| By Nina L. Kaufman, Esq.
Negotiation is both an art . . . and a science. Whether it’s getting the kids to do their homework, choosing a film to see with a friend, or setting a price for your services, negotiating permeates every aspect of our lives. Whatever the size of the deal, a negotiation involves two sides, each needing something from the other, and each wanting its needs met to the greatest extent and at the least expense.
How you negotiate is the art. How you succeed in negotiation is the science . . . of preparation, listening, and compromising, three principal steps that business owners often do not take the time to grasp.
How to Prepare
Preparation starts long before you attend a meeting, respond to a telephone inquiry, or create an e-mail proposal.
Take the example of Renee Davis Design, a graphic design and marketing strategy firm. Renee’s services were recommended to Anonyme, a leisurewear company that needed a new branding strategy, a revamped image and — to use them — a variety of media, including print and Web. Rene was tempted, because the Anonyme branding deal had the potential of introducing her firm to a higher level of clientele, as well as a new industry. But, before agreeing to the deal, she asked herself several questions, ones that you, too, should consider whenever entering this type of negotiation.
What is your business, and what are its needs?
Get back to “brass tacks” about the kind of work you do. Anonyme had diverse needs, which had to be fulfilled quickly. Was Renee sufficiently talented to translate the branding strategy to tangible form, such as stationery, media kits, and a Web site? Did she have adequate time or staffing? While the work might generate a bigger-than-normal fee, was leisurewear-focused Anonyme really within Renee’s target market? Could Renee devote her undivided time to such a large account, to the exclusion of her other clients? Would Anonyme follow Renee’s direction, or would its corporate culture impede change? What non-financial needs do you have, such as wanting to work with progressive companies?
What is your bottom line?
Know your financial parameters, such as your profit margin. Renee had to consider the cost of both her own time in performing Anonyme’s work and that of any outsourced help. In setting her price, Renee had to ascertain the minimum amount she could charge and still be profitable. Renee also had to determine at what milestones she would be paid. Overestimating your ability to perform and the other side’s willingness to pay on a timely basis can be disastrous.
What kind of bargaining power do you have?
Consider how much leverage you have with your negotiating partner. What do you offer that the other side wants or needs? In Renee’s case, Anonyme needed creative and strategic thinking implemented quickly. As a result, Renee was able to negotiate favorable terms into her agreement with Anonyme that were not initially offered. Your bargaining power is linked to the risks you accept. If your leverage is weak, you may be forced into a take-it-or-leave-it deal. Be honest with yourself about the level of risk you feel comfortable accepting.
How to Listen
Listen with your mouth closed.
Negotiating partners generally do not raise issues that are insignificant to them. If you are so busy talking about your own needs, you will not hear what is important to the other side. Listening enables you to learn the other side’s concerns if the relationship goes awry. This includes penalties, such as price reductions for missed deadlines or interest charged on outstanding invoices.
When you listen, you can get to the “heart of the art.” By listening carefully, you will hear what the other side wants (or wants to avoid) most. Once you know those details, you can control the negotiation.
How to Compromise
The art of successful negotiation makes each side feel that it has won. The science of compromise — based upon preparation and listening — reveals which issues are deal breakers and which are “give-aways.”
In negotiating with Anonyme, Renee made three lists:
- an “A” list of items she felt Anonyme considered unimportant (e.g., interest charged on unpaid invoices);
- a “B” list of items that Anonyme considered vital (e.g., contract price and obtaining intellectual property rights); and
- a “C” list of items that could go either way (e.g., payment at intervals).
Renee then determined that if Anonyme did not agree to any of her own “deal points” (such as contract price), she would walk away from the deal.
Renee raised the “A” list items first, both to establish an environment of agreement and to secure those “A” list items that were important to her. She then moved to the “B” list items, to see where Anonyme might be flexible. At those points at which Anonyme would not budge, Renee used items from the “C” list as bargaining chips.
For example, Anonyme insisted on obtaining intellectual property rights in all of Renee’s ideas (“B” list). By drawing on the “C” list, Renee limited those rights to the designs and concepts that Anonyme actually selected. Also, Anonyme agreed to pay only $25,000 for the work (a “B” list item), an amount that was high enough to provide a profit for Renee, but not high enough to provide Renee with the profit she had envisioned. So, Renee negotiated the right to be paid at milestones (“C” list), a move that reduced her financial risks and bolstered her cash flow.
Conclusion
Renee got results from her negotiation with Anonyme because she took the time to prepare her deal points. She held fast to them, and she was not tempted by what seemed to her to be lesser considerations, such as “I want Anonyme on my client list.”
In any negotiation, whatever its size, do your homework, prepare your points, and then t ake careful notes of what you agreed upon and confirm it in writing. It’s also best to have an attorney review the agreement in writing to make sure that the language you use does not impose any unintended legal obligations for either side.
If in the end, your negotiation doesn’t result in an agreement, take heart. Failing to reach agreement is not necessarily bad. In fact, it may be the right result. It’s a far better thing to know in advance that your arrangement with the vendor/client/landlord/bank (or other negotiating partner) would not work to your mutual benefit than it is to find yourself mired in a situation from which you have no easy or inexpensive escape.
Nina L. Kaufman , Esq., is a founding partner of Paltrowitz & Kaufman LLP (www.palkauf.com), an award-winning New York City law firm providing wise counsel for growing businesses ® on many of their transaction and litigation needs. She is also president of Wise Counsel Press LLC (www.WiseCounselPress.com), which sells booklet guides on legal issues for small businesses. She can be contacted at 212-808-7210 (e-mail: WiseCounsel@palkauf.com).
This column is for your general information only and is not meant to substitute for legal or accounting advice regarding your specific situation.
(This article is reprinted from the Spring 2005 edition of Enterprising Women magazine. Copyright 2005 Enterprising Women Inc. Reproduction in whole or part is prohibited, except by express permission of the publisher.)
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