My secret sauce for negotiation
Main topic: “How do you prepare to negotiate agreements?”
Regardless of the industry, all business requires negotiation.
At its core, the art of negotiation is one of the most uniquely human superpowers. No algorithm, chart, or model can generate an exact formula for a given negotiation. The subtlety and attention required to understand the goals and motivations of another person are part science and part art.
While negotiating a contract can be stressful for many, I see it as an opportunity to set the tone for the start of a (hopefully) long-term business relationship. It is also an opportunity to get to know your counterparty at a deeper level than what is common during daily business interactions.
I’ve always been fascinated with people’s irrationality (yet predictability), and I consider myself a perpetual student of human nature. As a result, I’ve spent a good amount of time learning and thinking about how to negotiate effectively, not only because my work requires that I negotiate on others’ behalf but also because I believe it is fundamental to running my shop.
Through my work, I have negotiated hundreds of proposals and contracts, and I am fortunate to have earned the trust of many teams I deeply respect.
As I have sharpened my negotiation style and worked with more teams, I have received some questions about how I prepare each time.
Although I freely share tactics and strategies that I use for the work, talking about how I negotiate comes very close to sharing the recipe for the secret sauce.
The majority of what we do at my shop is not proprietary. Instead, we double down on the boring essentials and execute relentlessly. How I negotiate agreements is different from the basics that I typically break down in the newsletter.
So, what am I doing here?
I’m breaking down how I approach negotiation into three parts. I hope this can help anyone craft a simple roadmap that will lead to more thoughtful negotiations and help me become even more deliberate about the process.
The Technical.
Business Terms
This is the highly technical aspect of the work, where it pays off to be well-educated and up-to-date on the market for the terms being negotiated. This applies to any industry.
Typically, contract terms are part of a system. Therefore, they cannot be considered in a vacuum.
For example, a construction contract set up as a GMP with shared savings will also have a cap on how much contingency the general contractor can use for general conditions. Without a cap, the GC could pay themselves into profit entirely out of the contingency. Additionally, this means the contingency would be depleted, and there would be no savings to share with the project owner. Ensuring these two business terms are in harmony and that, together, they result in the intended effect is crucial.
This principle applies across all types of contracts, and understanding how business terms interact is a key aspect of successfully negotiating agreements.
The best way to stay current on the market is to practice and pay close attention during negotiations. Alternatively, most specialized counsel can provide strong guidance on the market for business terms since they are the ones most often involved in contract negotiation.
Goal(s)
Once you clearly understand the salient business terms you’re about to negotiate and how they interact, you must define a clear goal.
I cannot stress this enough.
Having a stated goal at the start of a negotiation is the best way to ensure the process stays on track. Negotiations can get emotional, and having a defined objective is a great way to create a ‘negotiation lighthouse’ to keep conversations from wandering.
As with any goal, negotiation objectives must be specific. Saying something like “ we want this to be a good negotiation” is not specific. The goal(s) of a negotiation can be as simple as getting to a certain percentage fee or total contract price. Understanding which business terms influence the goal is the only way to ensure the agreement aligns with the established objective.
This is why proficiency in business terms precedes all other negotiation prep. You must know what you’re negotiating about before walking into the room.
Finally, since contract talks typically include several people on either side of the negotiation, it is also crucial to communicate the goal to those on your side. This will help keep discussions focused on what matters (and may even result in lower legal bills!)
Negotiation strategy
As with most things in life, it’s not only about what you ask for but also about how you ask.
After you identify and understand the relevant business terms and define specific goals, you can move on to figuring out how you will approach asking for those things.
The negotiation process must be purposely structured to achieve the established goals. For example, some people begin by asking for more than they want, while others start with the exact terms they are looking for. (Remember this next time you negotiate anything).
There is no right or wrong way; this depends on your negotiation style and personality (more about this in the following sections). The key is that either approach should be built into the strategy.
Knowing which terms are less crucial to the objectives is also helpful since you’ll know what you can easily trade for more valuable provisions.
Considering your counterparty is another essential part of figuring out the strategy.
While this seems obvious, I wouldn’t recommend skipping or glossing over it. At this moment, I check all my assumptions about the other party and the situation leading up to the negotiation to ensure I’m not missing or misinterpreting context.
Having counsel or another experienced party assist is always a good practice. Another perspective can help highlight blind spots and formulate the best approach.
Understanding the other party’s motivation is critical to figuring out how to approach the conversation. For example, some people are very objective in their negotiations. In contrast, others have a more emotional style, and the best way to recognize the nuance of the other party’s approach is to see it without judgment.
The Personal.
After figuring out the technical sides of the negotiation, things get slightly ‘squishier.’ This part of the process is about being intentional about whom you want to be in the negotiation and how you want things to progress.
Intentionality often results in better control of the outcomes, and in a process that is otherwise open to the irrationality of people, having a plan is better than having no plan.
This is also the part where knowing yourself is equally important as knowing the other party.
Everyone has preferences regarding human interaction; ensuring you’re comfortable in the negotiation is essential. This applies to everything leading up to and during the talks. Who is in the room, whether done in person or over a call and whose office you are meeting in are all examples of relevant factors.
Once your preferences are clear, the next step is ensuring the other person is also comfortable. This stretches from the physical environment to the way you address your counterparty.
Building rapport and being gracious are essential. This is the part where I remind myself that we all have more in common than we think. Most often, in business deals, everyone in the room is looking for a favorable outcome, and while the details may vary between the parties, the general direction is the same.
Most people, especially those with experience, will prefer to deal with professional and knowledgeable people. This is yet another reason why preparing before a negotiation is valuable. It demonstrates respect toward the other party. Nothing is more disheartening than negotiating an agreement the other side has not bothered to read. (Don’t be that guy or gal!)
Additionally, preparing to negotiate with someone requires that you know a little bit about them. Are they the main decision-maker? Do they have a significant influence on decisions? If they are not the decision-maker, will you have access to them at any point?
This is the second instance where it pays off to check assumptions. Not knowing whom you are negotiating with is the quickest way to lose credibility and leverage. Neither of which you want to give up, especially early on in a business relationship.
Moreover, some people aren’t built for negotiation, and that’s ok. Again, this is where knowing yourself is extremely important. There is nothing wrong with asking counsel or someone from your team to lead negotiations on your behalf.
Knowing that not everyone likes to or is proficient at negotiating is a massive advantage because whoever decides to negotiate while disliking or not being good at the process will always be incentivized to agree quickly (often needlessly).
Finally, the key is not to take any part of the process personally and to remain objective.
This is likely the most challenging part for most people (it is for me!), especially when the other side crosses the line into the personal realm. My best advice is to call on your empathy if this ever happens. Seeing the situation from the other person’s position can provide enough context not to feel angry (at least).
Practicing this specific skill is generally beneficial for business, which brings us to my last suggestion.
Imagining scenarios and how you would respond to them is a proven way to help you prepare for expectedly challenging situations. The ability to imagine the future is at the core of complex human behavior, and we do it to some extent every day. This mechanism prompts us to pack a hat and an umbrella before leaving the house, just in case. So, leaning on this skill that our brains are exceptionally good at to run scenarios can help us create frameworks we can follow later with the specific purpose of remaining objective.
The Tactics.
In the last few years, we have seen an increased public interest in social psychology. As a result, numerous mainstream books have been published, making human psychology easier to approach from a layperson’s perspective.
Since so much expert material is readily available and most negotiation tactics I use come from easily accessed research and writing, I won’t go into details. Mainly because I think everyone should lean on the tactics that best complement their aptitude and personality. What works for me may not work for everyone.
The books I recommend as a good entry point into learning more about negotiation and human behavior are Never Split the Difference by Chris Voss and Predictably Irrational by Dan Ariely. The first is full of negotiation tactics presented as applied to real-life scenarios. The second provides a fascinating window into human nature (along with a lot of referenced works.) I have read both books many times and often use them as reference. I have also gifted Never Split the Difference to colleagues and clients many times.
Finally, I’ll leave you with the two ideas I’ve seen impact human behavior the most. These apply to any business dealing and are especially relevant during contract negotiations.
The first is: people work harder to avoid losing $100 than they do to win $100.
This is why it is important to carefully structure how penalties (like liquidated damages) will be assessed on a project. For example, people feel more pain by having to issue a credit than motivation from the promise of a performance bonus. This is why liquidated damages tend to be effective when properly structured.
Aside from structuring the business terms thoughtfully, the key is ensuring the other party understands the details. The anticipation of the pain of having to return funds they believe are theirs is the operative disincentive in this case.
The second is: timing. This is my favorite tactic to lean on because it is so simple. People tend to mentally perform poorly right before and right after lunch. So being mindful when a negotiation is scheduled to take place can go a long way in helping you prepare. For example, if you know you’ll be cranky if you don’t get a snack before the meeting, you can schedule the hours leading up to the negotiation accordingly.
This phenomenon is also true for Friday afternoons when most people are fatigued from the week and mentally checked out.
You can use timing as an advantage in two ways.
First, to ensure you’re not caught negotiating at what would be the wrong time for you. This means you can ask to reschedule for a better time or prepare accordingly if the time cannot be changed.
The second is to deliberately use timing in your favor depending on the objective. This is especially useful for follow-up talks once you’re familiar with your counterparty. Typically, people tend to go less deep into a conversation and cut meetings short when they are dreaming of a sandwich or the weekend (do with that what you will!)
Some people have a natural knack for negotiation and can identify dozens of the variables I mentioned above without thinking thoroughly. Others need extensive preparation and practice. The reality is that everyone can benefit from a deliberate approach, and thinking about it more deeply ahead of time rather than during the negotiation can pay off. This methodical approach will likely lead to better negotiation outcomes by following a clear goal, making the process less emotional and, as a result, much more enjoyable.
Not sure where to start and think we can help?
Main topic ideas for future newsletters.
Between conversations with clients, industry professionals (and RE Twitter) these are some subjects we will be diving deeper into in future newsletters.
How to scope out a contract.
When to hire a design team.
What is a typical hospitality renovation schedule.
Have a specific subject you want to see us tackle? Drop us a note!
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