor believes its conduct to be justified. Good faith is derived from the transaction and conduct of the parties. Its meaning varies with the context and emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party. The obligation of good faith “also extends to dealing which is candid but unfair, such as taking advantage of the necessitous circumstances of the other party to extort a

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NEGOTIATE LIKE THE BIG GUYS modification of a contract for the sale of goods without legitimate commercial reason.” In this judge’s mind, the Deere power play fit that last description. However, he was in the minority on the bench. Could the Taylors have done something different—or more—to negoitate a better resolution to their problems with Deere? Perhaps. But their theory that the whole episode was part of a concerted effort to consolidate dealers remains a dsiturbing one. It’s impossible to negotiate well with a company that’s sticking with its subterfuge and evasion.

How to avoid the pitfalls There are some things you can do to protect yourself from some of the pitfalls described above: 1) Do your homework. When large companies form alliances or merge with each other, they follow a process called “due diligence,” in which they examine every aspect of the company they plan to contract with. Check out as much as possible about your potential ally through references, trade and industry information, written documents, etc. 2) Clearly define goals, objectives, responsibilities, resources to be used, who is committing what, and how things will be divided in the end. Write down those agreements and make sure both parties are clear about the meanings behind each one. 3) The truth is that any kind of alliance, just like a marriage, requires open, honest communication. If you are concerned about how things are going, it is your responsibility to communicate that to your ally or partner as honestly as you can. Letting ill feelings fester only increases their intensity. 4) Don’t threaten under any circumstances. On the other hand, it is acceptable to walk when the deal becomes bogged down and time consuming with no movement on the other side. 5) Be open to new ways of doing things and be willing to let go of control. Very often entrepreneurs like being in charge and getting things done their way. They sometimes forget there are other ways to get the same results. 190

CHAPTER 8: ALLIANCES—THE NEW RULES 6) Understand your potential partner’s corporate culture, and respect it. Every negotiation will reveal different hot buttons, styles and methodologies. This is especially true when dealing with international companies. 7) The key to the deal will be how cash anchors the transaction. Don’t be flowery or paint clouds in the sky. Address the issue of how the deal will help each partner—financially. Don’t assume that a large company has money to throw away. Each company, regardless of size, consists of smaller units that must justify investment decisions. Colt’s Manufacturing Legal Counsel Carlton Chen advises that “you need to think and act like partners. It can’t be too casual an arrangement or the commitments may be weak. That could spell the end of the alliance.”

Summary Alliances offer entrepreneurs and small business owners the opportunity to expand their businesses in ways they never dreamed possible. Alliances can open funding avenues you never thought possible to grow your company. In addition to funding, larger partners generally have access to better branding, marketing and other marketplace tools unavailable to smaller businesses. Both large and small companies are taking advantage of the market opportunities available to them when they combine resources. While the rewards can be tremendous, taking the steps recommended in this chapter will help you avoid some of the challenges others have experienced as they blazed new trails in the business world. Using your creativity and business savvy, you, too, can create your own drumbeat and see what opportunities present themselves for the future.

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NATIONALITY, ETHNICITY AND GENDER As technological advances allow more small businesses to expand into international markets, some are finding it a challenge to deal with cultural differences in negotiating. Some cultures are steeped in a tradition of bargaining and consider it a source of social entertainment, especially when done with foreigners. Others seem rigid, formal and too uptight to communicate clearly. Author Peter Drucker advises that “in order to take advantage of the enormous shifts in world markets, there is equal need to focus your business so that you can take maximum advantage of these opportunities.” However, you can only follow his advice if you understand what makes a culture tick and how to move easily in that culture. It doesn’t necessarily mean you have to be a native of that country to understand it, but you do have to do some homework if you plan to negotiate abroad. Computer technology and global overnight delivery services have made it easier in many respects to make your way into foreign markets. Viva Knight, a New York script writer and small business owner, found herself negotiating a deal via the Internet with a client in Kuwait. “We did the whole communication by way of e-mail,” she said. “I never thought I’d be doing business in Kuwait, but it went pretty smoothly.” Doing business in an international arena has many upsides and some downsides. In this chapter we will look at some of the challenges and obstacles, as well as how to overcome them. We will offer steps you can take to

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NEGOTIATE LIKE THE BIG GUYS make sure you are speaking the same language—figuratively, if not literally—as the person on the other side of the table. And we will give you a few tips on what you might expect from several cultures in a bargaining session. Let’s start with a look at some of the upside of striking a business deal overseas.

Advantages of international business When the economy is booming within our own borders, why would American business owners want to leave the cultural security of knowing how to do business to venture overseas or across the border? Despite its recent financial problems, the sheer size of the Asian market makes most business people talk in excited terms about new revenue streams. And what is true of Asia is true for the entire global marketplace. The potential customer base for goods and services in international markets is the single biggest advantage of doing business internationally for small business owners hoping to expand their reach. Another advantage is learning from global partners— learning new technologies, new cultures, new ideas, new approaches. It offers an all-around learning process by which you can grow personally and professionally. Beth Phillips, President of Phillips International, a consulting firm that helps U.S. companies establish markets in Europe, says, “It is fascinating and fun to do business overseas. It broadens your life and offers an exciting challenge.” The opportunity to partner with overseas businesses gives you entree into countries where you might not otherwise be able to do business. In Malaysia, for example, if you are an American company you must form a partnership with a Malaysian firm in order to business in that country. Having this native partner can make your business go more smoothly since most likely they know the local customs and markets better than you do. Access to new products and technologies is another advantage of doing business globally.

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Pitfalls of negotiating in foreign territory If you have experience negotiating business abroad, you probably have some idea of what you are up against in terms of some of the barriers foreign countries present. But if you don’t have experience, it can be a real den of lions for the unprepared. Here are some things you will need to watch out for when doing business internationally. Language barriers Often the language barrier alone makes negotiating business difficult. Miscommunications can occur even if you speak the language due to local dialects or idioms. Using a local interpreter isn’t always a guarantee either. There are many horror stories about people using an interpreter agreeing to things in a negotiation and finding out later what they agreed to was far different from what they originally thought or intended. Even big advertising companies who are in the business of communication sometimes get caught. There is the story of the American advertisement for a famous national brand of chickens and how it got “translated” for the Chinese market in Singapore. The American version of the ad copy stated: “It takes a tough man to make a tender chicken.” Unfortunately, the translation of the ad in the Singapore media came out: “It takes a virile man to make a chicken pregnant.” Someone was probably pretty red in the face when that went out on the airwaves. Another aspect of the language issues occurs when the other party in the negotiation speaks English fluently. It doesn’t necessarily mean that they are any less attached to the traditional values and mores of their country. Local customs and culture “Americans want everything immediately, which is considered not only rude but also an enormous imposition, especially if they’re asking for something to be sent by overnight courier from overseas,” says Michel Couturier, president of Marketing Challenges International, a New York-based firm that represents international venues and destinations for North American meeting, convention and incentive planners. “What makes Europeans even more resentful is when American planners have asked for

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NEGOTIATE LIKE THE BIG GUYS something immediately and then take their sweet time answering. Europeans think if you want it so fast, you should answer equally quickly.” According to Roger Axtell, a Wisconsin-based author and protocol adviser, Americans value speed and deals. “We’re taught that time is money and the deal is everything. When we go to a meeting, the first thing we say is, ‘Let’s get right down to business. Let’s negotiate a deal, get it signed and move on to the next thing.’ We tend to appear impatient. We consider speed a virtue and believe that’s the way things should be done,” said Axtell. On the other hand, other parts of the world—including Asia, most of the Middle East, Latin America and southern Europe—are more relationship-focused. “The personal trust and rapport you build up over time in those countries is more important than any deal could be. For Americans, this concept is frustrating, since we don’t want to waste time talking,” says Axtell. Americans conduct business everywhere and at all hours—at breakfast, at night, on weekends, walking on the street with cell phones. But, in many countries, this is unfathomable, and even boorish. Other countries view business entertaining as a relaxing, getting-to-know-you phase. So, don’t be surprised if the subject of business never comes up at a dinner or party. If you have a lack of knowledge about local customs and culture, you are negotiating in the dark and you may as well not do it at all. Consultant Phillips, who has been doing business abroad for over 15 years, says: “Simply by refusing the offer of a cup of coffee or tea, you can offend a business person from Mexico to Saudi Arabia. Many Americans don’t do their homework before they do business abroad, and it costs them opportunities and dollars.” She continues, “Another thing Americans tend to do is open business discussions too soon. Many people from other countries need to get to know you first and establish a relationship before they begin business. In many places, the relationship supersedes doing business.” Time is also viewed differently around the world. The fast pace of our culture makes us want to wrap up deals fast

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CHAPTER 9: NATIONALITY, ETHNICITY AND GENDER and get on to the next one. Some cultures have a concept that it takes time to do business and they are in no rush to close the deal. They let time ebb and flow as needed to do whatever needs to be done. Americans tend to be casual and informal in their approach to business and other business professionals, using first names when initially introduced to each other. Using someone’s first name in several other cultures is an insult and can start the relationship off on the wrong foot. Even how far you stand away from a person sends a message. In the United States, the socially acceptable distance to stand from someone is about 18 inches while people in China and Pakistan stand much closer and the Japanese farther away. The cultural nuances can often trip you up more in a negotiation than the exact details of the agreement. Typically you and your opponents are not playing by the same ground rules when it comes to negotiating simply because of the cultural differences. Legal and financial implications The United States, as well as other countries, has laws guiding the import and export of business-related goods and services. When you are doing business on foreign soil, you need to follow their local and national laws regarding business practices. There is no Uniform Commercial Code governing all the places around the globe where you might do business. How do you protect yourself and your investment? Another aspect to consider in doing business in another country is that you may be forced to do business in a way you are not accustomed to because of the different laws. If you are doing a joint venture with a company abroad, how will you get your money out of that country? Are you allowed to take it out? How do you handle income you have earned on foreign soil? How do you account for inflation or currency fluctuations? So you decide you want to expand overseas and after much research and investigation you have found what you think is the perfect match. You are ready to sit down and negotiate a deal. Now what?

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NEGOTIATE LIKE THE BIG GUYS Not unlike a negotiation on your own home soil, there are a few things you will want to do to prepare before going to the negotiating table. There are a few differences because of the cultural, language, currency, legal, and mores differences of bargaining with someone from another country. You will want to get answers to the following questions before you negotiate: •

Who will be doing the actual negotiating? your potential partner or an intermediary? How many people will be involved on their team?

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If an intermediary is doing it, what is his role? What is the extent of the person’s power?

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What is the role of the person’s government in negotiating and business?

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What is proper protocol and etiquette when negotiating in this country? What can you expect?

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What is the stereotype of Americans in this country? (That can work for or against you, but it is important know.)

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What is their view of honesty and fairness? What reputation do they have as far as negotiating?

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What is their attitude toward winning and losing? Toward concessions? Toward time and the amount of time needed to negotiate?

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What kinds of written contracts do they usually propose and how well do they stick by them?

Once you have answered these questions there are several other steps you need to take to be prepared. 1) Understand your own negotiating behavior and the cultural baggage that comes with it. What underlying assumptions are you making? What stereotypes are you falling prey to? What are your expectations of the other party’s behavior? 2) Be careful not to project American values onto others. For example, time has different significance in every culture. What does being late to an appointment mean in the US? How is that different from Korea or France? 3) Learn as much as you can about the other country and

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CHAPTER 9: NATIONALITY, ETHNICITY AND GENDER the other party in the negotiation. There are many good books and tools available about other countries. Make use of them in your preparation phase. (See recourse list at the end of this book.) 4) Prepare thoroughly. The major reason why Americans fail at international negotiating is that they haven’t done the research and planning needed to do an effective job. Just as preparation is key to success in the States, it is also a key to success when negotiating globally (maybe even more so). Get all the facts and keep them nearby during the negotiation. 5) Make a complete record of the negotiation. In some cultures, written documentation is necessary; in others it is not. Make a record for yourself, especially if it is a complex negotiation, so you don’t forget key points. 6) Immerse yourself in the culture of the place you are doing business. Join a professional organization, such as the World Affairs Council, where people are doing business in that country so you can share war stories and learn from others. 7) Be sure to define what winning or reaching agreement means to you prior to the negotiation. What is your strategy for getting to that agreement? Decide how to approach the negotiation should it turn out different than what you had hoped.

Gender issues Early humans settled on a division of labor, dictated mostly by biological necessity—women bore the children and stayed home, men went hunting and fought the bad guys. Because of this division of labor, boys and girls grew up in separate cultures, and were schooled in separate roles. The result, not surprisingly, was that men and women developed different styles of communication. Men learned the language of the hunt and the fight—the language of competition. Women learned the language of hearth and home, nurturing and cooperation. It should not surprise us then, that men and women frequently misunderstand one another, even in day-to-day communication.

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NEGOTIATE LIKE THE BIG GUYS Even in modern times, there is still a hint of this division of labor—girls learn the arts of housekeeping—cooking, sewing, child-rearing; boys learn trades or enter professions. Men are strong and assertive while women are beautiful and submissive. Some women did embark on careers, but only those reserved for the fairer sex, such as teaching, nursing and occasionally writing. But whatever role they chose, they were expected to be women first—virtuous, yielding, dainty and pretty. According to a study by international staffing consultants Cornelius Grove & Associates, women are often more nurturing than men, tend to form close personal connections with colleagues and clients, and are highly respected for it. In fact, Cornelius Grove found that a quality called ren— which translates loosely as warm-heartedness, benevolence and a readiness to look out for other people’s welfare—is considered an essential for business leaders in China. A growing body of research suggests that American businesswomen abroad may actually enjoy a significant edge over their male counterparts. According to one American banker in Tokyo: “Being a woman is never a problem for me here, although being gaijin—a foreigner—sometimes is, for men and women alike.” “In our interviews with Japanese executives, we find that many [Japanese businessmen] would much rather work with a woman than a man,” says John Graham, who teaches marketing and international business at the University of California at Irvine’s school of management. Why? American businesswomen tend to emphasize interpersonal warmth and willingness to listen and to compromise in a negotiation. On the other hand, most American businessmen have a style that is more competitive, and even aggressive, which can get in the way of a freeflowing exchange of information. In fact, some studies suggest that women may be more resilient and stress-resistant, and therefore better adapted to global travel, than their male peers.

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CHAPTER 9: NATIONALITY, ETHNICITY AND GENDER According to a survey of 11,000 of its employees, the World Bank examined, among other things, the number of stress-related psychiatric claims filed by bankers who are constantly flying across international time zones. The results? Globe-trotting women filed twice as many stressrelated psychiatric claims as did stay-at-home executives—but men with heavy international travel schedules filed three times as many such claims. One American plastics executive who has traveled all over Asia from her base in Tokyo, noted that seemingly little things like clothing make a big difference. “Pantsuits, no matter how dressy, are not acceptable business attire in Japan—and “wear flat shoes, not high-heeled pumps. Some Asian men are intimidated by tall women.”

Case study: Business in Japan The Japanese negotiation process usually starts with an introduction from a shokaisha or third-party introducer. The shokaisha usually attends the first meeting and the last meeting or signing ceremony. Before the first meeting, he is a prime source of information for both sides of the negotiation. In case of an impasse in the talks between the parties, he may be asked to become involved as a mediator. In business negotiations, Americans tend to concentrate on persuasion and compromise while minimizing what management types call non-task or rapport building activities. For Japanese, the priorities are the exact opposite. The Japanese negotiation process is based on the importance of maintaining relationships. Japanese see negotiating as a fluid process that calls for diligent preparation. Instead of addressing issues directly and openly stating the positions and counterproposals, the Japanese prefer to infer the other parties’ assessment of the situation. They repeat previously stated positions, use ambiguous language, and may appear to be inconsistent. A negotiation is an opportunity to develop a business relationship that will develop into a long-term mutual benefit. Preliminary discussion helps both parties to understand each other.

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NEGOTIATE LIKE THE BIG GUYS American companies, accustomed to a litigious business environment, are likely to send the wrong message by including an attorney in this initial step. The Japanese see the introduction of an attorney into a negotiation as an unfriendly act, a sign of distrust or an implied threat of litigation. If you bring a lawyer to a first meeting with a Japanese company, it could cause the other side to withdraw from the negotiation altogether. In Japan, as in other Asian cultures, the written word is primarily used to satisfy legalities. Very rarely is an attorney present during the initial part of the negotiation or thereafter. A long-term business relationship between two parties in Japan is built on the principles of mutual trust, friendship and cooperation rather than on legalistic grounds—which a lawyer would tend to emphasize. Japanese dislike formal Western-style contracts. They don’t consider the signing of a contract as the end of negotiations. They look at a contract as a piece of paper; the agreement is the relationship between two groups of people. Japanese prefer a gentlemen’s agreement—an ambiguously worded statement expressing the mutual cooperation and trust that have developed between the parties. These contracts allow a great deal of flexibility in the solution of unforeseen problems and often have more force than a legal contract, since they involve a sense of honor and obligation. If disputes arise, the common interests of both parties and their relative strengths are factors that generally determine the outcome. Japanese negotiations have an air of formal politeness, conservative conduct, and good manners. Proper business etiquette must be observed at all times. The negotiators will admire commitment, persistence, ability to gain respect, credibility, good listening skills, pragmatism and a broad perspective. Japanese companies typically negotiate in teams made up of experts in relevant fields. This team usually consists of five males with one serving as the symbolic head. The first individual introduces the members of the team and facilitates the signing ceremony. The other four typically include operational staff, middle managers, the CEO and a mediator.

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CHAPTER 9: NATIONALITY, ETHNICITY AND GENDER A Japanese negotiating team is usually large. Although intimidation is not the primary reason for the large number (information transfer is), it is frequently the result. There is proper battle dress and proper rank and hierarchy in the negotiation process. Japanese dress conservatively, always preferring dark business suits. Casual dress is considered inappropriate for business negotiations. The Japanese also do not believe in using first names unless in the context of a very close personal relationship. Honorifics, title and status are extremely important. Japanese come to a negotiation with an organizational consensus already established. This cannot be easily changed at the bargaining table, no matter how small or seemingly irrelevant the change. A dramatic change at the negotiating table is unacceptable because it usually involves loss of face. Japanese are deliberately vague on specific issues in the early stages of a negotiation so that any later reversal will not result in loss of face. Any decisive act—either an embrace or rejection of a proposal—could result in the loss of face. Confrontational negotiating is viewed as impolite and disrespectful and hinders a relationship built on trust. In fact, their dislike of conflict is so severe that aggressiveness on the part of one side may kill the entire negotiation. Although the Japanese value emotions, showing emotion is considered in bad taste and poor conduct, particularly when it comes to business. The Japanese proverb “An able hawk hides his talons,” illustrates the culture’s position on public display of emotion. Silence to a Japanese businessperson means he is projecting a favorable impression and is thinking deeply about a problem. At an impasse, a typical response is to keep silent, withdraw or change the subject. The most important stage of the Japanese negotiation is the information-gathering stage. Japanese negotiators are concerned with understanding the other side’s point of view. Exchanging information and asking for more information are constants with the Japanese.

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NEGOTIATE LIKE THE BIG GUYS A primary bargaining strategy of the Japanese is to ask questions to put the opponent on the defensive. Japanese believe that it is a folly to make an offer if you don’t know what the other party wants. This explains the slow start, the lack of an initial proposal, the emphasis on information gathering, and the long drawn-out preliminary groundwork that is usually encountered when negotiating in Japan. In Japan, there is not a clear separation between information seeking and persuasion. The two stages tend to blend together as each side defines more clearly and refines its needs and preferences. So much time is spent on this task-related exchange of information that little is left to discuss during the persuasion stage. Where does this all end? Japanese tend not to ask for much more than they expect to get. This technique has its weaknesses. For example, Japanese negotiators develop defensive arguments under the assumption that it is not necessary to make a persuasive argument to the other side. Since the offering is thought to be fair and reasonable, Japanese negotiators often find themselves without a contingency or fallback plan, officially authorized concessions, or guidelines for dealing with unexpected questions.

Summary Before you get on the plane to do business in Aix, Hawaii or the Yangtze, take a moment to review the following points. Some of these are questions to ask yourself, others are simple reminders. 1) Leave any my way is the only way attitudes or thinking behind. Go with an open mind. Be open to different ways of doing things, different values, behaviors and motivations. Don’t judge; be curious, instead. 2) Spend some time preparing for your encounters with other business and cultural styles. Increase your understanding of the countries and cultures you’re visiting by attending a seminar or training which builds useful cross-cultural skills. 3) Study up on the general protocol and etiquette of the country or countries you’re visiting. Know how to greet

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CHAPTER 9: NATIONALITY, ETHNICITY AND GENDER your counterparts, dine with them and manage appointments. Learn a few words of the language as well. Your business associates will appreciate any sincere attempt to meet them part way. 4) Be flexible. Count on delays, frequent changes in plans and cancellations. Try to allow twice as much time as would normally be expected to reach your destination. Complete your negotiations or close sales in an overseas setting—particularly when doing business in Asia. 5) Travel light and pack smart. The conveniences taken for granted in places like the United States and Canada are rare if not non-existent in the many other countries. Heavy suitcases will quickly become cursed burdens along with excess marketing materials, equipment and product samples. 6) Don’t assume that market data or sales techniques that work in the United States will work everywhere. Business motivations and needs can vary dramatically depending on the culture and country, the region, the history, the economics, and current prevailing attitudes and trends. 7) Mind your manners. Be on your best behavior at all times. You are not only representing your company, you represent your country as well. Graciousness and patience go a long way to accomplishing your ultimate objectives. Never lose your temper or show feelings of frustration openly. 8) Dress conservatively, and depending on the city and country, add a touch of elegance and class. First impressions are as important in Paris, Sao Paolo and Hong Kong as they are in the United States. 9) Don’t forget to use prudence and common sense in your travels. Late nights, excess consumption of alcohol and other temptations will only compound the ravages of jet lag and language differences. Anything that could potentially diminish your ability to negotiate and accomplish successful results should be avoided. 10) Ask about gifts and business customs, or about the rules of punctuality. In some countries, being late is unforgivable. In others, lateness isn’t even considered something to apologize for or explain away. 205

NEGOTIATE LIKE THE BIG GUYS If you’re in Spain, where timeliness can be...less than timely...you might want to ask whether the time of your meeting is scheduled for the Spanish hour or the English hour. The former usually means a half-hour to an hour after the appointed time; the latter means on the dot.

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Chapter 10

DIFFERENCES CORPORATE CULTURE

IN

Companies can be classified as everything from slightly Midwestern to very West Coast. Some are non-hierarchical; others are almost military in their formality. Corporate cultures are tough to dismiss when you are negotiating business. Corporate culture can be a crutch that employees rely on, especially when there’s ambiguity about the firm or its business. It can also be a competitive advantage—something that customers and business contacts recognize and appreciate. Corporate culture can mean the way employees dress or even whether employees are expected to bond with the boss over martinis at the local watering hole. Also under the corporate culture hat: How is employee training viewed? How are goals set and measured? How are people rewarded? As more small business owners expand into lucrative international markets, some are finding it a challenge to deal with the many corporate cultural differences in negotiating. Here are a few things you can do as you enter negotiations with a company not like your own: •

Be patient. One of the biggest challenges you will face is to slow down your pace and adapt to the flow established by the other party. Time pressure and deadlines weaken your position. You have to show that you are willing to take the time to build relationships and trust before getting to the business.

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Don’t respond too quickly to signals or offers from the other side. Take time to think it through and overlay the nuances of the culture of the person you are dealing with.

•

Don’t be embarrassed to ask for clarification. Because of the cultural differences, it is essential that you take time to fully understand what the other party is saying.

•

Keep your sense of humor. It is amazing how humor can ease tension and cut through corporate cultural differences. Be careful of how you use humor, though, realizing that even humor has its biases.

•

Be flexible and empathetic. Sense what the other party is feeling and be open to new ideas or approaches.

•

Show that you have done your homework. It will be noticed and appreciated by the other party.

When talks get serious, you have to adapt Once the negotiations begin...and business lies ahead...there are several steps, which can both safeguard your position and ensure a smooth transition. Don’t be an ostrich. Transactions will call for meetings to keep employees, investors and clients informed and to answer questions. The worst thing you can do is “sit back and wait to see how things will turn out.” Also, it’s important to meet with your counterparts. Experts recommend getting both company heads together, to tell each other why they operate the way they do. It’s also important to mention the features of programs you know you’d like to retain. Find a common ground. Don’t think in terms of my way and your way. If necessary, create a third alternative that you both like. Sometimes it’s easier to adopt a new way than to push one party’s way on to the other. Never underestimate corporate culture. Gene Slowinski, managing partner of Alliance Management Group, a New Jersey-based merger-consulting firm, calls corporate culture “the 800-pound invisible gorilla that tears merging companies apart.” Set new goals and priorities that are consistent with the business and strategy. Individuals’ roles and responsibili208

CHAPTER 10: DIFFERENCES IN CORPORATE CULTURE ties may need to be changed or refined. Reevaluate suppliers. Use the deal as an opportunity to revisit the vendors you use. Look at the negotiation as an opportunity. This may be a good time to give up some part of your job you don’t like, or to wipe the slate clean and start from scratch. Get involved and be innovative. If your job involves managing other employees, your challenge is two-fold: You must not only come to terms with the negotiation but also ensure the members of your staff of a smooth transition. You can never overcommunicate. “You don’t want the rumor mill to usurp company announcements. Set up a communication system that’s trustworthy, such as the company intranet, or make employees’ immediate supervisors into up-to-the-minute information providers,” said Slowinski.

A case study in merging corporate cultures In October 1998, Juergen Schrempp and Robert Eaton concluded months of negotiations and announced the formation of DaimlerChrysler AG, a transnational car company made up of Germany’s Mercedes-Benz and America’s Chrysler, Dodge and Plymouth lines. Without any doubt, this deal combined disparate companies with almost opposite cultures. The German company was dominated by a cautious, almost clinical approach to building and selling cars. The American company, having survived a near-bankruptcy experience in the early 1980s, was more risk-taking and aggressive. To make the merger work, the key players on each side would have to clear considerable logistical and managerial obstacles. They were working hard to prevent the new DaimlerChrysler from becoming one of the seven in 10 cross-border mergers that the company itself estimated fail to thrive. In the end, this meant transforming two different corporate cultures into one organization. Executives from both sides took a surprisingly detailed and pragmatic—what one called nuts-and-bolts—ap-

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NEGOTIATE LIKE THE BIG GUYS proach to solving what many people consider an almost spiritual matter. Rather than waxing profound, the decision-makers used technology and travelled extensively between the respective headquarters in Stuttgart and Auburn Hills. The nerve center of the transition was a suite of offices in a nondescript part of the Daimler-Benz headquarters complex. In the middle of this was a war room, packed with cuttingedge telecom technology. A bank of computer monitors was split between outside news feeds and internal company databases; a keyboard, mouse and big-screen TV created an oversize display terminal; video conference cameras and monitors stood by at the ready. For some executives, there were as many as three video conferences a week. (The heads of strategy and planning met even more frequently.) When managers weren’t talking, they were loading data into a computer system that kept track of merger progress. This allowed key executives and board members to keep tabs on the progress with a glance at their computers. Of course, video conferencing and high-speed data links don’t eliminate the need for travel. Chrysler staff got used to making one-day business trips to Germany. They would leave Detroit the night before, stop at a hotel to freshen up the next morning, spend the day in meetings and arrive back in the States before midnight. A key part of the culture change were efforts to get word of the merger out to more than 425,000 employees—the majority of whom wouldn’t see any immediate changes in their day-to-day work. In the days after the announcement, employees in Stuttgart were given stickers with the DaimlerChrysler logo on them so that they could paste over the old Daimler-Benz logo on their existing identity cards. Staff in Auburn Hills got stickers for their cards, too. Throughout the merged company, employees turned on their computers to find the following message: “Welcome to DaimlerChrysler. The future begins today.” 210

CHAPTER 10: DIFFERENCES IN CORPORATE CULTURE Everyone was given a gift package containing a Swatch watch, a letter from the co-chairmen and a copy of the company’s new internal newsletter. Meanwhile, personnel departments on both sides of the Atlantic were educating employees about one another. The goal was to move through the culture issues slowly, just as a Mercedes engineer would work through the problems with a new design. “I’m not sure if there is a good way to handle corporate culture issues before and after a major negotiation,” said one auto industry. “But intense attention to detail is probably the best approach that I’ve heard.”

Size itself doesn’t matter so much any more The size of a company has little to do with its ability to deal with a changing corporate culture. As you might expect, small companies remain more flexible, whether the issue is wage and price pressures or logo design. While cornering the market on stock microprocessors or operating systems may well be profitable, increasingly, these products are commodities around which higher-end, more lucrative components and innovations are assembled. That’s why the small companies are doing so well, even if Wall Street doesn’t recognize them. So, no one should have been surprised when, in late 1998, Boeing—the very model of a monopoly, a globalized, bigvolume company—predicted it would lose a record $2.6 billion in the months to come. In the early 1990s, Boeing did exactly what Wall Street said it should do: Cut half of the suppliers it used to streamline and cut costs. But many people were surprized. Boeing discovered that by cutting 50 percent of its suppliers, it also gutted the skills and production capabilities of its crucial supply chain to the point where it could not meet demand. At the same time, despite their supposed advantages, much-hyped companies like Gillette and Coca-Cola failed to meet earnings projections too. The markets began to realize the big guys weren’t perfect—and maybe they were overvalued. 211

NEGOTIATE LIKE THE BIG GUYS Wall Street’s Big Is Beautiful theory further crumbled with the collapse of Asian currency markets last summer, an event that undermined one of the key advantages largeness purportedly conferred: global reach. Big company stocks had been hyped on the theory that the giants could open offices overseas and take advantage of foreign opportunities more quickly than small companies could. But, with an Asian meltdown in progress, globalization exposed big companies to a far greater risk, the caprices of overseas markets. The allure of globalism had been tarnished. In the meantime, many giants struggled to get out of Asia. Almost overnight, Wall Street shifted billions out of oncefavored big-cap stocks into smaller domestic stocks, triggering rallies in small-cap stock indexes. For the first time in three years, small stocks began out-performing large ones. The moral of the story? The anxious stories Wall Street traders tell one another—no matter how widely they’re echoed—don’t necessarily reflect the rest of the economy. In fact, they tend to have pretty severe blind spots. At a deeper level, while big companies are part of the economic landscape, and supply chains are generating even larger production networks, those who study company organization are concluding that 1950s-style big can’t possibly make a comeback. On the contrary, size is becoming more and more irrelevant to a business’s success. The old theory of why companies become big in the first place is in total disarray. In the past, economists claimed that larger companies had lower transaction costs. Said more simply, if each party involved in a project—a welder and a painter; a graphic artist and a secretary— was an independent company, the time and effort of bargaining over prices, delivery or quality would overwhelm the whole operation. Worse still, people with special skills might threaten to hold up everyone else for higher compensation. Big companies, it was thought, were the solution to these problems—with everyone under one set of rules, it is easier to dictate how everyone interacts. 212

CHAPTER 10: DIFFERENCES IN CORPORATE CULTURE Even if the approach was plausible, it also had its limitations. If vertical integration reduces transaction costs and increases efficiency, why shouldn’t a single company control the whole economy? When should a particular skill be brought in-house to avoid production holdups, while other skills are purchased on the open market? No one knew the answers to these questions, and no one could convincingly explain why certain companies grew and others didn’t. Today, with e-mail and high-speed computer networks, it seems absurd to claim that corporate expansion is still driven by companies’ fear of hold-ups and efforts to avoid transaction costs. Industry observers Peter Huber and Jessica Korn wrote in Forbes magazine, old-style “corporations grew for negative reasons—to eliminate friction and to compensate for poor communication and the prohibitive cost of negotiating with too many outsiders. Today’s big [executives]— Andy Grove and Bill Gates—grow their companies to exploit economies of scale and scope and to capture the fecundity and elusive value of teamwork culture.” The new corporation isn’t an assembly line. It’s a human beehive. Similarly, the idea that bigness is as an antidote to knowledge blackmail or brain drain is inconsistent with how large companies actually decide to make or buy products and services. In the 1970s, studies of auto suppliers suggested that companies like Ford and GM would be more likely to make something in-house—become vertically integrated—when the product demanded a greater level of design and engineering skill. The simple fact is, however, that this has not been the case. Big companies have done more outsourcing in the 1980s and 1990s rather than less. They have focused on core competencies.

Adding to the reasons to outsource But now, companies still tend to outsource especially projects that demand greater skill. “Vertically integrated establishments,” a team of Columbia University research213

NEGOTIATE LIKE THE BIG GUYS ers recently concluded, “are no more likely to be engaged in design work...on technically demanding parts than independent firms.” This means something other than mistrust of other groups’ intentions, or friction caused by transaction costs, must explain how today’s companies are organized. Columbia University law professor Charles Sabel believes there’s a new logic challenging our understanding of how entire industries, not just individual companies, operate. “When you fully articulate any supply chain,” he says, “the resulting unit is quite large. And it’s completely confusing to many what’s going on—it’s decentralized but still coordinated.” In contrast to Wall Street’s Big Is Beautiful theory, Sabel believes the best modern companies and production networks seek “economies of scope”: the more they do, the easier it is for them to do something new that builds on past experience. Pooling information, monitoring one another’s performance over time, work groups within companies, and even vast production networks, continually increase a company’s knowledge of the market. “In the past,” Sabel notes, “the game was being the first in the door with prospective customers or vendors. Now getting a foot in the door is just the first step; not only do you have to qualify, you have to continually show you can solve problems better than others.” The implications about a company’s prospects on the basis of its capitalization or how many employees it has are misguided. If big means having a hierarchy and being efficient when it comes to repetitive tasks, and, on the darker side, engaging in wage, price, and consumer-market exploitation, then being big doesn’t guarantee much in today’s economy. Stimulating creativity and collaboration to find joint solutions to complex problems is the real key. Size is not an indicator of company performance. The Big Is Beautiful theory implies—wrongly—that the crude 1950s-era business model is somehow back in vogue. Financial markets may have cycles: but they are not fashion statements.

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CHAPTER 10: DIFFERENCES IN CORPORATE CULTURE Companies that try to copy the 1950s-era model of growing by vertical integration, no matter how dominant they may appear, will suffer if they disrupt the ongoing development of modern collaboration and coordination approaches. The big players need the small players with which they business.

Summary Small business owners who fear they will be crushed by a corporate giant should remember that this is still the age of the entrepreneur. The path to success may be more complicated for a start-up or a growing company than ever before, but size has little to do with getting there. Many people feel less confident when bargaining with companies with different cultures. However, a quick way to increase your confidence tenfold if you find yourself in that position is to do your homework before you sit down at the negotiating table. Increased knowledge and anticipation of obstacles, challenges and potential outcomes will help you be prepared to deal with any situation that might present itself. To approach this kind of negotiation cavalierly and to expect the other party to follow your ground rules is naive and may result in you losing the deal. But the chances are better that the big company on the other side of the table will make this mistake before you do. At least you can hope.

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CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION

Conclusion

HOW TO PREPARE FOR A BIG NEGOTIATION As we have seen at various points in this book, thorough preparation for a negotiation is the foundation for the outcome toward which you are building throughout the entire process. But, before you can build that foundation, you have to ask yourself a very crucial question: to what end am I building? In other words, what is my goal or objective? Why am I engaging in this negotiation and what do I hope to achieve? Once you know the answer to that question, you can begin the preparation phase of the negotiation. Preparation is the step which most people skimp on, thinking that they can wing it and make use of whatever knowledge they already have to achieve their desired results. However, the knowledge they have is usually not enough. They get thrown off in the negotiation because they haven’t looked closely at the details of their goals. Here, near the end of our discussion, we will look at the details of how to prepare properly for any type of negotiation—whether it be adversarial or collaborative. You will find tear out sheets at the end of the book that you can duplicate and use to guide you in real-life negotiating preparation. However, before you begin the preparation, you first must decide where you are going. It is like the old adage says, “If you don’t know where you are going, you may just end up there.” If you don’t know what your goal is, you may end up somewhere else.

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NEGOTIATE LIKE THE BIG GUYS It would be like mapping out a geographical route to California without knowing whether you are going to Los Angeles or San Francisco. You will probably wander all over the state and end up some place you didn’t really want to be.

Setting Goals It may seem obvious, but you should always know what you are trying to achieve as a result of the negotiation you are about to undertake. It is not simply enough to know what your goal is, but you should also be able to articulate it clearly and simply. If necessary, write it down so you can stay focused on it while you are preparing for the negotiation. Remember that if you are in an adversarial negotiation where your interests are clearly different from the other party’s, your goal will most likely be different from your opening offer. For example, if you are negotiating to purchase a home that is on the market for $200,000, your goal may be to pay no more than $185,000, but your opening offer may be $175,000. That opening offer gives you “wiggle room” of $10,000 with which to bargain. Your goal may be more complex than the one in the example. You may have other factors that are of importance to you in the negotiation, such as move-in date, cost of inspections, closing date, etc. But remember, these other factors are concessions that you can trade to achieve your overall goal of paying no more than $185,000 for the house. The issue is that you must be clearly focused on your overall goal as you prepare for the negotiation and during the actual bargaining. Ask yourself this question: What is it I want to get from this negotiation? It is also important to have a fallback position. If you can’t meet your primary goal, what would be an acceptable secondary goal? If the seller just can’t accept anything less than $187,000, would you be willing to accept that price if he agrees to leave all the appliances and close within 30 days?

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CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION For real bargaining to take place, you have to be somewhat flexible in your overall goal. So figure out ahead of time where your flexibility lies and have a contingency plan that is acceptable to you in the event you can’t achieve your overall goal.

Preparation Some people who negotiate successful outcomes on a regular basis modestly attribute their success to luck. However, most negotiators tend to agree with Oprah Winfrey when she says: “Luck is a matter of preparation meeting opportunity.” Successful negotiators know that preparation is the key to their success and that is why they do it consistently. When asked why they don’t prepare for a negotiation, many people say they simply don’t have the time to prepare with the pressures of business. However, it is my experience that you can’t afford to ignore preparation—it is essential to your overall success. So how much time does it take to prepare for a negotiation? The answer depends on a variety of factors, including: •

the complexity of the issue begin negotiated;

•

the willingness of the parties negotiating; and

•

whether the negotiation is adversarial or collaborative.

If the issue is complex, the parties are negotiating begrudgingly, and it will clearly be an adversarial negotiation, the preparation time will be quite a bit longer than if the issue is a simple one and will be negotiated collaboratively. Collaborative negotiating, in general, takes less time and, therefore, the preparation takes less time. Theoretically, a collaborative negotiation is built on trust and a mutual desire to achieve an outcome that will maximize the gain for both. When that is the case, the preparation time is decidedly less. However, don’t make the mistake of believing that you don’t need to prepare for a collaborative negotiation at all. You do. Just because you are working together and

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NEGOTIATE LIKE THE BIG GUYS have a good relationship doesn’t mean things can’t go awry. You need to be just as prepared. Preparation will help you come up with the best possible solutions to the dispute. This kind of preparation will involve all the same steps as for an adversarial negotiation because you want to make certain that the collaborative negotiation process goes smoothly and doesn’t flip into adversarial negotiating for some unforeseen reason. The other reason you want to prepare for a collaborative negotiation is that you will want to brainstorm some options or solutions prior to coming together with the other party. That kind of preparation can cut down on the actual negotiating time dramatically. Preparation for adversarial negotiating can take a time commitment of at least one to two hours (or more) depending on the complexity of the situation and the number of parties involved. However, the time commitment up front can have tremendous payoffs when the negotiating process gets started. Thorough preparation puts you in a stronger negotiating position because you have taken the time to think through the people, process, strategies, tactics, obstacles and outcomes. Not only does it boost your position, but it enhances your confidence walking into the negotiation. The return on your investment of time put into preparation could be the difference between winning and losing in an adversarial negotiation. So take the time to prepare. The rewards are well worth it.

Where to Find Information Finding the information you need may be part of the challenge of doing a thorough preparation job. There are many sources available to aid you in your search for answers. In trying to find information on the industry or business of the other party, you can read trade journals, local newspapers, national and regional business periodicals, and professional society newsletters and journals; you can search the Internet and find the company’s web site or home page. Many times, the web site will allow you to ask questions and order company literature online. Don’t forget that most libraries have online services, too. 220

CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION You can also do a little sleuthing with current and former employees of the company, and current and former consultants who have worked with the company. Often a phone call to the company receptionist, operator or assistant will yield very helpful information, not only about the company but also about the other party. Speaking of the other party, you can find out a good deal about her from current and former employees, vendors, consultants, professionals and friends. In preparing, you have to be willing to wear your detective hat and be well armed with questions to help you get the information you need.

Negotiating Preparation Model Over the years, I have developed a simple five-step preparation model with the acronym RASPP. Here is what it looks like: 1) Research 2) Analyze the other party 3) Self evaluation 4) Plan strategy 5) Practice In the following paragraphs, we’ll go over each step in detail. Research Some people call it doing your homework and others call it getting background information. No matter what you call it, it is research—gathering all the facts you can about the history and background of the issues to be negotiated. It is in this phase you will want to ask such questions as: •

Is the issue negotiable?

•

What led up to this situation?

•

What are all the facts surrounding this situation or issue?

•

Where does the issue stand right now?

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What external things are influencing the situation right now?

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NEGOTIATE LIKE THE BIG GUYS •

What internal things are influencing the situation right now?

•

What have been the outcomes of other negotiations with this party?

•

How will the outcome of this negotiation affect other issues with this party? with you?

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What is the relative power of the players involved?

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Who will all the players be in the negotiation?

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How have similar issues been resolved in the past?

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What historical issues could affect this negotiation?

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What are the potential obstacles to the outcome you want?

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What are the variables in the equation that could tip the balance in your favor? In the other party’s favor?

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What are some options favorable to both parties?

•

What are the “hinge” issues, i.e., those issues on which other issues depend?

•

What are the likely rewards if the other party is successful in the negotiation? If you are successful? If you both achieve success?

•

What are the negotiable items? Which items are likely to be of most importance to the other person? Which are of most importance to you?

Analyze the other party If you don’t know the other party well, you may have to depend on the input of others for this information. If the other party is well-known, you may consult newspapers, professional journals and trade publications, industry newsletters, and professional organizations to which he may belong. The idea behind analyzing the other party is to find out so much about him that you will not be surprised or blindsided in the negotiation. The element of surprise is often used as a tactic in adversarial negotiating and you want to keep that from happening to you. You want to anticipate any response the other party might give or any obstacle he might throw into the equation.

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CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION Here are some of the questions you need to ask when analyzing the other party: •

Is this the right person with whom to negotiate the issue?

•

Is this person willing to negotiate?

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How important is this issue to the other party?

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What is your history with this party?

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What is your relationship with this person?

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How much does the other party trust you?

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How important is your relationship with this person?

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What successes or failures have you had with the other party?

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What influence does this person have over others with whom you might do business or hope to do business?

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Who will be influencing or coaching the other party during the negotiation?

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What is this person’s communication style: Does he like all the facts or just a top-line? Is he a listener or a talker? Does he want things in sequential order or a broad brush approach?

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What motivates the other person?

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How much power does the other party have in this negotiation?

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What is his desired outcome of this negotiation?

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How does this person feel about you?

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What obstacles and objections is he likely to raise?

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What kind of negotiator is this person?

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How experienced is he at negotiating?

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What are this person’s values?

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What is this person’s attitude coming into the negotiation? Is he belligerent, curious, angry, skeptical, cooperative or indifferent?

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What is this person’s reputation?

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How does she treat other people?

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NEGOTIATE LIKE THE BIG GUYS •

How much of this person’s ego is invested in the outcome?

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What is she likely to be looking for as an outcome?

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How will she react or respond to your goal or opening offer?

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What are this person’s strengths? weaknesses?

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What is the person’s fallback position?

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What will it take to reach agreement with this person?

Self-evaluation Taking stock of yourself honestly before the negotiation will help you figure out your strengths and weaknesses going into it. The more knowledge you have about your own feelings and attitudes, the more likely you are to stay focused and aim for your goal. The idea behind this self-evaluative process is to uncover any issues that may get in your way during the negotiating process. Some people tend to self-sabotage the negotiation when it looks like they might be successful at the outcome. For reasons only they know, they fear the success they were about to realize and raise issues and obstacles that put an end to the negotiating. Looking closely at yourself prior to the negotiating process will alert you to what you might need to do to be totally ready to defend your position. A word of caution: This is not an easy exercise if you do it well. It takes the courage to look yourself in the mirror and see your weaknesses and foibles. Not everyone can face himself honestly and admit to the fears, insecurities and personal challenges. But the more honesty you use in this analysis, the more prepared you will be for your own actions and reactions in the negotiation. Here are some of the questions you need to ask yourself:

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•

How important is this issue to me?

•

What is my desired outcome of this negotiation?

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What are my perceptions of the other party?

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How much do I trust the other party?

CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION •

How do I think the other party perceives me? How important is that person’s perception to me?

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How important is my relationship with this party in terms of being able to conduct business in the future with him and or others whom he influences?

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How do I feel about negotiating with this person?

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How do I feel in general about my negotiating skills?

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How much power do I have in this negotiation?

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How will I feel if I lose? If I win? If we compromise?

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What would be an acceptable compromise if that’s how we resolve this disagreement?

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What is my fallback position?

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What is motivating me to negotiate?

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How would I feel about just settling?

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What are my personal strengths going into this negotiation?

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What are my weaknesses? where do I feel vulnerable?

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What are my hot buttons, i.e. the things that trigger vigorous emotions in me?

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What is my preferred communication style? Am I a talker or a listener? A fact-based person or an opinion giver?

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How good are my listening skills?

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How can I best adapt to the other party’s style if it is not the same as mine?

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What are my attitudes about this negotiation? Am I skeptical? Indifferent? Agreeable?

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Am I prepared to play games with this party if necessary?

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Where am I likely to falter in the negotiation?

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How successful have I been at other negotiations like this one?

Plan a strategy A negotiating strategy will result from doing your homework on the first three phases of preparation—research, analysis of the other party and self evaluation. Once you 225

NEGOTIATE LIKE THE BIG GUYS have all the information, you can begin to make some decisions about which negotiating approach will best help you meet your needs. The following four criteria will also help sort out which negotiating approach to use: •

importance of the relationship to you,

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level of trust in the relationship,

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importance of the issue to you, and

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amount of time you can devote to the negotiation.

How Important Is the Relationship to You? If your answer to the question is that the relationship is short term and is not key to your doing business over the long term, your strategy will probably be more adversarial. Prepare a strategy that allows you to gain the most you can from the negotiation and give up the least you must. For example, if you are making a one-time purchase from a vendor and don’t expect to be doing business with her in the future, your approach may be more adversarial. That is not to say that it will be rancorous or unpleasant, but simply that you will be strategizing to get all you can from the negotiation. However, if the relationship is important to the future success of your business long term, you will want to take a more collaborative approach. The idea here is that you want to preserve, and even build, the relationship with the other party through the negotiating process. The quickest way to do that is to choose a strategy that involves an approach designed to maximize the gains for both of you— in other words, collaborative negotiating.

How much trust exists? If there is little trust and the relationship is not important to you in the long term, you may well choose an adversarial negotiation. In such a negotiation, the relationship takes a back seat to winning. And in order to win, you may have to use games and tactics, which contribute to an overall lack of trust. For example, if you are negotiating to purchase a house, your relationship with the owners is probably not that im226

CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION portant to you unless you live in a small town, they are staying close by, and they could influence the future success of your business in some way. If you don’t know the owners and a relationship with them is not important to you, you will most likely want to get the most you can from them in the negotiation. In a collaborative approach, however, trust is a key factor. While the trust may not be there at the beginning of the negotiation, steps you take during the process will begin to build trust. The goal of a collaborative negotiation is to maximize gains for both parties. In the process, you will be partnering with the other party to find a solution that makes you both winners. As a result of participating in a process that is based on honesty and openness, both sides typically walk away feeling more trusting of the other party. Using the example of purchasing a house, let’s say that the owners of the home you want to buy are influential people in your industry. If you don’t know them, but would like to, you may choose to approach the negotiation more collaboratively with the hope of building a long-term relationship with them. If you are negotiating with someone whom you trust implicitly, collaborative negotiating will be the approach of choice. Let’s say you are friends with the owners of the house and have a long-standing relationship with them. In order not to jeopardize the relationship, you will probably want to use a collaborative approach to the negotiating process. It may involve some form of compromise; but you want to set up the negotiation so that you and the owners are sitting on the same side of the table, literally and figuratively, and coming up with a solution that maximizes the gains for both of you.

How Important Is this Issue to You? If the issue is of great significance to you, you may want to be more strategic in your approach than tactical. In other words, you might want to negotiate for the longer term. How long will you have to abide by the decisions made in this negotiation? How will the decisions affect your business long term? 227

NEGOTIATE LIKE THE BIG GUYS Do a cost-benefit analysis to determine the financial, resource, people and time consequences of the outcome. If the issue is of little significance to you, maybe it isn’t even worth the time to negotiate. That is part of the reason for so many out-of-court settlements in the judicial system today. People don’t want to waste valuable resources (time, money and people) on issues that could be settled quickly. Ask yourself this question: what resources do I have to put into getting this issue resolved and is it worth it to use those resources for this issue? Determining the importance of this issue to you and your business will help you make a choice about whether to negotiate at all. If you choose to negotiate, the importance of the issue will help determine your strategy.

How Much Time Do You Have? If you have loads of time for game playing, tactics, posturing and stalls, you may choose adversarial negotiating. But if time is an issue and you hope to settle things quickly, collaborative negotiating can usually be accomplished in one sitting, depending on how complex the issue is. Once you have answered these key questions, you are ready to plan your strategy. But that’s only half the story. As you plan your strategy, you will want to look at the other party’s possible approach to you. Will it be adversarial or collaborative? You should plan for both. Your strategy will be built around all the answers you uncover in your preparation. The answers will help you determine which approach is more likely to result in the outcome you desire. Whether you choose the adversarial or collaborative approach, the next step in planning your strategy is to make a list of all the negotiable items you have at your disposal. Don’t forget things like delivery time, terms of payment, number of deliverables, up charges for rush jobs. These negotiable items are concessions that you trade in an adversarial negotiation.

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CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION The reason you want to have these ready if you choose the collaborative approach is that the other party may not be prepared to negotiate collaboratively even if you are. After you have made your list, go back and put the items in two categories—need to have and nice to have. If you end up doing an adversarial negotiation, your goal is to give up as few of the need to have items as possible in exchange for as few of the nice to have items. Keep this list at your fingertips during the actual negotiation so you can keep track of what you are willing to trade and what you have already traded. Notice the word trade. You never want to give anything away in an adversarial negotiation without getting something in return. The other things you want to write down as you prepare your strategy are: •

your bottom line—the point at which if the negotiation falls below this line you walk away. In poker there is an expression, made popular by singer Kenny Rogers in the song The Gambler—“know when to hold ‘em, know when to fold ‘em.” The same goes for negotiating. You have to know when to “fold ‘em.” You need to know when to walk away from the negotiation because it is no longer a viable deal for you;

•

your top line—the maximum you can possibly achieve given the realities of the world. This is usually where you begin the negotiating;

•

your opening position represents more than you realistically believe you can get, however it is realistic enough that the possibility exists you might get it. Your opening offer should reveal just enough to entice the other party into bargaining, but not so much that it jeopardizes your future bargaining position;

•

your fallback position—what would you be willing to settle for if you can’t get the most that you want; sometimes your fallback position requires you to give up some of the “need to have” items you had hoped to hang onto. Your fallback position is the last resort before your bottom line. It is what you walk away with and still feel that there was value in negotiating;

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negotiable items—what are all the items that could be used as bargaining chips; which are of most importance to you and which do you care less about?

Practice If you are a seasoned negotiator and the situation is straightforward, you may not feel the need to rehearse the negotiation with someone. However, if for some reason you are not as confident going into the negotiation as you would like to be, or if the issue is so complex that you would benefit from the rehearsal, take the time to do it. Even seasoned negotiators stumble occasionally because they haven’t taken the time to prepare as thoroughly as possible. There are several benefits to practicing prior to the actual negotiating event: •

you gain confidence because you are prepared for any eventuality;

•

you have a sense of what things the other party might throw at you so you won’t be thwarted by any curve balls;

•

you have a sense of what emotions might emerge in the process so you can be prepared to handle them and not let them get in the way of your rational thought process;

•

two heads are always better than one; you might come up with some new ideas on how to handle the situation more effectively;

•

articulating your thoughts has a way of implanting them in your mind and it may help you to stay more focused during the actual negotiation.

Some people recommend practicing in front of a mirror. That works well if what you are rehearsing is a one-way communication, such as a lecture or presentation. However, because a negotiation is a two-way communication, rehearsing with another person is sometimes far more effective because you have the benefit of realistic responses and emotions. It prepares you in a way that practicing by yourself does not. There are two ways you can practice for a negotiation:

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CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION 1) rehearse with someone else taking on the role of the other party. If your rehearsal partner knows the other party, all the better so she can realistically act out anticipated responses and emotions of that other party. Go through the whole negotiation. See how close you can get to your goal; and 2) rehearse with someone else, and you take on the role of the other party. Getting inside the head of the other party can help you anticipate rationales, problems, obstacles, emotional “hot buttons,” plausible responses, etc. that will be valuable to know prior to negotiating. It will give you insights you may not have had if you simply practice as yourself. It may even give you a new appreciation for the other party’s point of view. One sales professional who used the second approach found that he had far less trust for his opponent than he originally thought. His opponent was a dealer for his company’s products and had been threatening to take a big job to one of the salesman’s competitor’s whom the dealer also represented. At the end of the rehearsal where the salesman played his dealer, the salesman concluded that while it was in his best interest long term to build trust with his dealer, this particular negotiation was going to be adversarial because of the dealer’s threats. Whichever method you choose, each will give you the opportunity to prepare mentally and gain confidence before you go into the negotiation.

Summary When negotiating, you should expect—and be willing to accept—at least some ambiguity in what is resolved. If 90 percent of the issue is settled, and people in the meeting are beginning to grow restless, let the other 10 percent go for a while. Don’t insist that every last detail be buttoned down that day; otherwise, you risk angering people and losing the ground you’ve gained. On the other hand, don’t start giving in to your opponent just because you’re tired and cranky and ready to go home. Instead, call for a break. Sum up where you are so far, and suggest wrapping it up in a future session...when, thanks to a few days rest and contemplation, everyone 231

NEGOTIATE LIKE THE BIG GUYS will be able to approach the situation with fresh ideas— and fresh minds. Before you sit down to bargain, you should have three figures or positions fixed firmly in your mind: •

The maximum: the highest figure. The most you dare ask for without fear of blowing away your opponent.

•

The minimum: the bottom line. the lowest figure you’d settle for.

•

The goal: a realistic figure you have a good chance of getting.

The goal is probably between 50 and 75 percent of the maximum. It pays to be optimistic and aim high when setting your maximum. If you’re entering into a major business negotiation, it’s important to examine your attitudes and feelings—not just your negotiating position and tactics. Some tips: 1) Be aware when a minor business issue is actually becoming a major business problem. When a critical supplier off-handedly says, “I’m not sure how much longer I can afford to service your account” or a valuable employee comments on how much more she could be making at a competitor, it may seem like chitchat, but these are red flags. Take them seriously. The earlier you deal with a problem, the better chance to work it out to everyone’s satisfaction. 2) Instead of negotiation, talk about problem-solving. If you’ve identified a business issue early enough, you may be able to structure discussions so they become a case of mutual problem-solving rather than a matter of trading or bargaining. In one woman’s situation, for instance, her business partner felt they could no longer work together and they had come to a natural parting of the ways. At this point, the atmosphere between them was still cordial, and the partner was willing to work out a mutually beneficial arrangement. The woman could have gotten a lot more than she will eventually receive. 3) Figure out what you want. Surprisingly, many people in a business negotiation, especially an important one like the sale or purchase of a business, don’t know what they want. Once a negotiation begins, it’s easy 232

CONCLUSION: HOW TO PREPARE FOR A BIG NEGOTIATION to become involved in the process—figuring out strategies, ploys, maneuvers. In the woman’s case, for instance, she has spent weeks engaged in ways to frustrate her partner, but she’s spent virtually no time figuring out what she wants to do once the partnership breaks up. This puts her in an almost impossible negotiating position. 4) Forget about beating the other side. This is a competitive culture, and we naturally become obsessed with the idea of winning. But in the best negotiations, both sides win, and in the worst, both sides lose. If you’re engaged in an effort to beat, let alone beat up the other side, you’re almost certainly negotiating against yourself as well. Looking for solutions where each of you comes away with the best deal possible means you’ll probably get a whole lot more than if you just want to ruin your opponent. 5) Deal with your emotions elsewhere. Some people are not a particularly emotional—except when they get in a negotiation; then the nerves, anxiety and anger all come out. Negotiations are naturally very upsetting times, so it’s important to have supportive family, friends or even therapists to help you cope. The bargaining table is the wrong place to work out your anger, grief or disappointment. 6) Get a really good lawyer; use him and listen to him. It may be fun to laugh at lawyer jokes, but the truth is a good lawyer can keep you out of a lot of trouble. Really good business lawyers don’t want you to fight until death, they want to help you take care of yourself— even if it means advising you to take a little less or give a little more. They’ll keep you out of trouble by warning you about things not to do, even if you would like to murder the creep on the other side of the table. 7) Avoid mutual destruction. In many negotiations, the one tool equally available to both parties is to ruin the whole deal, if not the whole business. Do you really want to do this, just because you can? If not, go back and figure out what you want. If this doesn’t work, get on with your life. Some people are eaten up for years over one bad business deal. Life’s too short. Even if you have to lose, sometimes it’s just better to get it

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NEGOTIATE LIKE THE BIG GUYS over with. No business is as important as your life. Move on. The most common mistakes people make in negotiation is to treat it as warfare or as a zero-sum game. Most of the negotiating you will do in life is with the same people over and over again: fellow-workers, spouse, family, friends, boss, etc. If you consider each negotiation as an episode in an ongoing relationship, your behavior will be more appropriate. One fundamental rule is: only one person can be angry at a time. Don’t let the situation escalate, civility will slip away awfully quickly and you’ll have a very tough time healing the relationship or solving the initial issue. When negotiating it’s also important to be creative. Anyone can do things the same old way. By using brainstorming techniques, you can open up unanticipated possibilities that can expand agreement opportunities and achieve far greater gains than when you behave predictably. Be fair. When parties feel a process is fair, they are much more likely to make negotiate and less likely to walk away from the deal. It’s also important to know when to quit negotiating. Know how to indicate agreement has been reached—this usually occurs when people agree with you. Business men and women often feel they move into a different environment when they negotiate—one in which anything goes and the rules are understood by all players. Yet negotiations are not a separate function; they are an integral part of all business environments. Joint ventures, purchasing options, labor contracts, leasing agreements, salaries and benefits, day-to-day disputes, mergers and spinoffs are all negotiated. And in such bargaining, ethical rules must apply. Negotiating isn’t easy. With high stakes, complexity, deadlines, uncertainty, emotions and stress, negotiations will always be tough. But, if you negotiate ethically, you should find the process works better—personally, interpersonally and economically.

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Appendices

CHECKLISTS, SAMPLE LETTERS AND REMINDERS The following appendices provide guidelines, checklists, and sample documents to help you through negotiations and bargaining. Feel free to make copies of them to fill out as you prepare for and participate in upcoming negotiations. Appendix One: Select Your Approach to Negotiating Appendix Two: Tips for Negotiating with an Opposite Style Appendix Three: Tips for Women Negotiating with Men Appendix Four: Analyze Sources of Power Appendix Five: If You Don’t Have the Power in a Negotiation Appendix Six: Prepare for a Negotiation Appendix Seven: Analyze the Other Party Appendix Eight: Self-Evaluation Appendix Nine: Develop a Strategy Appendix Ten: Critical Steps in Adversarial Negotiating Appendix Eleven: Sample Agreement Appendix Twelve: Collaborative Negotiating Appendix Thireen: Forming an Alliance Appendix Fourteen: A Simple Business Plan Appendix Fifteen: International Negotiation

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APPENDIX ONE: SELECT YOUR APPROACH TO NEGOTIATING In order to know which negotiating approach to use, you need answers to the following questions. 1) How important is my long-term relationship with the other party? Why is it this important? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 2) What do I want the relationship to be at the end of this negotiation? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 3) How important is this issue we are negotiating? ____________________________________________________________ ____________________________________________________________ 4) Who has the power in this negotiation? ____________________________________________________________ ____________________________________________________________ 5) How much time to we have to negotiate? ____________________________________________________________ ____________________________________________________________ 6) What are the resource limitations? ____________________________________________________________ ____________________________________________________________

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APPENDIX TWO: TIPS FOR NEGOTIATING WITH AN OPPOSITE STYLE 1) Recognize and understand your own perspective, with its strengths and its limitations. What is it? What are they? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 2) What is the other side’s style? What does this mean about its motivation? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 3) What is the value of the other side’s goal—in terms of giving its negotiators any strategic or tactical advantages? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 4) What are the questions you need answered in order to understand of the other side’s position and perspective? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 5) What is a solution—even an unlikely one—that incorporates both sides’ goals and meets the essential needs of both? ____________________________________________________________ ____________________________________________________________ ____________________________________________________________

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APPENDIX THREE: TIPS FOR WOMEN NEGOTIATING WITH MEN 1) You don’t have to be a man, but you can observe their behaviors and learn from them. 2) Don’t assume you won’t win. Stand your ground; don’t be willing to give in. 3) Prepare a winning strategy and stick with it. Don’t get so personally involved. If you lose, you are not a bad or undeserving person. 4) Learn how to accept losses. Men see losing as a tool for self improvement; women tend to see it as a signal that they can’t and won’t ever win. 5) Have a winning attitude. Turn your negative thoughts around and believe in your ability to win. 6) Don’t allow yourself to be put off. If you get postponed by the other person, you have probably lost. 7) Build on your own strengths. Know what you bring to the picture and see where your power lies. 8) Use your power to reach a solution that gets you what you need. 9) If the relationship is important to you, find a way to solve the problem so you both win.

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APPENDIX FOUR: ANALYZE SOURCES OF POWER Before going into a negotiation, it is helpful to know where your power lies and where the other person’s power originates. You can use this sheet to analyze the sources of power for you and the other party.

MY SOURCES OF POWER Put a check mark next to any that apply to you to get a sense of where you have power. [ ]

Positional power. I hold a position of authority that can influence the negotiating.

[ ]

Personal presence. My confidence and assertiveness will give me power.

[ ]

Information. I have information that the other person doesn’t have but needs.

[ ]

Size. My size can intimidate people whether I want it to or not.

[ ]

Intimidation. I can use intimidation as a source of power because I am not concerned about the effect it will have on the long-term relationship with the other party.

[ ]

Negotiating skill. I am very confident about my negotiating skills.

[ ]

Physical attractiveness. I am good looking and this will work to my advantage in the negotiating.

[ ]

Allies. I have an association with someone in power and that might easily influence the negotiation in a positive way for me.

[ ]

Manipulation. I don’t mind using games, schemes or ploys because the long-term relationship is not that important to me.

[ ]

Inspiring trust. I have the ability to inspire trust and I will use that in this negotiation.

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APPENDIX FOUR (CONTINUED)

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[ ]

Coalition building. I am a good coalition builder and will use those abilities here.

[ ]

Speed and flexibility. I can offer speed and flexibility that the other side doesn’t have; that will provide a source of power for me in this negotiation.

[ ]

Entrepreneurial attitude. I am willing to try new things and take a risk that the other side could not or would not be able to take.

[ ]

Specialized expertise. I have a special expertise that the other side needs but doesn’t have.

[ ]

Outward focus. I have incorporated the latest research and thinking on realted issues into my work.

[ ]

Customer service. I provide exceptional customer service and the other side knows it.

[ ]

Lower costs. While the other side might be able to do this work in-house, I offer a lower cost option to get the same work done.

[ ]

Resource network. I have a tremendous network of experts that the other side would like to be plugged into.

[ ]

Added value. I offer an outside perspective unjaded by company politics or personalities.

APPENDIX FIVE: IF YOU DON’T HAVE THE POWER If you don’t have the power going into the negotiation, you need to do a number of things during the negotiation. 1) Prepare like you have never prepared before. You want to have as much information at your fingertips as possible. 2) Make every attempt to move to collaborative negotiating by defining the problem and putting common interests on the table. Try to get the other party to problem solve with you so you can come up with a solution that maximizes the gain for both of you. (If you fail to move the negotiating to a collaborative approach, the following points may be of help.) 3) Have a firm bottom line—know the point at which it is no longer acceptable for you to remain in the negotiation. Ask yourself if it is worth it to you to give in to the other’s demands. If you must, walk away. 4) Stay focused and concentrate during the negotiation. Listen for cues that the other party gives about their needs and wants. 5) Be patient. Don’t rush the negotiation. Hear out your opponent and try to keep an open mind. If you can stay somewhat flexible, you may end up with a better deal than you originally thought, given you didn’t have the power.

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APPENDIX SIX: PREPARE FOR A NEGOTIATION What is the critical issue? Is the issue negotiable? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are all the facts surrounding this situation or issue? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Where does the issue stand right now? How close is it to a resolution? ______________________________________________________________ ______________________________________________________________ What externalities are influencing the situation right now? ______________________________________________________________ ______________________________________________________________ What internal things are influencing the situation right now? ______________________________________________________________ ______________________________________________________________ What have been the outcomes of other negotiations with this party? In this industry segment? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX SIX (CONTINUED) How will the outcome of this negotiation affect other issues with this party? With you? ______________________________________________________________ ______________________________________________________________ What is the relative power of the players involved? ______________________________________________________________ ______________________________________________________________ How have similar issues been resolved in the past? ______________________________________________________________ What historical issues could affect this negotiation? ______________________________________________________________ What are the variables in the equation that could tip the balance in your favor? In the other party’s favor? ______________________________________________________________ ______________________________________________________________ What are some options favorable to both parties? ______________________________________________________________ ______________________________________________________________ What are the “hinge” issues, i.e., those issues on which other issues depend? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX SEVEN: ANALYZE THE OTHER PARTY

Here are some of the questions you need to answer when analyzing the other party. Is this the right person with whom to negotiate the issue? ______________________________________________________________ ______________________________________________________________ Is this person willing to negotiate? What makes you think so? ______________________________________________________________ ______________________________________________________________ How important is this issue to the other party? ______________________________________________________________ ______________________________________________________________ What is your history with this party? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is your relationship with this person? ______________________________________________________________ How much does the other party trust you? ______________________________________________________________ ______________________________________________________________ How important is your relationship with this person? ______________________________________________________________

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APPENDIX SEVEN (CONTINUED) What successes or failures have you had with the other party? ______________________________________________________________ ______________________________________________________________ What influence does this person have over others with whom you do business—or hope to do business in the future? ______________________________________________________________ ______________________________________________________________ What constituencies will be influencing the other party during the negotiation? ______________________________________________________________ ______________________________________________________________ What is this person’s communication style: Does he like all the facts or just a topline? Is he a listener or a talker? Does he want things presented in sequential order with a logical conclusion or simply a broad brush approach? ______________________________________________________________ ______________________________________________________________ What motivates the other person? ______________________________________________________________ ______________________________________________________________ How much power does the other party have in this negotiation? Relative to you? Reletive to his constituencies? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX SEVEN (CONTINUED) What is his desired outcome from this negotiation? ______________________________________________________________ ______________________________________________________________ How is this person likely to perceive you and your negotiating style? ______________________________________________________________ ______________________________________________________________ What obstacles and objections is he likely to raise? ______________________________________________________________ ______________________________________________________________ How experienced is this person at negotiating? ______________________________________________________________ What is this person’s attitude coming into the negotiation? Is he belligerent? Curious? Angry? Skeptical? Cooperative or indifferent? ______________________________________________________________ ______________________________________________________________ What is this person’s reputation? ______________________________________________________________ ______________________________________________________________ How does he treat other people? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX SEVEN (CONTINUED) How much of this person’s ego is invested in the outcome? ______________________________________________________________ ______________________________________________________________ How will he likely respond to your goal or opening offer? ______________________________________________________________ ______________________________________________________________ What are this person’s strengths? Weaknesses? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are this person’s opener and fallback positions likely to be? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What do you suspect it will take to reach agreement with the other side in this negotiation? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX EIGHT: SELF-EVALUATION Here are some of the questions you need to ask yourself before going into a negotiation. How important is this issue to me? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is my desired outcome of this negotiation? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are my perceptions of the other party? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How much do I trust the other party? ______________________________________________________________ _____________________________________________________________ How do I think the other party perceives me? How important is that person’s perception to me? ______________________________________________________________ ______________________________________________________________ How important is my relationship with this party in terms of being able to conduct business in the future with her and or others whom she influences? ______________________________________________________________

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APPENDIX EIGHT (CONTINUED) How do I feel about negotiating with this person? ______________________________________________________________ ______________________________________________________________ How do I feel in general about my negotiating skills? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How much power do I have in this negotiation? ______________________________________________________________ ______________________________________________________________ How will I feel if I lose? If I win? If we compromise? ______________________________________________________________ ______________________________________________________________ What would be an acceptable compromise if that’s how we resolve this disagreement? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is my fallback position? ______________________________________________________________ ______________________________________________________________ What is motivating me to negotiate? ______________________________________________________________ ______________________________________________________________

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APPENDIX EIGHT (CONTINUED) How would I feel about settling on the other side’s terms? Why? ______________________________________________________________ What are my personal strengths going into this negotiation? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are my weaknesses? Where do I feel vulnerable? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are my hot buttons—the things that trigger vigorous emotions or strong responses in me? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is my preferred communication style? Am I a talker or a listener? A fact-based person or an opinion giver? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How sharp are my listening skills? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX EIGHT (CONTINUED) How can I best adapt to the other party’s style if it is not the same as mine? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What are my attitudes about this negotiation? Skeptical? Indifferent? Agreeable? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Am I prepared to play games with this party if necessary? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Where am I likely to falter in the negotiation? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How successful have I been at other negotiations like this one? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX NINE: DEVELOP A STRATEGY A negotiating strategy will result from doing your homework on the first three phases of preparation—research, analysis of the other party, and self evaluation. Once you have all the information, you can begin to make some decisions about which negotiating approach will best help you meet your needs. My bottom line is: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ My top line is: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Negotiable items are: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ My needs are: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ My wants are: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX TEN: CRITICAL STEPS IN ADVERSARIAL NEGOTIATING Especially in the heat of the exchange, reviewing your positions and expectations from the beginning may help you keep details in perspective. Going into the negotiation, what issues and solutions do you expect for each of the following? Opener (yours and the other side’s): ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Exploration: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Bargaining: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Agreement: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Follow-up: ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX ELEVEN: SAMPLE AGREEMENT ASSIGNMENT AGREEMENT 1. We have agreed to undertake the following project, and have reserved the date(s) noted below for this purpose. CLIENT: ________________________________________ PROJECT:______________________________________ PROJECT LEADER: ____________________________ DATE (S): ______________________________________ SITE: __________________________________________ CONTACT: _____________________________________ PARTICIPANTS: ________________________________ 2. We ask that you provide the following audio/visual or other classroom aids: a) Flip charts and magic markers VCR and monitor or chalkboards and chalk b) Overhead transparency projector 35 mm slide projector c) LED overhead display Projection screen 3. There are three ways to arrange seating which facilitates interaction among workshop participants. We will assume you will arrange the training room in one of these styles, either U-shape or rounds. 4. Our fees for this workshop will be:

_______________________________________________________

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APPENDIX ELEVEN (CONTINUED) 5. Other remarks: ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ 6. We regard the agreement we have mutually made to undertake this project as a commitment by both parties. As we are sure you understand, once we confirm a date with a client, we hold that date firm and frequently must turn down other business engagements for that time. Furthermore, when we do encounter a last minute cancellation, it is usually impossible to resell that time since most of the programs that we conduct are arranged quite far in advance. Therefore, our cancellation policy is as follows: CANCELLATIONS WITHIN 30 DAYS OF A PLANNED WORKSHOP INVOLVE PAYMENT OF A FULL FEE. Please sign and FAX this to us at: N A M E : _____________________________________________________ T I T L E : _____________________________________________________ D A T E : _____________________________________________________

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APPENDIX TWELVE: COLLABORATIVE NEGOTIATING The collaborative approach is quite simple and may resemble some familiar problem solving models because it is based on a problem-solving approach. It involves the following steps: 1) Define the issue or problem ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ 2) Agree to existing common interests or goals ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ 3) Suggest possible solutions ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ 4) Choose a solution that maximizes gain for both parties ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX THIRTEEN: FORMING AN ALLIANCE Before you decide to form an alliance, be it casual or formal, short-term or long-term, you need to answer some questions about you and your business. What is my business goal? Will forming an alliance help me achieve it more effectively than if I proceed alone? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What do I bring to the alliance in terms of expertise, resources, etc.? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What am I willing to share or offer the other party in the alliance? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What type of company or partner would best fill the gaps for me? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What resources do I need from the other party? ______________________________________________________________ ______________________________________________________________

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APPENDIX THIRTEEN (CONTINUED) How long will this alliance last? ______________________________________________________________ Who will manage the alliance? ______________________________________________________________ ______________________________________________________________ Will the alliance be informal or formal? If it is formal, what structure will it take? ______________________________________________________________ What will this alliance cost, not only in cash, but also in terms of my time, energy, and expertise? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Is the upside potential worth the investment? ______________________________________________________________ ______________________________________________________________ What obstacles might get in the way of our success? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX FOURTEEN: A SIMPLE BUSINESS PLAN Here is a very simple, straightforward approach to a business plan. You need this basic information to get started. Mission statement. What is the business you plan to be in and what do you want to do? ______________________________________________________________ ______________________________________________________________ _______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Research. Is this a viable business to enter? Is there a need? Who is your competition? Is this really a business? What is the potential income monthly? Annually? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ Skills inventory. What qualifications and experience do you bring to this venture? What other skills will be needed and how can you acquire them? Other people? Self-study? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX FOURTEEN (CONTINUED) Organization structure: How will this business be organized? From a legal standpoint? Tax considerations? Accounting? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How will the business be capitalized? What do you need to get started and where will it come from? How will you finance it as it grows? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ____________________________________________________________________________________________________________________________ Define your market. Is your target customer a Fortune 500 company? A non-profit organization? Are you targeting small business owners who have revenues of $20 to $100 million? Or are you going after business start-ups? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX FOURTEEN (CONTINUED) How will you sell and market your business? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How will you set your fees and prices? What do others in your business charge? What’s the going rate in your geographic area? How much competition do you have? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ How will you measure your success? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX FIFTEEN: INTERNATIONAL NEGOTIATION Before you being business talks in a foreign land with a foreign firm, you will want to get answers to the following questions. These answers will help you keep your goals and guidelines straight. Who will be doing the negotiating? Your potential partner or an intermediary? How many people will be involved? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ If an intermediary is doing it, what is her role? What is the extent of the person’s power? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is the role of the person’s government in negotiating and business? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is proper protocol and etiquette when negotiating in this country? What can you expect? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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APPENDIX FIFTEEN (CONTINUED) What is the stereotype of Americans in this country? (It can work for or against you, but it is important know.) ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is the local view of honesty and fairness? What reputation do locals have for negotiating? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What is the local attitude toward winning and losing? Toward concessions? Toward time and the amount of time needed to negotiate? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ What kinds of written contracts do locals usually propose and how well do they stick by them? ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________ ______________________________________________________________

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Index

INDEX

adversarial negotiating 7, 26, 68-72, 77, 87, 89-90, 95-96, 108-110, 174, 242, 245, 252 agreement 28-31, 33-34, 40, 43, 53, 58-62, 65-66, 72, 76-77, 79, 83-84, 88, 90-94, 97, 100, 104-105, 108, 111, 117, 124-125, 129-135, 142-143, 152-153, 158-160, 171, 173, 175, 177-181, 247-248, 258-259 alliances 3, 10, 16-17, 26, 39, 183, 189 assignment agreement 158-159 bargaining 8, 16, 35-36, 40, 54, 69-81, 85, 87, 181, 214, 219, 240-241, 253, 256-259 bargaining tactics 54 barter 2, 39, 141-142 body language 78-79, 86, 127 bottom line 36, 70-71, 73-74, 96, 253, 256 brainstorming 98, 106-108, 258 breach of contract 58, 179 calculating fees 120 cancellation policies 136, 138 cancellation 116 co-opetition 39 collaboration 2, 17, 96, 101, 109, 112-113, 147 communication 1, 8, 23, 43-48, 50, 53, 55-56, 60, 62-63, 86, 88, 108, 145152, 175, 216, 227, 246, 248, 254 compensation 2, 38, 87, 119, 126, 129, 132, 134 competition 19-21, 23, 26, 78, 96, 133, 143, 196, 198 comprise 44, 136 compromise 53, 55, 97, 101, 248, 251 concessions 4, 36, 53-55, 70-71, 75, 84-86, 96, 136, 141, 240, 252 contingency fees 63, 125 contracts 2, 21, 33, 57-62, 73, 120, 130, 139, 145, 158, 171-172, 201, 259 cooperation 26-27, 196 corporate culture 229-230 counter-offensives 81 cultural differences 214, 230, 233-234 customer service 14, 22

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NEGOTIATE LIKE THE BIG GUYS daily rate 119-122 datacrats 46, 49-50, 52, 62 deception 165, 170, 172, 180 delay 80, 82, 123, 181 delivery time 136-137, 252 demands 4, 36, 40, 54, 83, 170 dining skills 160 dishonesty 163-165, 169, 174, 176 distraction 165, 173 distributive justice 167-168 e-mail 145-148, 150-152, 164, 216 electronic calendars 148 ethics 164, 166 ethnicity 48, 214 evaluation 106-107, 244, 247, 249 exaggeration 172 exploitation 166 exploration 72-75 fallback position 70-71, 241, 247-248, 253 faxes 145, 150-152 fees 63, 115-116, 120, 124-128, 141-143, 153-156 flattery 165, 172, 180 flexibility 4, 10, 64, 126, 139, 170, 181, 241 follow up 64, 72, 145, 159 follow-up memos 145 games 25, 27, 85, 98, 108-109, 249-250 gender 146, 214 global competition 19-20 greed 108, 124, 129-133, 153-155, 158-159, 171, 177, 179-180 honesty 64-65, 110, 163-165, 168-169, 174, 176, 247, 250 hourly rate 63, 116, 122-123, 154 implied covenant of good faith 132, 179 international business 150, 219 Internet 1, 22-23, 146-150, 164, 215, 243 intimidation 8, 82 Japan 190, 225 joint venture 167, 187, 189, 200, 259 language barriers 227 letter of agreement 117, 159-160 lies 9, 15, 45, 47-50, 52, 67, 84, 118, 163-170, 172, 180-181, 198, 236, 241 manipulation 9, 25-26, 98, 104, 109, 166-167 manners 146-147, 160-161 marketing 2, 73, 90, 92, 102, 104, 118, 120, 139, 142, 168, 190 material costs 136 maximization 55, 173

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INDEX mediators 97, 112 mergers 175, 259 miscommunication 227 misrepresentation 25, 34 nationality 214 needs 2, 13-14, 17, 24, 36, 38, 40, 43, 53, 64, 67-68, 70-72, 74-76, 81, 97, 99, 101, 127, 130, 137, 139, 143-144, 249 negotiable items 70, 136, 141, 245, 252-253 networking 25, 39, 146, 148 non-traditional price factors 141 on-line commerce 22 opening position 253 opposing positions 98 outside perspective 13 overhead 15, 120 partnership 16-17, 28, 31, 35, 39, 189, 192, 199, 225, 257 payment terms 64, 136 persuasion 53 position 4-9, 25, 35, 38, 40, 54, 60, 63-64, 66, 68-72, 74-79, 81-82, 86-87, 90, 94-103, 105-106, 111, 119, 126-127, 130, 165, 173-175, 180, 231, 236, 241-242, 247-248, 253, 256-257 positional power 7-9 power 1-10, 12-16, 22, 25, 35-41, 68, 71-72, 76-77, 80-81, 84-85, 87, 97-102, 106, 109-110, 112, 130-131, 140, 153, 160, 244, 246, 248 preferences 45-46, 51, 53-55, 64, 97 preparation 10, 16, 35, 67, 75, 90, 121-122, 144, 238-239, 241-243, 249, 252 price comparison 118 price objections 143 price resistance 126-128 pricing structure options 121 printing 102-103, 136, 140 project pricing 123-124 rapport 53, 64-65 relators 47-50, 52 reproduction 136, 140 reputation 8-9, 38, 40, 89, 103, 127, 164, 181, 246 retainer 63, 73-75, 119, 125, 129, 140 scope of work 136 self evaluation 244, 249 self-interest 169-170 shipping 125, 136, 139 size 3, 8, 14, 151-152, 221, 235 skill 2-3, 8-10, 16-18, 41, 44, 54, 67-69, 74, 100, 108, 115, 121, 123, 151, 160161, 173, 248 sources 7 specialized expertise 12-13, 123 speed 10, 148, 151 stereotypes 48 strategy 3, 37, 84, 104, 106, 112, 130, 171, 244, 249-253

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NEGOTIATE LIKE THE BIG GUYS substitutions 136, 139 success fees 126 terms 17, 26, 29, 32, 35, 40, 55-56, 59-61, 63-64, 78, 80, 83, 86, 87, 91, 118, 121, 130, 132, 136-138, 140, 144, 154, 158-159, 171, 179, 208, 226, 238, 248, 252 top line 70-71, 119, 253 travel 117, 125, 136, 139-140, 177, 222 trickery 27, 98 trust 9, 15, 17, 19, 22, 26-27, 65, 77, 88, 90, 94, 96-99, 101, 108, 110-111, 164, 175-176, 231, 242, 246, 248-251, 255 universalism 166-168 utilitarianism 167-168 virtual companies 16 volume 8, 136, 140 written Agreements 152

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