How To Lead A Negotiation (Part 2.)
We published the first part of this essay in our previous post. Here now is the concluding part-
… 3. Map Out the Negotiation Space
Some years ago, a client of mine was preparing to sell his stake in a company that was jointly owned by four entities. The owners had been squabbling for many years; it was clear that the asset would need to be consolidated under one party (or perhaps two who could get along). It was also clear that no one wanted to sell. However, there was little choice in the matter, because one of the owners—Company X—was a much larger company with the power and the clout to push people out. It announced that it would buy out the other three.
My client wanted to wait until Company X had bought out the other two owners before negotiating the sale of his shares. He figured that by being “the last piece of the puzzle,” he would be able to hold out for more money.
When we met to discuss his strategy, I asked him to step back and “map out the negotiation space.” This consists of every party that can affect the negotiation, along with any party that will be affected by the negotiation. In my experience, a strategy that makes perfect sense when you’re thinking bilaterally—that is, about the relationship between any two parties in the negotiation—can suddenly become ineffective or even disastrous when you take a multilateral perspective. I encouraged my client to evaluate the interests, constraints, alternatives, and perspective of all the relevant parties. One of the things we looked at was how much equity each party had and how much of the board each one controlled: We then focused on the interests of each company: What exactly are their interests in this deal? How would you rank their priorities? The four parties had known one another a long time, and my client did not have any trouble identifying what mattered most to each. Company X, for example, was concerned about three 
things, and its priorities were as follows: (1) Reputation: It did not want ties with any organization that could hurt its reputation. (2) Control: It wanted ownership only in businesses where it had a majority of board seats, and (3) Money: It would want to pay as little as possible, but this was not as big a concern as reputation and control.
After delving into the perspectives of all parties, we unearthed one more important bit of information: Company A was the least interested in selling and was already putting up a fight that could drag things out.
When we put all these details together, it became clear that the “last piece of the puzzle” strategy would be unwise. Why?
For Company X, control was a higher priority than money. To get control, it needed to buy either my client or Company A—as soon as it made either purchase, it would control more than 50% of the board seats and hence the company (for most decisions). Therefore, if my client were the last to sell, he would be negotiating with Company X after it had control. At that time, my client would be able to get paid only for his 1/6 share of the firm’s equity. But if he were to sell first, at a time when Company A was refusing to sell and was making things difficult for Company X, he could monetize two assets: his shares and his board seat. In other words, the last party to negotiate would have the least leverage and limited opportunities to monetize its assets.
In the real world, you’ll never have as complete a picture as you’d like, but you put yourself at further disadvantage if you focus too narrowly on the party on the other side of the table. You have to assess the perspective of all the parties that can influence or are influenced by the deal: Who has the ability to influence the person on the other side of the table? How might the strategy or actions of other parties change your alternatives, for better or worse? How does the deal affect the interests of those who are not at the table? How will this negotiation affect your leverage with future negotiation partners? If multiple parties are involved in the deal, does it make sense to negotiate with them simultaneously or in sequence, together or separately?
Your analysis might suggest a change of strategy—that you should negotiate with a different party first, delay the deal or speed it up, bring others into the room, expand or contract the scope of the deal, and so on.
4. Control the Frame
The outcome of a negotiation depends a great deal on each side’s leverage—the better your outside options are and the more ways you have to reward or coerce the other side, the more likely you are to achieve your objectives. But the psychology of the deal can be just as important.
In my experience, the frame, or psychological lens, through which the parties view the negotiation has a significant effect on where they end up. Are the parties treating the interaction as a problem-solving exercise or as a battle to be won? Are they looking at it as a meeting of equals, or do they perceive a difference in status? Are they focused on the long term or the short term? Are concessions expected, or are they seen as signs of weakness?
Effective negotiators will seek to control or adjust the frame early in the process—ideally, before the substance of the deal is even discussed. Here are three elements of framing that negotiators would be wise to consider.
Value versus price.
I’ve worked with many technology companies whose innovative products provide tremendous value for customers but are priced significantly higher than what their competitors are charging—or what customers are paying for their legacy systems. While the high price is justified by the value proposition, salespeople often face immediate resistance when a potential customer learns that the cost will be five or 10 times the amount he is currently paying. Too often, the salesperson will hear something like: “You are charging five times what others charge. No one pays that much for this kind of thing!”
One of the most common mistakes salespeople make in those situations—without even realizing it—is to apologize for having a high price. They do this when they say “I understand it’s pricey, but…” or when they hastily signal a willingness to adjust the price. My advice: Always justify your offer, but never apologize for it. When you apologize, you signal that even you don’t think the price is appropriate, and you give the other side license to haggle. The entire frame of the negotiation becomes about price, when what you really want to discuss is value.
A better response would be, “What you seem to be asking is, How is it that despite a higher price, we still have a long and growing list of customers? We both know that no one will pay more for something than it’s worth, so let’s discuss the value we bring so that you can decide what’s best for you.”
In negotiations of all kinds, the sooner you can shift the discussion away from the cost to your counterpart and focus on the value you bring to the table, the more likely it is that you will be able to monetize that value.
Your alternatives versus theirs.
Research and experience suggest that people who walk into a negotiation consumed by the question “what will happen to me if there is no deal?” get worse outcomes than those who focus on what would happen to the other side if there’s no deal. When you are overly concerned with your own alternatives, and especially when your outside options are weak, you think in terms of “what will it take (at a minimum) to get them to say yes?” When you make the negotiation about what happens to them if there is no deal, you shift the frame to the unique value you offer, and it becomes easier to justify why you deserve a good deal.
Equality versus dominance.
Not so long ago I was consulting on a strategic deal in which our side was a small, early-stage company and the other was a large multinational. One of the most important things we did throughout the process—and especially at the outset—was make sure the difference in company size did not frame the negotiation. I told our team, “These folks negotiate with two kinds of companies—those they consider their equals and those they think should feel lucky just to be at the table with them. And they treat the two kinds very differently, regardless of what they bring to the table.” Over the years, I’ve seen many large organizations impose demands on their perceived inferiors that they’d never require from those they considered equals. In this negotiation, I wanted to make sure our counterpart treated us like
Sun Tzua Art of war
equals.
To keep the dominance frame from taking hold, we started shaping expectations and perceptions at the very beginning, before we even considered the economics of the deal. For example, any time our counterpart made a procedural demand—however small—that we felt they would not have made of an equal, we respectfully pushed back on it. Any time they included a provision in the term sheet that seemed one-sided, even if it would not have been a costly concession, we redrafted it to be symmetrical. And throughout the negotiation, we made sure they understood that although our firm was much smaller, we were equals in this negotiation because of the tremendous value we offered. While I am not an advocate of nitpicking on minor issues, in this case we did so intentionally to help set the right frame.
Negotiators can shape the frame in countless other ways and on many other dimensions. At the very least, you want to ensure that the psychological lens that takes hold respects the value you bring to the table.
Sun Tzua
In The Art Of War, posits that every war is won or lost before it even begins. There is truth to this sentiment in most strategic interactions. While it would be unwise for negotiators to minimize the importance of carefully managing the substance of a deal, they should make every effort to avoid the mistakes that can occur before anyone has even formulated an offer. By paying attention to the four factors discussed here, you increase your chances of creating more-productive interactions and achieving more-profitable outcomes.
Concluded
Culled from Harvard Business Review
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