Don’t just rip the other person off. Learn to negotiate and build a partnership.
Negotiating isn’t about getting a great deal; it’s about building a partnership. Rip off your counterpart and you might get a one-time windfall. But by searching for middle ground, healthy profits could roll in on both sides for the foreseeable future.
That’s the advice from John McAdam, head of the consultancy Pioneer Business Ventures and author of The One-Hour Business Plan Foundation. “Many times people go into negotiations thinking it’s a zero-sum game, and the only way they can be proud of themselves is if they take all,” says McAdam, who teaches business strategy at The Wharton School of the University of Pennsylvania. “That is kind of childish, and it is our grandfathers’ way of doing business.… For me, the best deals are those in which my partner wins, their clients win, then I win—in that order,” McAdam says. “Then you are building something bigger that will have results beyond the deal at hand.”
Before you approach the other party for a better price or sweeter terms, take two steps.
Step 1: Figure out what makes the other party tick. Do your homework. “You’ll get a flavor of the company and the person, and see what their priorities and passions are,” McAdam says. Walk into the meeting with a list of three things you want in the deal, and three items you believe the other party would like.
Step 2: Determine your bottom line. “Know what your alternative is if you have to walk away from the negotiation,” says Kevin Corley, associate professor of the W.P. Carey School of Business at Arizona State University, who teaches a course on negotiations. “It is a very powerful position.”
But be careful to avoid having a hair trigger on the nuclear option. “Walking away not only terminates the deal, but the relationship,” McAdam says. “Small-business owners usually can’t afford that.”
Other strategies, with scripts for how to tackle them:
1. Just ask for what you want. Don’t make it emotional.
Say this: “Instead of 30-day terms, I need 90 days. How can we make this happen?”
2. Immediately offer something in return.
Say this: “I promise to pay you on that 89th day and will agree to sign a three-year deal instead of our usual two-year contract.”
3. Be open-minded and creative. “With small businesses, there are a lot of considerations aside from the price of goods,” Corley says.
Say this: “I can agree to keep the monthly retainer the same if you agree to bump up the hours of service.”
4. Don’t lay all your cards on the table. “If you appear overprepared, you’ll look like a warrior,” McAdam says.
Say this: “Help me understand why what I am asking for is not possible. I’d like to continue our relationship, if possible.”
5. It takes two to tango.
Say this: “This deal has to work for both of us or we can’t do it.”
Adds McAdam: “If the other guy senses he’s being perceived as beating up on you, he’ll feel like a jerk and chill out.”
Kevin Harney
Principal and CFO
Company: Stalco Construction, a general contractor and construction manager in Islandia, N.Y.
Tactic: Cultivate loyalty in vendors and employees by negotiating better terms to thrive through the recession.
Result: Tripled revenue and grew staff by a third.
In 2008 we saw the writing on the wall but wanted to keep the company intact through what looked to be a tough economy. We set a crazy goal: not to make money, but to be in a strong position to grow after the recovery. We laid out this plan to our 32 employees and asked for their commitment to brainstorming ways to be competitive and efficient. In return, we promised they would keep their jobs and all their benefits.
It was about creating an atmosphere of commitment and family, and addressing employees’ fears, as they saw our competition getting rid of their more expensive talent. That same principle was applied to our vendors. In order to execute our plan, we needed to grow our marketing budget from $20,000 to $250,000 by 2009. To find that money, we renegotiated all our nonessential services. We said, “We don’t want to lose your service. What are you willing to do so you can keep your bills paid, just like I need to pay my bills?”
We negotiated discounts on bottled water, coffee and information technology—getting 30 hours of support for the same price as the 20 we had been receiving. Each day we buy our entire staff lunch and eat together, previously paying $10 to $12 per meal, typically. We asked local restaurants to offer menus for $5 per meal, and our employees voted on what they wanted. Some restaurants came back with better $5 menus when they missed our business. After a while we raised it to $6 per meal, because it’s important to be fair.
Some services we could not negotiate, so we stuck to our word and cut those: We could not find a paper vendor providing a price that worked, so we invested $45,000 in a paperless system and saved $90,000 the first year.
We make sure our vendors and employees understand our business works on small margins, and winning a bid can come down to a quarter of a percent. If everyone understands, it makes small changes easier. Loyalty goes both ways. In tough times we’ve asked our coffee vendor to give us a break, but I will never again look elsewhere when times are good.
We have hired 12 people since 2008 while tripling our revenue. It was a grind, but we did it. We never missed a 401(k) payment, and we still feed our staff every day.