Part of the Six K&R Principles of Negotiations – Get M.O.R.E., Preparation is Key to a Winning Negotiation

Effective Persuasion – The “stint work” story

Recently, the Mayor of Kingston NY and the President of the Civil Service Employees Association (CSEA) for the area got to air their beliefs about a work rule in a public forum – the Kingston Daily Freeman.  Their views were most likely collected independently, but were aired in the single major local paper.  Let’s see how well they used persuasion skills on the constituency.

The work rule under discussion was one referred to as “stint work”.  Under this rule, the city-employed garbage collectors have the option of working until their route is complete, and then calling it a day.  If, for example, they hustle through the job in 4 hours, they can leave.  But they still get paid for 8 hours.  To us, some of this can be described as workers’ discretion – for example they skip breaks, work faster, and leave early.  The work gets done. It is like piece work, with a cap on the number of pieces.  Some rural postal route workers have similar contracts – you get paid by the route, no matter how long or short your day might be. An alternative view would be that if they are paid for 8 hours, they should work for 8 hours. In many cases where such rules exist they are a result of some prior negotiation history.  In this case, we have no idea what that history is, or even if there is one.

Let’s see how the players expressed themselves.

The Mayor ended the rule this week, saying, “Those days are over. It just doesn’t make sense.” He expects that trash collection will continue to take the 4-6 hours it takes today, and the garbage collectors’ remaining hours will be spent on other tasks useful to the city.

The CSEA President’s take included this, “I understand that, in theory, (the mayor’s plan) sounds pretty good, but for years (workers) threw safety to the winds to get home early and get trash off the streets.” He reportedly spoke about how crews opted to toss empty garbage cans, skip breaks and ignore safety matters to get the job done quickly and go home. Trash might linger longer under the revised rules.

Who wins the war of persuasion? As negotiators, we deal in persuasion every day.

To answer this question, we go back to motivations.  If the parties are arguing in the public forum, presumably to persuade the public, how will it come out?  Well, in most localities, the public wants trash collected in a timely manner, wants value for their tax dollar, wants low taxes, and wants their trash cans set down neatly, not thrown in the middle of their lawns.

The Mayor’s argument addresses the needs of the constituency, in the main.  The CSEA President?  He offers the alternative of thrown cans, unsafe work (which has the implication of expensive medical risk), workers insufficiently rested, and the potential of last trash pickup after 6-8 hours instead of 4-6.

The Mayor wins. He may be right or wrong about the policy. There could be plenty of other history that we are not aware of. But when you go to the public, go to them with what they care about.  On that scale, the CSEA President is missing the boat.

To be a better negotiator, understand the motivations of the people you want to persuade, and create your arguments with them in mind.  (td)

Cash for Clunkers: Some Simple Lessons in Timing and Value

If you live in Spain, Germany, France, Italy or the United States, or are following the automotive or economic news, you are probably aware of the government programs commonly referred to as “Cash for Clunkers”.  If you aren’t aware, here’s a simple view of how they work. Individuals that own older (but not too old) autos which get relatively poor fuel economy are encouraged to trade their car in for a new, more fuel efficient one.  The encouragement is in the form of a (presumably) inflated trade-in value paid directly by the government to the seller.  Buyers immediately get the benefit of the difference between the actual trade-in value of the auto and the government payment.  Over time, buyers and the environment both benefit from the improved economy of operation and reduced emissions of the new auto.  At least that’s the theory.  Public policy is outside our scope in “Negotiation and the News”, but these programs provide some simple lessons in negotiation timing and value.  Let’s use the program in the United States as an example, since it recently ended. I’m calling it “CFC” for short.

In the US, CFC went “live” on July 27th and, to qualify for the “encouraging” payment, the final paperwork was to have been completed by 8PM on August 24th.  Let’s look at some exercises in value and timing.  For simplicity, assume that any ownership transfer costs are always $0, and that we ignore any time value of money.

Lesson one: If we assume that the paperwork took an hour, and that backdating did not happen (bad assumption?), when did the last sale take place under this program?

  • Easy, right? 7PM, August 24th. Everybody gets this one. We can all see that the incentive disappears at that time, so sales under the program stop.

Lesson two: What happened to the value of a qualifying “clunker” auto on July 27th?

  • It became the greater of the actual trade-in value or the government payment.  Everybody gets it again. If the clunker’s trade-in value was $1000, but the incentive value was $4500, that $4500 can be “spent” on a new car in the same way the trade-in value could have been.  If the clunker’s trade-in value was already $6000, that value remained unchanged.

Lesson three: On what date did the clunker actually become worth the value of the government payment (assuming that the government payment was higher than the actual trade-in value)?

  • This one is a little harder, and a little less clear. Certainly the value changed on the day the program was approved, in anticipation of the actual start date.  The value probably moved upward as passage of the bill became more certain, and reached the incentive payment point at the moment passage happened.  If the bill had moved toward passage, and then away, the value would have slightly fluctuated in response to the uncertainty of the possible “reward”.

Lesson four: If a clunker-owner was interested in a new car, and was induced by the CFC program to walk into a car dealership at 5PM on August 24th, who was under more pressure to close the deal by 7PM?  The salesperson or the owner?

  • Tough one.  If you said the clunker-owner, we understand why.  The value of the car drops in 2 hours.  And of course, like all negotiation cases, it depends.  It depends on the salesperson’s quota, available new cars, and a bunch of other things.  But my vote is for the pressure to be on the salesperson.  Here’s the logic: the buyer lived with a clunker for a long time without acting.  They also waited until the last minute to look at closing the deal.  A buyer like this can make the transition back to the position they have been in for a long time fairly easily.  The seller recognizes that this is a one-time, short-term opportunity, and stability (which means the buyer is not buying) will set in again in a hurry.  The seller is under more pressure.  Now, whether the parties act like they recognize who is under greater pressure is a different question…

Here are the negotiation conclusions to take into your everyday negotiations:

  1. Value changes over time (or should):  If what you are selling or buying has value, that value is most likely not constant.  You should consider how the passage of time influences value.  Remember that in the CFC example we are dealing with a tangible commodity, and the value is more or less expressed by price.  In complex technology sales, value is often determined by business usage, and the price should be related to, but not equated to value.
  2. Decision-making is linked to time:  Remember the Y2K panic over potential computer program failures?  Relatively speaking, how many Y2K solutions were put in place in 2000 as opposed to the years approaching the end of 1999?  You should consider how time influences the decision-making process.  Regulatory dates, time to deploy (or fill out a form) and other factors will sometimes determine IF an agreement will happen.
  3. Things expire:  Sometimes the decision process can drag on forever.  And sometimes if you miss the expiration date, the opportunity is gone.
  4. Leverage Shifts: Where does the pressure and negotiating power exist – with which party?  It is variable, and influences each side to a different degree.  Think about who is under what pressure as you proceed, and how it might shift over time.

K&R is expert in the issues of why and when transactions close.  We call it “Negotiation Forensics”. Ask us about it.

A Buyer’s look at 2009 Opportunities

There are no original-but-excessive descriptions left for the present condition of the world markets and growth projections.  Insert one that resonates with you here…

We agree with it completely.

K&R had an interesting discussion about what the 2009 recession means with a significant buyer of technology hardware, software and services.  The company provides services to their own clients, and in the course of providing those services they deal with over 1000 vendors and spend over $100 million with those vendors each and every year. We wondered what the implications of the year would be to their vendor management.

Many sellers will see extreme versions of historic buyer behavior in the coming year.  Many Buyers will choose based on price, and look for the absolute lowest pricing.  They will play one vendor against another for the short-term benefit they can get that results from Sellers’ fears.  Many will look to set multi-year agreements which “lock-in” favorable terms which can only be obtained in a highly competitive and “nervous” market.

But, not everyone will take this approach.  The Buyer we spoke with has a different vision.  These are his words.

“Our approach to vendors is different than many things — often predatory — that I see going on in the market. Our emphasis includes squaring away financials that don’t make sense based on how the relationship has evolved, but that’s only one component. Equally important is reexamining the vendors we’re doing business with, reducing the number of ‘multiples’, aligning critical ones strategically, and having them adopt [the principles which guide us with our own customers]. I want our critical vendors to become an active component of the overall value proposition.”

In our eyes, this is a highly effective strategy.  The fundamental argument we make to Sellers is that they must link their offerings to the business value of the client to improve the results of their negotiations.  Here, an important Buyer says the same thing.  Why?  Because in the end, Buyers only buy to get a job or task accomplished, not just because the price is low.  The present market provides Buyers with opportunity.  We predict that this Buyer’s organization will use that opportunity for long-term benefit, and exit it stronger than ever. Their focus on business results over negotiating tactics is superb.  (td)

K&R Success Stories Published

K&R Negotiation Associates has published a few representative success stories on the K&R Web Site.  Here are excerpts and links to more information:

  • K&R’s client turned a $150K annual loss into a $50K annual profit, while at the same time raising their own client’s satisfaction with the service. (more)
  • K&R’s client realized 6.7M€ of revenue in their current fiscal year, and 60.2M€ additional revenue within two years. (more)
  • K&R’s client benefited between $13.5K and $250K. The ultimate buyer saw a clear ROI from the total $837K investment in our Client’s products. Both our client and our client’s client were rewarded through the application of K&R negotiation principles. (more)
  • K&R’s client did not offer expensive guarantees and rebates as part of their services package. This will positively affect profitability as the agreement executes. The result was generated by carefully understanding client needs before offers were made. (more)
  • K&R’s client closed $2M higher than expected, using a few simple K&R principles. (more)
  • K&R’s client benefited by up to $65K, and began the process of breaking a pattern of discounting with their client, which will repeat in every transaction. Our client’s client was satisfied, because they understood the value of what they were buying. (more)
  • K&R’s client closed for $1.6 to 2.1M more than they expected to, using K&R’s value principles. (more)

A Negotiator’s Resolutions for the New Year

With the pressure of year-end closing behind us, it is time to look forward.  This is no time to rest on our laurels – unless we want to go through another insane end of year, hoping that the customer will have pity on us and sign, even if they are not convinced.  To that end, as good negotiators, repeat after me…

I resolve to do my preparation early in 2009, and as a result, have a terrific year.

To that end, I resolve:

  • To persuade my buyers by describing the value of my solution – in their business terms, not mine, using references and proofs of concept as needed.
  • To articulate that value to each decision maker or key influencer for the agreement. The articulation will be customized and relevant to the role of the customer person I am speaking with, and I will get confirmation from them that it is relevant.
  • To quantify the business benefit that my solution provides, in customer terms. I will use real customer data as much as possible, and develop the model for the business benefit jointly with my customer.
  • To get a confirmation from my customer that the quantified business value is important to them, and if possible, that they will use our jointly-developed models in their decision-making process.
  • To understand and describe accurately how only my solution offers certain key characteristics that solve the customer problem.
  • To be proud that I have brought a solution to my customer which provides them with a real business benefit, at a fair price.
  • To enjoy the journey and have a great year.

Negotiate Wisely!  (td)

Will it close this year?

As we approach the final days of 2008, you are probably working on a number of transactions with the hope of exceeding your sales quota or target.  If you are counting on a year-end close, we are offering two questions and a tip for your consideration.  These can shape your actions over the next couple of weeks, and affect your revenue and profit.

The questions:

1.    What happens to the buyer if they don’t sign before year-end? If your answer is that they won’t get this good a deal in January, you are dealing in pretty weak leverage.  The persuasion that is missing from this argument is business value. Buyers know that an offer made once can often be made (or closely approached) again. If they don’t have a business reason to act now – a reward that accrues or a risk that they take – they will often wait, and can afford to.  If you can’t link the sale you want to make to a real business risk or reward, you may close, but at a higher discount level than you would like.  Why?  Because the buyer knows that they can afford to wait while the seller gets nervous and discounts… again.

2. Why haven’t they signed yet? If you are near the end of the year, then the reason is unlikely to be price.  And, if the reason is not price, then changing the price probably won’t change your odds of closing.  Some studies have shown that in cases where Procurement is involved, the final buying decisions are made in late November.  They are just waiting to sign until seller nerves drive the prices to lower, late-December levels.

The tip: Stay calm. The more nervous you look, the more incentive you give the buyer to wait for a better offer.  It isn’t just a game for them.  They need to have confidence that they are making a good decision.  When sellers are nervous and discounting, the only way to get that confidence is if the seller is calm and reassuring, or if the buyer waits to the last instant to sign.

If you are a seller, think like a buyer at year-end.  Why should I do this?  Is pricing affecting my decision to sign? When you have the answers, stay calm, and give the buyer confidence that they are making a good decision for a good reason.  (td)

Thoughts about selling in the current economy

Here are a few ideas and thoughts from some of the collective experience of our associates, in addition to some suggestions from articles we have read over the past few months about selling and negotiating in the current difficult economic environment.

In many of the articles, there are three common themes:

  • It is important to maintain a positive attitude – focus on where you can have impact – not on the overall economy. Remember the old expression: Attitude will determine your altitude.
  • Execute the basics – diligently. Vince Lombardy turned the Green Bay Packers into a successful American football club with his relentless focus on the basic skills of the game.
  • Work harder (depending on the article – it will take anywhere from 25% to DOUBLE the effort to accomplish the same results.) Working harder doesn’t necessarily mean spending more hours doing unfruitful things. It is working smarter and doing the right things to produce results. In other words, continue to develop your skills which will enable shorter selling cycles.

That being said – these are three very good themes – they do not necessarily drive you to any specific actions.  Here are a few ideas for you to try:

  • If you are using a web based tool for networking (like LinkedIn®) – expand your network. Think of everyone you have ever done business with or for (superiors, peers, subordinates, clients) and look them up. Reach out and connect with them – expand your network. You will be surprised at how many people you can “rediscover” with the potential side benefit of discovering some new business.
  • Call EVERYONE in your contact list – not to sell them something – but just to reconnect and “catch up”. Some of you are hesitant to call on your contacts because you have let the relationship lapse. This is the PERFECT time of year to reconnect. Call them just to wish them “Happy Holidays”, “Merry Christmas”, “Happy Kwanzaa”, “Happy Hanukkah”, “Joyous Solstice”, etc. Wish them the best for the coming year. Do this just to reestablish the contact. Human contact is very important in a world of high technology virtual reality. You may even get a referral or an introduction, but remember your objective is just to reestablish contact.
  • Contact ALL your prospects – with a change in your tune – you are not calling about business – but just to wish them a Happy Holiday. It is a tough time for everyone – you will be pleasantly surprised at how they react. “Someone actually called me to show a genuine interest instead of asking me for my business”. It definitely changes the playing field, and it helps to build trust and confidence in you as a person.
  • In your conversations with your clients and prospects, be more empathetic and positive. These are difficult economic times for everyone, and you can’t “cost cut” your way out of it. Consider alternative offerings in your product or services portfolio that will address the client’s needs. Additionally, look at ways to pare back your total solution. Think about what you might offer that will deliver the maximum return for your client. This will enhance your credibility and trust with the client and will open the doors to future business when the business climate improves.
  • Remember: clients cannot afford to make a mistake – too many eyes are looking. For you to be successful, you must prove that you can address their needs, and you will need to articulate your offering value in terms that resonate with them:
    • Minimize their risk
    • Reduce their costs (save them money)
    • Increase their revenue
    • Improve their profit / mission attainment
    • Improve their operational efficiency
    • Etc.

Budgets are being cut – or at least pared back, you must not lose momentum or your contact with your prospects.  When budgets open back up (and we believe they will), you want them to remember you and your organization.  You also want that memory to be positive!

We wish you a “Happy Holiday”, “Merry Christmas”, “Happy Kwanzaa”, “Happy Hanukkah”, “Joyous Solstice”, and all of the very best for a wonderful New Year. (jh)

Technology Buyers and “Advance Fee Fraud”

First – we’re not really writing that technology buyers are defrauding sellers – so don’t send nasty letters.  But there is a common technique that buyers use that has a parallel to the infamous Advance Fee Fraud, and which provides a negotiation lesson for sellers.

An Advance Fee Fraud, also known as a “Nigerian letter” scam, or a 419 scam (named after the part of the Nigerian criminal code that deals with fraud), or a bunch of other names, is not unique to Nigeria.  Perhaps you have received the email…

DEAR SIR,

CONFIDENTIAL BUSINESS PROPOSAL

HAVING CONSULTED WITH MY COLLEAGUES AND BASED ON THE INFORMATION GATHERED FROM THE NIGERIAN CHAMBERS OF COMMERCE AND INDUSTRY, I HAVE THE PRIVILEGE TO REQUEST FOR YOUR ASSISTANCE TO TRANSFER THE SUM OF $47,500,000.00…

In case you have received a version of this, take our advice – throw it away.

The fraud plays out as follows: in order to release and share in a large sum of money, you have to send either “good faith” payments or payments which allow the processing of the funds.  As you might expect, the flow of money is one-way:  from you to the scammer. The victims’ losses for the 419 scam in 2005 were estimated to be over $3 Billion worldwide.

How does this relate to technology buyers?

Example #1: The buyer says, “In order for me to be confident in your product, we need you to do a proof of concept (POC) at my location.  That will help me understand if the benefits that you projected are real.”  Many times, the seller confidently proceeds down the POC path, spending money and proving that what they said would happen does, in fact, happen.  What next?  The buyer decides there are other issues, and still doesn’t sign. The seller has laid out money in anticipation of a future benefit, which does not accrue.  It’s an Advance Fee Fraud.

Example #2: Seller and buyer are in heavy negotiations for a product or solution.  Near the end of the negotiation, the seller says, “Look, I have a lot of future business coming.  If you give me a great price on this agreement, you’ll be the front-runner for the big one coming up.” If the seller believes it, most times conditions will change by the time the “future business” comes up, and the negotiation will start from scratch. An Advance Fee Fraud.

We are willing to concede that this is not always a scam.  Sometimes “good faith” means “good faith”, not a guarantee.  But the error the seller might make in each of these cases is the same, and it parallels the Advance Fee Fraud.  The seller advances something, for the future promise of a big return.  As experienced negotiators, we know that the big return often fades away instead of getting delivered.

What to do?  As a seller, make sure that your return is assured before you advance that “first payment”.

In the case of a POC, agree on two things with the buyer up front:

1.    Successful results from the POC will result in a signed order.

2.    The terms of that order.

In the case of “big future business”, consider responding like this, “We are interested in the future business.  If you would like to agree to do all of that business with me now, your terms will reflect the size of the agreement.  If you choose to do a smaller agreement now, your terms will also reflect the size of the (smaller) agreement.”

Don’t fall for “Advance Fee Fraud” from your buyer.  Make sure that there is a real future return before you make an investment. (td)

Joe Torre and the Yankees

When is an offer not an offer? Joe Torre, an extremely successful (and the highest-paid) baseball manager, failed to bring the Yankees to the Divisional Playoffs in the final year of his contract.  Yankees management made him a non-negotiable offer for next year of $5 million, with “earnable bonuses” of up to $3 million more.  Joe turned it down.  It is unlikely that this offer was expected to be acceptable.  Joe, coming off a 12-year run, shouldn’t need the money. So what motivates him? As in many businesses, status, recognition and the appearance of success are key factors in the negotiation process.  If you want to close a deal, you should understand what the other side needs to get to be able to agree to that deal. The Yankees’ management team knows Joe well.  They could accurately predict that he wouldn’t take it.  This makes us think (as good negotiators do) about their motivations as well. (TD)