How to become a better negotiator
Want to be a better negotiator? Who doesn’t?! All of us negotiate, every day. And whether it’s over what channel to watch on the television, a salary increase, or a multimillion dollar business contract, the skills required to achieve good negotiation outcomes are the same.
Having worked as a commercial lawyer within a top-tier law firm for over 20 years, I’ve observed the negotiation strategies and practices that work well, and those that don’t. Below are 10 strategies that I recommend to clients that are about to embark on important negotiations, whether it to conclude a multi-billion dollar deal for an infrastructure project, or to resolve a contractual dispute. I employ the same strategies when negotiating with my boys over pocket money for odd jobs around the house.
Give yourself time to prepare. When you embark on a negotiation unprepared, you put yourself at a disadvantage. You risk making decisions based more on intuition, and less on reasoned thinking. Give yourself time to think through your interests and concerns, and the potential outcomes that would be acceptable to you, before commencing the negotiations. Consider preparing a terms sheet that lists each issue that need to be addressed and the commercial positions you would like to achieve. I like to add a third column to my term sheets which also records, for each issue, the thinking behind the preferred position and any other solutions that were considered and discounted. Whether or not you share the terms sheet with your negotiating counterparties at this point doesn’t really matter – its real value is to help you think through the issues that need to be agreed, possible solutions for each issue, and potential trade-offs.
Work out your Plan B. For significant negotiations, it’s important to have another option – a ‘Plan B’ – that can be pursued if the deal being negotiated doesn’t shape up satisfactorily. Work out what your best alternative option is, and what it is worth to you. If the best offer you can negotiate is worse than your Plan B, then you’d be better off walking away and pursuing your Plan B. If the final offer is better than your Plan B, you should accept it. If you can’t formulate a Plan B, it’s best to establish that before you commence the negotiation and set your strategy accordingly.
Consider their Plan B. What will your counterparty do if he or she can’t reach an agreement with you? Although answering this question is harder than working out your own Plan B, the exercise can provide valuable insights on your counterparty’s walk away points. If you are negotiating with someone who is representing an organisation, you should not only consider the organisation’s Plan B, but that of the individual as well, as they can differ. How is the individual evaluated and compensated? It is only by considering your counterparty’s Plan B from both perspectives that you will gain a more complete picture of their walk-away alternatives.
Articulate your interests, and draw out the interests of your counterparties. Before presenting your preferred positions, articulate the interests and concerns that you are seeking to address. Avoid presenting positions as non-negotiable. If your negotiating counterparty suggests an alternative position, ask questions to try to draw out the interests or concerns that they are seeking to address, and listen carefully to the answers. “Why is that your position? What concerns are you seeking to address?” And repeat back their interests so that they know that you have heard what they are saying. The other side is more likely to listen to your interests if they feel that you have heard theirs.
Share information and look for opportunities to ‘expand the pie’. Mutually beneficial trade-offs can only be achieved when the parties disclose information that reveals the interests behind their stated positions. But the fear of saying too much – and giving the other side an edge – often causes us to hold back details of our interests. If you want the other side to take your interests into account, you need to explain to them what your interests are. Once each party understands the interests of the other, they will be better able to identify potential solutions that serve the interests of both parties, or that ‘expand the pie before it is divided’.
Use objective criteria or principles. Try to establish some objective criteria or principles against which proposed solutions or positions can be assessed. For example, comparable sales might be used to establish a fair price for a house.
Give yourself time to consider offers. Don’t allow the other negotiators to force you into making snap decisions. The psychological pressure to be nice and give in can be too great. Instead, ask for a break to consider what has been said and work out how to proceed. Good negotiators will usually have a reason ready to leave the table at the appropriate time.
Work on your Plan B. The better your Plan B, the greater your negotiating power. For instance, it’s much easier to negotiate a new job offer if you already have other offers on the table. And if you are in a dispute, don’t stop preparing for litigation just because the other side has suggested mediated negotiations. Knowing what you can do if the negotiations fail will give you greater confidence to strongly present your interests in the negotiations. By developing and improving your Plan B, you enhance your ability to improve the terms of any negotiated agreement. If you have a strong Plan B – another offer on the table – then it is in your interests to disclose this to the other side, especially if they think you lack a good alternative. However, if your Plan B is worse for you than the other side thinks, disclosing it will weaken your hand.
Reassess your thinking on their Plan B. Having heard your negotiating counterparty’s interests, concerns and positions, you should revisit your assessment of their Plan B. Do you still think you can make an offer that will be more attractive to them than their Plan B? If not, then it’s time to bring the negotiations to an end and pursue your Plan B.
Trade concessions. Try to create value by trading concessions. “We may be willing to budge a bit, but what would you give us in return?” “We’ll agree to X if you agree to Y”. Consider putting several packages to your counterparty at the same time. Even if your counterparty doesn’t like any of them, your counterparty’s response is likely to give you new insights on what creates value for them.
Record progress. If you are working towards a written agreement, update your terms sheet to reflect any revised positions. Use the third column to explain your thinking behind each change. If you didn’t previously prepare one, take the opportunity to do so now. Writing down the issues, and your interests, concerns, preferred positions and other potential solutions as you go will help to bring clarity and focus to the negotiations, and help to ensure important issues are not overlooked. As the negotiations progress, the terms sheet can be fleshed out into a draft agreement. Share updates of the terms sheet or draft agreement with your negotiating counterparty as you go, to record progress and reduce the prospect of later misunderstandings. Once all terms have been agreed, finalise and sign the written agreement.
Want to learn more?
A great book for those wanting to develop their negotiation skills is “Getting to Yes” by Roger Fischer and William Ury. A number of my tips are based on concepts I learned from this book.
Good luck!
