Negotiate Like a Pro: Gaining and Maintaining Positive Leverage

A few weeks ago, I had the opportunity to join Kison Patel, CEO, and Founder of M&A Science, as his guest on the M&A Science podcast. Kison and I spent over an hour talking about negotiation strategies and tactics in an episode titled, How to Negotiate Like a Pro. I think you will enjoy the discussion and most important, find some valuable nuggets to help improve your and your team’s negotiation effectiveness.

If you work in the business arena, negotiation is usually part of your job description. And this is especially true in sales and procurement. You are negotiating price, terms, delivery, product specifications and many other items, including subtle factors like whether your prospect considers you a business peer or subservient. I’ve been practicing and teaching business negotiations for several decades and still find the subject fascinating.

It’s important to understand the specific types of negotiations you undertake, including problem-solving and adversarial negotiations.  In reality, there are elements of both that permeate almost every negotiation. The problem-solving value-based approach is all about discovering and understanding the other side’s interests. You then negotiate to those interests so you can move your negotiation counterpart closer to your way of thinking. This is where the principle of leverage comes into play.

The Critical Importance of Leverage

A lot of people struggle with the concept of leverage. In the context of negotiations and interpersonal relations, “leverage” is a term that only exists in English. The term actually comes from physics – the ability to move objects of heavier mass with less force. That’s what levers give you. The more levers in a pulley system, the easier it is to move objects of heavier mass with less force.

Similarly, leverage in interpersonal relations is the ability to move people closer to your way of thinking and vice versa. And by applying value-based leverage, or what I call positive-leverage, people move voluntarily. They move voluntarily because you’re doing something for them and it’s in their interest to move. Contrast this with negative leverage, where people may move because they have to, not voluntarily. Taxes and utilities are examples of negative leverage. You cooperate because the consequences of not doing so are unacceptable.

negotiation leverage slopeThe value of positive- and negative-leverage is illustrated on the Leverage Slope™, which is a simple mathematical model that shows unique value on the X-axis and price and terms on the Y-axis. Unique value, combined with less competition, equals greater leverage on the part of the seller. Conversely, lack of unique value and more options creates a commodity scenario (real or perceived) and more leverage for the buyer.

The point is that you need to know where you are on the Leverage Slope and why. This enables you to formulate value arguments that create positive leverage which is generally better received when you are trying to achieve long-term business relationships. But you also have to remember negative leverage – what people will lose when they fail to act with you – since people will act with more urgency in relation to risk. Negative leverage can be very important to the negotiation scenario when used appropriately to create a sense of urgency.

When I enter negotiations on behalf of a client, I want to put all these pieces on the table as we formulate our strategy. This includes a thorough understanding of not only our own leverage but that of the potential clients as well. Obviously, we have something to sell and the prospect has a need to fill, and they may have various options for filling their needs.

Risk Reward Analysis

These dichotomies lead us to the Risk Reward and Action tool.  What are the rewards the prospect receives by taking the action I am asking them to take, which is usually purchasing our solution, and what are the risks if they do not act? For that matter, what risk is the prospect taking when they purchase from me? The answers to these questions provide a good feeling for what leverage you do or don’t have in the negotiation process.

Simply stated, if the risks of action for the other side, or for you, in entering into an agreement (whether it’s a partnership, purchase or sale agreement), are not overcome by the risks mitigated and the rewards gained by taking the action, the deal should not and probably will not happen, especially in the current environment. This is why you need to be deliberate and clear about addressing risks and highlighting rewards, especially for your negotiation counterparts who may be stressed or nervous about some aspects of the potential deal.

And by the way, aren’t we all just a bit stressed about making purchases in our non-business lives, such as a new house, car or really anything of consequence?  The Risk Reward Analysis is played out constantly, whether consciously or subconsciously. As a negotiation pro, understanding the risks and rewards, and being able to articulate them in a way that is reassuring to the prospect, is a key component in maintaining positive leverage throughout the negotiation process.

This is just a sample of what Kison Patel and I covered in the M&A Science podcast. Click here to hear the rest of the story.

The Expanding Purchasing Power of the Non-IT Buyer in Technology Purchase Decisions

How to Adjust Your Sales Strategy for More Complex Terrain

In our recent executive brief, “Six Ways to Shorten the Sales Cycle,” one of the prime takeaways is the importance of tailoring your technology sales and negotiation process to the increasingly complex customer decision landscape. In great part, this is due to the expanding involvement of multiple people (and functions) in the decision process.

IDC underscored an important sub-trend to this reality in their Spring 2018 update to the Worldwide Semiannual IT Spending Guide: Line of Business: “Businesses are forecast to spend $1.67 trillion on technology (hardware, software, and services) in 2018. Roughly half of that spending (50.5%) will come from the IT budget while the other half (49.5%) will come from the budgets of technology buyers outside of IT. The former includes IT-funded purchases as well as joint projects funded by IT. The latter includes business-funded purchases as well as joint projects funded by line-of-business (LOB) buyers and “shadow IT” projects funded by the LOB without IT involvement. LOB technology spending has been growing at a faster rate than IT spending for a number of years. The compound annual growth rate (CAGR) for LOB spending over the 2016-2021 forecast period is predicted to be 6.9% compared to the 3.3% CAGR for IT spending.” Read more

BATNA (best alternative to a negotiated agreement) Woman tears agreement documents in front of agent who wants to get a signature

Why You Need Better than BATNA: Formulating a Defensible “Walk Away” Rationale in Negotiations

Either through becoming emotionally invested, getting pressure from leadership or being unable to analyze key factors that should indicate retreat, business negotiators often find themselves spending long amounts of time on deals of diminishing — or even illusory — value.

One of the cornerstones of negotiation theory is BATNA (best alternative to a negotiated agreement), advanced by Roger Fisher and William Ury of the Harvard Program on Negotiation (PON) in their book, Getting to YES. Read more

Further Thoughts on the “Master/Servant” Dynamic in Negotiation

In January I penned this post about the new plateaus of opportunity that open up for both buyers and sellers when we make the mindset shift to becoming a true strategic partner, rather than just a “run and fetch” vendor that recites features and delivers quotes.

There is a fundamental problem (one that is not necessarily limited to contract negotiators): Even people who build long, otherwise successful careers in demanding positions don’t consider themselves professional negotiators — even though they do it every day! They do it internally with their colleagues, externally with clients and vendors, and even at home. Read more

Breaking the Master/Servant Sales Relationship

There is a world of difference between being a vendor that takes orders and being a valued peer or co-strategist. The former defaults to a defensive or reactive position, missing opportunities to help their client, increase the value of an account and build a more durable, mutually profitable relationship.

Moving from the master/servant paradigm isn’t about gaining the upper hand in a brute power scenario, but rather about moving to a peer-to-peer relationship where mutual benefit flows from mutual respect and acknowledgment of exchanged value. From our experience, the master/servant trap is an easy one to fall into, even with some of the world’s top-tier service organizations. After all, if the customer orders, the vendor sells and delivers. Read more

Negotiation Mistakes: Misguided Integrity

negotiation integrityNegotiating with integrity is central to the Win Wisely™ approach; after all, if we are in search of positive leverage to artfully move the other side closer to our way of thinking, we must have integrity. Integrity gives us the foundation to make value arguments that are believable. When we are perceived as people who constantly play games with the truth and are slippery during discussion of the challenges, our leverage predictably erodes.

However, there are situations in which being too forthright needlessly damages your position and erodes your leverage as surely as being untruthful would. Imagine that you are negotiating with a manufacturer whose specialty component is critical to your upcoming product. The week before, you dismissed an alternative provider after lengthy negotiations, leaving this manufacturer in the “sole provider” position. Read more

When Emotions Compromise Your Negotiation Leverage

Successful businesspeople like to think of themselves as rational beings that apply thorough analysis to get optimal outcomes. Of course, this is not always the case. We’re humans, not optimizing machines: We’re biased towards doing business with people we like and trust; we succumb to pride when a calmer perspective would have yielded a better outcome for everybody; we get emotionally invested in a deal and can lose focus of its true merits.

It is easy to become emotionally invested in a deal, especially a complex one that has required a large time and resource commitment from you and your team. Nobody wants to simply walk away from something they have cultivated for months—even when the rationale for actually doing the deal starts to dwindle. Read more

To Close the Deal, Know Your Client’s Risks and Articulate the Cost of Not Acting

In 2013, CSO Insights published an industry survey summarizing deals won and lost—in this instance, how often forecasts lined up with actual closed deals. Of the number of total forecasted deals, 26% were lost due to “no decision.”

Many “no decisions” can be traced to a seller’s inability to address how their potential client sees risk and the failure to paint a compelling picture of the cost of not acting. In our sales and negotiation training seminars, we teach sellers how to prepare and increase their chances of a win by carefully considering risk and reward from the buyer’s perspective. Traditionally, sellers focus primarily on the reward/benefit/value to the buyer of completing a deal. The risk/reward exercise has a dual value: By convincing yourself, you increase your odds of convincing your buyer. If you don’t believe it, they won’t, either. Plus, it sheds specific light on the risk of no decision. Read more

Balancing Your Negotiation Team: If Everyone Agrees, Someone is Probably Wrong

Just as you don’t want to take to the field with a football team of 11 quarterbacks (or 11 goalkeepers, if you’re playing the more globally known form of football), you would not want a negotiation team that only represents one discipline or perspective. Although Peyton Manning or Cristiano Ronaldo each has enviable skills, other specialists will be needed to secure victory for the team.

We once worked on an important licensing negotiation with a client team comprised of architects and engineers in product development. Their goal was to fill a technical gap in their product. They were willing to pay an amount for the license that was equal to the cost of developing the solution themselves. But with no one on the team from sales, marketing or finance, there was no way for them to gauge what filling this functional gap in the product was worth to their business. Read more

Negotiation Lessons from Deadwood

Have you ever appeared at the negotiation table with a thoughtful list of offerings only to realize that your assumptions about those across the table were dead wrong? There’s a scene from HBO’s acclaimed Deadwood series (2004-2006) that illustrates just how uncomfortable it can be to misread or underestimate the other party.

To set the scene: Alma Garret is a widow who has come into a lucrative, well-producing gold claim in the lawless, titular town of Deadwood. Mining tycoon, George Hearst, has come to the camp, slowly consolidating smaller, single-operator claims into one ruthlessly efficient operation. Only Garret’s mine stands in the way of his complete control of the area’s gold mining operations. Hoping to strike a mutually beneficial bargain after a bumpy first meeting, Garret visits Hearst with a list of proposals. This is what happens. Read more