New world negotiation: 5 steps to becoming a winning dealmaker
International negotiator Clive Rich, who has brokered deals for Apple, Sony and Simon Cowell, reveals five deal-clinchers
Negotiation has changed. We live in a new “Deal Economy” where negotiation has never been more important. Social and economic factors have combined to create an inter-dependent world where it’s essential to be able to negotiate partnerships. Just consider the following:
The world is converging, with technology enabling everybody to potentially move into other people’s space. As a result we need alliances to help us defend our own patch and diversify into other related sectors.
Powerful shifts in the global economy are taking place. Think of the shift in influence from the developed nations to the emerging nations, or the tilt from West to East. A hundred years ago we might have responded to these kinds of power shifts with military aggression. Now we know that will no longer work. So we have to negotiate smarter – working collaboratively with deal partners in emerging nations.
The world is more competitive now. There are more people, companies and firms out there who will simply steal your business if you don’t look after your commercial relationships.
There is a recession – deep and prolonged – with downward pressure on demand, pricing and jobs. This makes us all vulnerable. Together we are stronger…
Technology has made the world go faster. So we need to be able to execute strategies with our deal partners at pace.
Technology has made the world smaller. As the banking crisis indicates, what happens in one country can have a huge impact overseas. This is an opportunity for businesses. To make the most of that opportunity we have to recruit, motivate and retain local deal partners.
These factors affect everybody – large companies, governments, smaller businesses, and individuals alike. For small and mid-sized businesses it is more important than ever to be able to construct deals with a variety of partners – marketing and distribution deals, software agreements, licence deals, deals with employees, contractors and non-execs, and of course, deals for funding. A number of the above factors have combined to make investment particularly hard to find at the moment. How should entrepreneurial businesses negotiate smarter to make the most of their investment opportunities? Here are just five tips.
- Prepare, prepare, prepare. This is one of the most consistently overlooked aspects of negotiation. People are in too much of a rush. How much do you know about your proposed investors? If there is a team, how do they work together? Who holds the negotiation authority? What’s your bottom line? What’s your ideal outcome? What concessions can you offer to get more of what you want? This kind of preparation needs to be done at the outset, not in the middle of your investor roadshow.
- Make the most of your bargaining power. It’s very easy to fantasise about the bargaining power of investors, because they hold the purse strings. However, there are nine different sources of bargaining power, and they are rarely arranged 9-0 in favour of anyone. You may have some niche bargaining power from being in a hot sector. You may have some expertise or information that the investors don’t have – these are sources of bargaining power. You may have authority power derived from the reputation of your management or non execs. You always have your personal power including your skills and expertise.
- Learn how to make a bid. If you want something, don’t negotiate with yourself before you start. Ask for what you want – the investor is bound to do the same. And be bold about the way you ask – “I want”, “I need” and “I require” are all much better than “would it be all right if…” or “could we possibly have….”. If it looks like you value yourself, then that encourages other people to value you too. Finally, don’t say too much when you are bidding. Entrepreneurs are often so passionate about their products and services that they can’t stop talking. When they make a bid they support their offer with dozens of reasons. However, generally, as a negotiator, the more you say, the more you give away. You only need one good reason to support a bid. After that, shut up, sit back, and start listening.
- Focus on the other side to get more of what you want. This often sounds counter-intuitive, but it is undoubtedly true. All negotiations are driven by the underlying emotional needs of the participants, whether those needs are for reassurance, achievement, belonging, respect or some other driver. All participants have these needs – even investors – yet they are rarely acknowledged. Instead negotiations focus on the typical surface issues such as valuation and use of funds. If you can work out what the other side really needs you can find ways to meet those needs and get back more of what you need in return. It’s these emotional payments that make the difference in most negotiations. What does your investor need from the negotiation? Find out by asking questions, listening and watching carefully.
- Match your behaviour to the other person. Do you approach every negotiation the same way? Very likely. Are the people you are dealing with all the same? No. There are seven billion of them on the planet and they all have different quirks, interests and passions. Investors are as diverse a group as any other. Work out the patterns of behaviour on the other side. Are you dealing with a big picture person or a detail merchant? An optimist or a pessimist? Someone who likes to make a decision or someone who avoids one? If you can match your behaviour to the way they interpret the world then your behaviour is far more likely to be impactful on them.
So the modern art of the deal requires that we all up our game as negotiators, and, if you are looking for funding, negotiating smarter might just enable you to close that deal.