Thursday, July 06, 2006

The ONE key thing to know about negotiation

Most people hate to negotiate.  They don't like the confrontational aspect.  They worry that they are not getting a good deal.  They feel stress and fear.  Some people will do almost anything to avoid it.  Saturn built an entire car company around this sentiment.

But good negotiation skills are valuable for anyone, and essential for an entrepreneur.

There are all kinds of books on the topic of negotiation.  But when I go to my local bookstore and see those books on the shelf, I can't help but think that the topic is getting blown out of proportion.  In my experience, negotiation just isn't that complicated.

I've done lots of negotiation.  I've argued with car salesmen.  I've done consulting deals at four, five and six figures.  I've closed a million-dollar technology sale.  I've haggled with gypsies over the price of a table cloth in rural Spain.  Through it all, there is one principle that matters more than anything else.  Here it is:

In negotiation, the one thing that really strengthens your position is the ability to walk away from the deal.

That's it.

Sounds simple, right?  It should be, but people still get themselves into all kinds of trouble.  Most people think the key to negotiation is figuring out how to manipulate the other person's perspective.  I'll admit that those tactics can be somewhat effective, but the genuine ability to walk away from a deal is far more powerful. 

Negotiating from a position of real need is a bad, bad situation.  You are almost certainly going to lose.  The other party will push until they find your threshold of pain.  Examples here include:

• Bartering about salary when you are unemployed.
• Raising venture capital when your company is almost out of cash.
• Buying a car when you really have to buy one.

I realize that things happen which are beyond our control.  Some of these situations are unfortunate and unavoidable.  But in any negotiation, your best investment is to figure out a way to get by if the deal falls through. 

Practice this principle the next time you buy a car:

1. Start shopping for a car before you really need to. 
2. Before starting the negotiation for any specific vehicle, clearly understand your fallback plan.  What will you do if you don't get this car?  Buy something else?  Take the bus?  Ride your bike?
3. Don't let yourself get emotionally attached to the car until it's yours.
4. Figure out in advance what you want to pay.  If you can't get the deal you want, walk out.  You can always come back later if you want.

My current vehicle is a Chevy Avalanche.  When I was shopping for it, I went to my local Chevy dealer, picked out a truck, figured out what I wanted to pay, and made an offer.

The sales guy smiled at me and said, "That's absurd."

I calmly replied, "I am quite certain you will make a profit if you sell me this truck at the price I have offered.  It won't be your most profitable deal this month, but you'll make money, and you'll get a vehicle off your lot.  But either way, I am going to buy a Chevy Avalanche.  Somebody is going to accept this offer.  The only question is whether it's going to be you or somebody else."

In the end, the sales guy started playing games and I walked out.  Two days later I made the same offer to his competitor in a nearby town and drove home in my new truck.

Whether you're buying or selling, whether it's a car or a table cloth or a company, the principle always works the same way.  The way to get burned is to spend all your time daydreaming about how wonderful things will be after the deal is done.  The way to win is to carefully figure out how tolerable things will be after the deal falls through.  In almost every case, the winner of a negotiation is the party who is best prepared for the possibility of the deal not happening at all.