Typically there are two or more sides, each side desires something from the other side and is willing to give something up for it. There may or may not be conflict. A final agreement could be reached in a couple minutes or it could takes years. In business, the process typically entails a final written agreement being produced and signed by the parties once a negotiation is complete.
We are all negotiators and we started negotiating when we were kids. Think back to all the times you learned to share and compromise with others. Often in business, there is a buyer and a seller communicating terms of a sale through email or phone. Companies differ in their approach and procedure for finalizing agreements and pricing with its customers and suppliers.
HAPPI is an easy way to remember the important elements of a successful negotiation. These elements are highlighted the most among the negotiation experts and best sellers. This is our way to explain these elements. We also tie these negotiation principals to typical real world business to business negotiations.
THE PEOPLE ASPECT OF NEGOTIATION
Let's discuss the two most important elements of
being human when it comes to negotiation:
Perspective & Conflict
Elizabeth Saurez said it well, "Negotiation is not about figuring out who is right or wrong. It is about getting the parties involved to agree to embrace the other party's perspective." Spend time figuring out the opposing party's perspective by observing personalities, being curious, and putting yourself in their shoes. Also, help the other side understand your perspective by clearly articulating it.
Seller: "I see a rabbit".
Buyer: "No, It's a duck."
Seller: "Look a little closer, see the ears on the left?"
Buyer: "Ooooh, now I see what you see, a rabbit."
Stay focused on the solution. Here are a few ways to manage conflict:
Realize that threats and verbal attacks are an act.
Don't take anything personally.
Engage in a reflective conversation (see next page).
Articulate your feelings but don't get emotional. It's ok to be upset and saying so, but yelling at the other side doesn't help.
Be hard on the problem but soft on the people (see opposite page).
Maintain a big picture perspective.
Here are some tips and phrases for being soft on the people:
Using "we" not "I". "I believe WE may have a misunderstanding from what WE discussed."
Frame your remark as an opinion, not fact. "I THINK we are not on the same page."
ASK! JUST ASK!
Say, "would you consider..."
"Let us never negotiate out of fear,
but let us never fear to negotiate."
- John F. Kennedy
It's ok to think big. Know what you need and ask for it. Express the benefits to both sides. These are the voices in our head that keep us from asking:
"There is no way they will agree"
"I don't want to come across as being pushy"
"Asking for this will screw up the relationship"
POWER aka LEVERAGE
"The worst thing you can possibly do in a deal
is to seem desperate to make it. That makes
the other guy smell blood and then you're dead."
Donald J. Trump
Power or leverage is the thing(s) that I have that the other party wants. These are the these that can be given or taken from each other in order to reach an agreement. In business many people believe that a deal is about money exchanged for a product or services. There are many other forms of leverage. The key is to thoroughly know and understand your own leverage. Do this by understanding who your competition is and how you are different. Also, understand what is important to the other side.
The buyer decides whether or not to purchase sellers' products or services.
2. Scarcity and Expertise
A rare commodity is worth a lot.
A buyer may have a well-known name and be able to enhance Seller's reputation through references or simply by being able to associate with a well-known buyer.
A buyer may be willing to include seller's name on its website or in press releases. This type of "free marketing" is very valuable for many seller's.
5. Diversity Status
A buyer might be seeking to increase its supplier diversity spend and enhance its social responsibility reputation.
A small seller might be able to offer fast and highly personalized service.
7. Unwritten Rules
A seller may have a great relationship with a very influential person inside the buyer's company.
"I HAVE SOMETHING THAT YOU WANT"
Being Prepared is a Huge Advantage
1. Understand your own interests and needs.
2. Make a list of each side's leverage.
3. Research the other side.
4. Practice expressing what is important to you.
5. Prepare to walk away. Agreement is not always possible.
INTUITION or INSTINCT or INNER VOICE
Spend some time observing and listening and pay attention how you are feeling. It is difficult to pinpoint a gut feeling or subconscious voice, nevertheless we all know that intuition is usually correct. Letting go of control and relaxing might help you hear your inner voice.
Lance Morrow said, "Never forget the power of silence, that massively disconcerting pause which goes on and on and may at last induce an opponent to babble and backtrack nervously." Don't feel like you need to keep talking or fill quiet moments. Quiet gives everyone a chance to think.
Let's try HAPPI
The next few pages illustrate
a real-world example in a
typical business to business
Scenario: Buyer is a large well-known company that manufactures and distributes bike helmets. Buyer is in need of translation services to translate their existing employee handbook from English to French for use at their Canadian offices. The Buyer's representative Barbara had remembered meeting a translation services company at a conference and decided to look up their contact information. It was easy to find because the Seller's representative Sam had emailed Barbara their capability statement after they had met. Barbara easily found Sam's information in her emails and requested a quote.
Seller is a small WBE certified translation services company who provided a quote to Buyer. Included with the quote was Seller's standard professional services agreement. Buyer reviewed the terms and sent a redlined copy back to Sam. There were a few changes that Sam was ok with and two changes that Sam definitely was not comfortable with.
One of the changes made to Seller's template by the Buyer was the payment terms clause. Seller's terms indicated that Buyer should pay after completion of the services and within 10 business days of receipt of invoice. Buyer deleted 10 and inserted 60 calendar days.
Seller's terms explicitly limited its liability to Buyer to the value of the services rendered, which was about $6000 for the translation services. It said in capital letters, "IN NO EVENT WILL SELLER'S LIABILITY TO BUYER EXCEED THE AMOUNTS PAID BY BUYER TO SELLER UNDER THIS AGREEMENT." The Buyer deleted this sentence in its entirety leaving Seller with unlimited liability.
As a large company what would Buyer's perspective be? Why would Buyer want longer payment terms? Is Buyer holding cash and collecting interest? Why would they not wish to limit Seller's liability? Are they just following a process? Will they make exceptions? What is the culture like at Buyer company?
As a small company, what would Seller's perspective be? Why would Seller want shorter payment terms? Is cash flow important? Is cash flow vital? Why would limited liability be important? How much are they risking? What if Seller can't deliver or makes a mistake?
Seller: I would like to understand what concerns you about having payment terms that are less than 60 days?.
Buyer: It is our standard, all of our supplier's must agree to 60 day payments terms.
Seller: So if I understand correctly, everyone must agree to 60 days and there are no exceptions?
Buyer: Well, yes, but we occasionally make exceptions for small companies that offer a niche service.
Seller: Great! So an exception might be possible?
Buyer: Yes, your company might fall in this category, I'll have to check with our purchasing director and get back to you.
Seller did a great job understanding what they needed and asking for it by including their own terms with the quote. Seller had spent the time up front to formulate the terms and think through what was best for Seller's business. Having gone through this exercise, even if Buyer had asked them to review Buyers terms, Seller would have had a good understanding about what Seller could and could not agree to.
Seller also did a great job thinking BIG by asking for 10 day payment terms up front, even though the negative voices were saying "there is no way a large company like this will accept 10 day payment terms so I shouldn't even ask." Seller just asked! Seller also knew it could live with a bit longer if the overall deal was profitable and in line with its strategic goals.
Buyer: "We like your service offering and the fact that you would be able to meet our deadline. Your price is coming in a bit high compared to other quotes we received; is there a way to bring it own a bit?"
Seller: "Sure, we provide excellent quality service and know you will be satisfied. Once we complete the project, would you be willing to provide a written testimonial for our website? I'd be happy to work in a 5% discount."
• Payment and profit. Seller needs to earn a profit and receive cash for its continuous operation.
• Repeat business. Even though this is a small project, Seller would like repeat business from Buyer.
• Association with Buyer. Buyer is a well-know company. If Seller does business with Buyer, Seller will be able to build its reputation and credibility.
• Accurate and Reliable Service. Buyer wants its employee handbook to be translated accurately and in good quality.
• Quick Turnaround. The handbook must be completed on time in order to be published by a compliance deadline.
• Competitive Price. Buyer wants to pay a fair price for the service. Buyer asked 2 other translation companies to provide a quote so they could compare prices.
The Prepared Party Has an Advantage
A good way to prepare to negotiate this clause is for Seller to take a minute to reflect on how HAPPI can be applied. Here is the thought process and actions this Seller took to prepare. Let's start with Human, Perspective and Conflict.
Perspective. Seller noticed that Buyer was very interested in quickly getting through their process and purchase the needed services to meet their deadline. It appeared that the Buyer was not necessarily a decision maker, but was working on closing the contract in line with instructions provided to her. Her perspective was very focused on a process. Seller's perspective on the other hand was that this was an opportunity to close a business deal with a new client and the possibility of repeat business. Process was of little importance to Seller.
Seller also realized that the conflict about this clause was really a conflict about Buyer's process compliance vs. Seller's need.
Now that we have examine the Human aspects, perspective and conflict, let's look at the remaining elements:
Ask, Power, Prepare & Intuition
Seller thought about what he needed and some ways he could ask Buyer to provide a limit on liability. Seller didn't necessarily need to limit its liability to the price paid, perhaps it could be limited to 2x the price paid. Or perhaps limited to its insurance coverage. Seller decided to ask for the former first and if that wasn't acceptable would offer the later. He would also ask Seller if they had another idea.
Seller decided to prepare to go back to Seller and ask that the Limitation of Liability clause be reinserted, but instead limit it to 2x the price paid instead of just the price paid. This way Buyer would not be on the hook for 100% of any liability which, based on a risk analysis, would probably never exceed 2x the price anyway. Seller would still be taking responsibility for it's liability. Seller would also be saving money on its own insurance premiums by insisting on limiting its liability in its contracts which in turn provides a benefit to the buyer by bringing the cost down.
Seller has listed the things that each party possesses that the other party wants. It is important to keep these things in mind when going back and forth on the negotiation. These things could apply to the limitation of liability conflict as follows:
Seller decided to emphasize the fact that they could definately meet the Buyer's turnaround time requirements. Seller also knew that because they were a small company, it would be difficult to compete with its ability to offer a quick turnaround. In addition, Buyer has diversity spend goals, so the fact that Seller is a WBE is a plus.
Given the fact that Seller had many things that Buyer wanted, Seller decided he would concede a bit on the limitation of liability but not agree to unlimited liability, even if that meant losing the deal.
Due to the importance of the limit to liability for Seller, Seller put some thought into how to go about starting the negotiation. Should he re-insert the clause and send the contract back or should be have an open discussion with the Buyer? His instincts told him an open discussion would be better. He wanted to try to get Buyer out of the "process" mode a bit and to consider his viewpoint and needs.
In the past, Buyer refused all phone conversations, so Seller decided to start the discussion in an email: "I have reviewed the changes and only have one remaining area of concern. Is there any way we can work to agree on capping my damages? My desire would be to cap it at amounts paid x 2. Let me know how we might be able to address this or if you have another approach. Also, thank you for 30 day payment terms, that is great and helps our business run smoothly."
"Thanks for getting this back to me so quickly. We would prefer the 2X
cap option if you are comfortable with that approach. If so, please send
back a clean version for us to sign including that change and I will get
this signed and sent back to you."
HAPPI will help you remember the keys to a successful negotiation. Never assume that the other party knows what you know or sees things the same way you do. Never be afraid to ask for something; if you don't ask you will never know what the answer would have been. Know your power and use it. Make sure to always prepare, the prepared party has an advantage. Finally, trust your intuition or instincts. Many successful negotiators will say that acting on their gut feeling was the reason their approach resulted in a great win-win agreement. And don't forget the power of silence.
• Getting to Yes, by Roger Fisher & William Ury.
• The Art of the Deal, by Donald Trump
• The Art of Negotiation, by Peter Oliver
• Ask for It, How Women Can Use the Power of Negotiation,
by Linda Babcock & Sara Laschever
• The Art of Getting Everything, by Elizabeth Suarez
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