It is unavoidable that you will have to make deals and negotiations in business. Beyond just selling to consumers, you have to deal with contractors, partners and important clients who could be your gateway to your company’s next milestone of growth. Beyond that, if you’re not negotiating firmly and smartly on your deals, your business cannot possibly thrive.
Negotiation is necessary because no matter how great you are at what you do, people will try to pay the least they possibly can for your goods and services. They have their own bottom line to look out for, and this isn’t a bad thing. The problem comes when you are faced with a deal that you know is not what you deserve.
Sometimes you get into a pinch and need cash very badly. Even if you’ve been responsible for your business, a family member could have a health expense that you need to pay for. It could be that you need to make a deal for something very time sensitive…and be scarily close to the deadline. Either way, you need a strategy for how to handle a negotiation where you are not the favored one in the deal.
Step 1: Know your playing field
In negotiation, one of the biggest principles to understand is leverage. This is the simple concept of knowing how much you need them vs. how much they need you. Leverage can seal you an amazing deal or make you the biggest sucker in your industry. Because of this importance, it is critical to know how much leverage you have and how it compares to the other party. You do yourself no favors by pumping yourself with false confidence.
Let’s pretend you own a gym and are ready to get out of the business. You want to take a year-long cruise with your wife and know you can’t possibly do this until the gym is sold. Unfortunately, you have a couple months to ink a deal or you have to cancel the cruise and get put on a three year waiting list.
A buyer comes up to offer you $100,000 for the gym, which you know is ridiculously low. You know that if you had more time, you could get a much better offer. However, he’s the only buyer to come to you in a while and you really want to get this done.
First, you have to admit to yourself (not the buyer) that you are in the weaker position. You don’t get in trouble from acknowledging the truth. You get in trouble from keeping your eyes away from the truth. Once you have calmly accepted the situation, you can go about changing it.
Step 2: Find alternatives
The biggest power in negotiation is being able to walk away in a heartbeat. If you can’t do that, you’re at the mercy of the other party. However, most people dramatically overestimate the difficulty of gaining the edge in leverage. How do you get the ability to walk away? Find better alternatives.
No matter what you’re selling, chances are you haven’t exhausted your efforts. You may have put an ad out for your gym in the paper. Try a radio ad as well. Talk to more friends. Call a nearby body-building magazine and see if they have any advice. If you even take a single day and devote it entirely to finding better alternatives, you will have interested buyers to talk to very quickly. Once you have even a single buyer offering more than the other guy’s $100,000, you are in a perfect position to make a counter offer. It’s almost as if the other guy could disappear and it wouldn’t affect your life. The initial buyer will know something’s changed the next time he talks to you, even if you say absolutely nothing about what you’ve been doing.
Step 3: Increase value
This is very straightforward, but often overlooked. While your initial buyer may have offered an amount of $100,000 for your gym, he may value it as worth $300,000. How much do you think he’d reconsider his offer if the gym suddenly was worth, in his mind, over $600,000?
If you can raise the perceived or true value of your asset, then you can charge a lot more for it, even if you’ve already began negotiations at a lower amount. There are many ways you can raise the value of what you’re selling. For your gym, you could hire a new Brazilian Jiu-Jitsu trainer who was just on the cover of Black Belt Magazine, or simply just well known in his industry. Maybe you can get an endorsement from the health section of your local paper. If you have enough time, you can encourage your patrons to use Yelp.com and give your gym a five star rating.
As your gym rises in value, a number of things will happen in the buyer’s head. For one thing, he will want the gym more, simply because it’s more of a prize. He’ll also realize that other buyers might want to pay more than his initial bid.
You may have noticed that as you gather more alternatives and increase your asset’s value, there is a spiral effect. More people are interested in the deal, which raises the value even more because of scarcity.
Even better, you become more confident and relaxed in your dealings, which signals to the other parties that you are in complete control of the situation. From that, they get a little more nervous and you get even more confident. This is why it’s so important to gain momentum in a negotiation.
Now that you know how to turn negotiations around, you’ll be in a much better position to start on the right foot in the first place. Always keep the concept of leverage in mind.