3 Simple Principles of Negotiating
It’s no secret that negotiating is hard.
Each party in a negotiation has their own agendas, pretences, goals, worries, anxieties, and fears. And when entering a negotiation it’s easy to forget that it is, in fact, a negotiation in which both parties have a desired outcome in mind.
Take, for example, the last time you negotiated for a promotion or raise. You likely prepared a list of valid reasons why you deserved your request. But when your manager came back with a number or title that wasn’t what you expected, how did you feel? Angry, frustrated, resentful?
As challenging as it is to accept, the company also has their own list of valid reasons why they couldn’t grant you the promotion or raise. They must take into consideration profit margins, the growth of other employees, opportunity costs, company culture, and much more.
Negotiations don’t have to end in a win-lose. Or worse, a negotiation in which everyone loses.
There’s often room for both parties to win and it doesn’t have to be by meeting in the middle. Negotiations aren’t always made up of compromises. Here are 3 simple principles for negotiation that I’ve learned over the last eight years across dozens of successes, failures, and best of all, signed deals.
1. Empathy is the only way through
They say the only way over is through. Well the only way through in negotiating is with empathy.
You will never successfully negotiate unless you truly understand where the other party is coming from on a deep, personal level. Just because someone tells you something is true doesn’t necessarily mean it is. Humans are nuanced creatures and we don’t always say what we mean. We act irrationally in times when we feel like our back is against the wall. And we certainly don’t want to be told what to do.
Empathy doesn’t necessarily mean that you have to agree with the other person’s ideas, it just means you have to understand where they’re coming from.
A brief story about insurance sales.
In the early days of my career in the glamorous world insurance sales, I was tasked with pitching an insurance policy valued at more than $1 million in annual revenue. The company I was tasked with pitching this policy to was just starting out and growing fast.
The first meeting started as most negotiations do, with the word “no.” But as most skilled negotiators know, “no” is just the beginning. Naturally, the company initially refused to pay more than $1 million annually for something that wasn’t even guaranteed they would use. They threatened to look elsewhere unless we could significantly bring the price down.
And you know what? They were right. There was no guarantee they would use the policy and $1 million annually was no small price tag. I was at a crossroads.
One option was to threaten the company back — explaining that the $1 million was non-negotiable and that they would likely find the same price elsewhere or get cheated on coverage (win-lose). Another option was to reduce to the policy coverages in an effort to lower the total cost (lose-lose). Or, I could dig deeper and find the true reason for their concern. After all, it’s not like they didn’t have the money and it was the best policy for their situation.
Negotiating is a sophisticated dance of discovery.
After a few failed attempts to sign the deal, I sat down with their CEO and asked, “I understand where you’re coming from and I know we’re asking a lot here. May I ask what your hesitations are around this number given the fact that it includes the level and quality of policy coverages that we originally discussed?”
Surprised by the question, the CEO responded, “well, it’s just that we aren’t sure if we’ll continue on this growth trajectory in the next year and committing to this policy right now seems like a huge risk for us.”
There it was. The CEO wasn’t concerned about the policy price, she was concerned about the future growth and sustainability of the company. Once I had that information I knew we would work towards a solution.
In the end, we signed with an annual policy price of $925,000 by putting levers in place that the company could pull should growth rates ever slow (win-win).
We likely would have lost the business had it not been for empathy.
2. Use your leverage responsibly
Leverage is simply an amplification of the underlying value of the business.
You will, without a doubt, find yourself in a place with most or all of the leverage during a negotiation. This is unquestionably a positive thing. But even seasoned negotiators inadvertently use leverage in a way that negatively impacts the broader relationship, which will live on long after the deal has been signed. In other words, they use leverage as an excuse to gain short term profits at the expense of even greater long-term gains.
Am I saying that you shouldn’t use your leverage to sign the best possible deal? No. What I’m saying is that you should make decisions that take into consideration the impact of what those decisions have on the future.
Let’s take, for example, SaaS platforms. Many platforms are built on the notion that each party mutually benefits in the sharing of information (typically via APIs). Information is shared, product gaps are filled, and both companies profit.
All is well until the point in which the profitability becomes lopsided, which inevitably happens at one point or another. The more the sway in one direction the more leverage that is accumulated. And almost simultaneously resentment begins to build.
In these situations it’s easy to use your leverage to negotiate a more profitable contract at the expense of the other. But taking this route is also lazy. It cuts out the work it takes to build a profitable, equitable relationship and goes right for short term (unsustainable) profits.
Instead, use your leverage wisely by negotiating with the future in mind.
And if you find yourself on the other side of the fence with little-to-no obvious leverage points, there’s a simple way to approach each negotiation.
Leverage revolves around one principle: It doesn’t matter what leverage they have on you, what matters is what leverage they think you have on them.
If the other party is talking to you at all, you have something they want. That means you have at least some sort of leverage that you can use as a wedge. Use this leverage carefully, respectfully, and most of all, patiently.
Patience is one of the most important tools at your disposal.
3. Actively Listen more than you talk
This principle applies to more than just negotiating, both in your personal and professional life. People want to be heard and they will go to great lengths to voice their opinion.
Listening is an important part of the discovery process during a negotiation — allowing you to pick up on subtle clues around what the other party is after. But it’s also a tactic in effective persuasion.
In his book Never Split the Difference, Chris Voss discusses the idea of getting your to come the decision (your decision) on their own:
“Negotiate in their world. Persuasion is not about how bright or smooth or forceful you are. It’s about the other party convincing themselves that the solution you want is their own idea. So don’t beat them with logic or brute force. Ask them questions that open paths to your goals. It’s not about you.”
You’d be surprised at how powerful letting someone do most of the talking in a negotiation is for signing the deal that you want. It seems counterintuitive, but it works.
Listening is a skill that takes time to develop, especially since our first natural tendency is to want to talk. But active listening doesn’t mean just sitting there waiting to state your point. Active listening consists of three behaviors:
Paraphrasing: A quick summary of what your counterpart said in an effort to clarify each of the key points that they made.
Inquiring: Asking your counterpart to expand on a key point in an effort to understand some aspect of their request on a deeper level.
Acknowledging: Specifically calling out your counterpart’s concerns, fears, and anxieties in order to ensure that they know you understand where they are coming from.
Few negotiators would argue the value of good listening skills. Don’t make that mistake.
Additional Tips for Negotiating
Trust Your Gut: Sometimes a deal just isn’t worth the time, effort, and costs. Trust your gut and don’t be afraid to walk away. There will be plenty of better deals in the future.
Push the Limits: Good negotiating requires pushing the limits with your counterpart. If you aren’t at risk of hurting the relationship or if you’re in a position of leverage, don’t be afraid to play a little chicken.
Over Promise, Over Deliver: I’m a believer in selling a big dream and delivering. Sometimes negotiating requires you to over promise on a portion of the contract. But I’ve found that over promising becomes a self fulfilling prophecy. It’s like holding your future self accountable.
P.S. If you enjoyed this article, you may also enjoy my other musings. I write about life stuff such as happiness, investing, traveling, decision making (and lots more) in my newsletter, Thinker.