High-Impact Negotiation Frameworks: 1/5

Negotiation Principles - Part 1 of a series of 5 posts

The Importance of Negotiation

Negotiation is a critical skill in both personal and professional realms. Whether you're closing a business deal, buying a car, or even deciding on a family vacation, negotiation plays a pivotal role.

Effective negotiation can lead to significant financial savings, better business relationships, and more favourable outcomes. It's about getting what you want and ensuring that the other party feels they have won. Perceived win-win is what creates long-lasting relationships and repeat business.

You never make or lose more money per minute than when you negotiate. When you're negotiating with someone—when you have a deal in front of you that you could live with—but you're wondering if you could hang in a little bit longer and do a little bit better, you're not making $50 an hour. You're making $50 a minute and probably $50 a second.

A negotiated dollar is a bottom-line dollar. Those few dollars you may have conceded in seconds because you thought it was the only way you could get the sale are worth many times that in gross sales dollars. If your company has a profit margin of 10%, every 10,000 negotiated away is the same profit lost as losing 100,000 in sales. How much time and effort will your company spend to sell another 100,000 vs the time and effort spent negotiating to save that last 10,000?

Negotiating works with a set of rules, just like chess. Like in chess, it has an opening, middle, and end game. These frameworks explore the art of negotiation framed in the structure of chess.

The big difference between negotiating and chess is that, in negotiating, the other person doesn't have to know the rules.

In business, negotiation is often the difference between success and failure. Companies negotiate with suppliers, clients, employees, and even competitors. The stakes can be incredibly high, and the outcomes can have long-lasting effects on the organization's bottom line and reputation. For individuals, negotiation skills can impact career progression, salary increases, and work-life balance.

Consider the case of a company negotiating a merger. The terms of the agreement will dictate the future of both entities involved. If one side feels shortchanged, it can lead to a breakdown in the relationship and potential legal battles. On the other hand, a well-negotiated deal can result in a successful merger that benefits both parties, leading to growth and increased market share.

Negotiation is also crucial in everyday life. From negotiating with your children about bedtime to haggling with a vendor at a local market, the principles of negotiation are universally applicable. The ability to negotiate effectively can lead to better deals, stronger relationships, and more satisfactory outcomes in various aspects of life.

One illustrative example is purchasing a home. The negotiation process involves not only the price but also the terms of the sale, such as closing costs, repairs, and move-in dates. It's never just about a single factor—the more variables you can trade off, the better you will be as a negotiator. A skilled negotiator can save thousands of dollars and secure favourable terms that make the transition smoother.

Structure of This Series of 5 Substack Posts on High-Impact Negotiation Frameworks

In this series, I will explore tactics and principles to help you become a high-impact negotiator. I have divided the series into five parts:

Part 1: Negotiation Principles

Part 2: Early-Stage Tactics

Part 3: Middle-Stage Tactics

Part 4: End-Stage Tactics

Part 5: Pressure Tactics and Unethical Tactics

Each part will delve into specific strategies and provide actionable insights to enhance your negotiation skills.

Negotiation Principles: This first part will cover the foundational principles that underpin effective negotiation. These principles are the bedrock upon which you can build your negotiation strategy. Understanding and mastering these principles will give you a significant advantage in any negotiation scenario.

Early-Stage Tactics: The second part will focus on the tactics you should employ at the beginning of a negotiation. You can use these tactics to set the stage for a successful negotiation and to put you in a favourable position from the outset.

Middle-Stage Tactics: The third part will delve into the tactics you should use during the middle stages of a negotiation. These tactics will help you maintain momentum and keep the negotiation moving in your direction.

End-Stage Tactics: The fourth part will cover the tactics you should use as you approach the end of a negotiation. These tactics will help you close the deal and ensure that both parties feel satisfied with the outcome.

Pressure Tactics and Unethical Tactics: The final part will explore the various pressure and unethical tactics you may encounter during a negotiation. Understanding these tactics will help you recognize when they are being used against you and how to counter them effectively.

Negotiation Principles

Let's dive into the core principles that form the foundation of high-impact negotiation.

Negotiation Principle 1: Get the Other Side to Commit First

One of the most effective strategies in negotiation is to get the other side to commit to a position first. Doing this gives you valuable information and allows you to bracket their proposal. For instance, if you're buying a second-hand car and think it's worth 10,000 while the seller wants 8,000, you should avoid giving your number first. If you do, the seller might recalibrate and ask for 12,000. Even if you start with a lowball offer of 7,000, you won't know that the seller's drop-dead price was 5,000. Once the seller gives you a price, you have a negotiation range and a strategy.

Their first offer may be better than you were expecting.

If the other person is not committing first, push them over the line by:

Pleading poor: ‘I don’t think I can afford to buy XYZ, but I did notice you have it up for sale and may want to give it away at a price I can afford’

Use higher authority: ‘My wife/boss will kill me for asking this, but ….’

Use competition: ‘I’ve been looking at an XYZ similar to yours that seemed a real bargain, but before going ahead, I thought I’d see what you want for yours…’

If both sides are playing the game, learn to be patient. In negotiation, he who speaks first generally comes out on the short end of the stick.

Getting the other side to commit first can be helpful in salary negotiations. Imagine you are interviewing for a new job, and the employer asks about your salary expectations. If you provide a number first, you risk either underselling yourself or pricing yourself out of the job. Instead, you can respond by saying, "I'm open to discussing a fair compensation package based on the role's responsibilities and the market rate. Can you share the salary range you have in mind?" This way, you get the employer to commit first, better understand their budget, and allow you to tailor your negotiation strategy accordingly.

Another example is in real estate. If you're selling a house, you might ask potential buyers to make an offer first rather than setting an asking price. Doing this can reveal their budget and willingness to pay, allowing you to negotiate more effectively. If the buyer offers more than you expected, you have already gained an advantage. If they offer less, you now have a starting point for negotiation.

In business-to-business (B2B) sales, getting the client to commit first can also be beneficial. For example, if you're negotiating a long-term service contract, ask the client to outline their budget and specific needs before presenting your proposal. This approach allows you to tailor your offer to meet their requirements while ensuring that you stay within their budget.

Negotiation Principle 2: Acting Dumb Is Smart

Acting less informed than you are is a powerful tactic in negotiations. One of the startup founders I know calls himself a 'sales executive' on his business card. Even though he has no one to ask but himself for a decision, he can always use the 'higher authority' trick in a negotiation. By acting as if he needs to consult someone else, he diffuses the competitive spirit of the other side and gains concessions.

This principle works because most people naturally help those they perceive as less knowledgeable or less experienced. By acting dumb, you can encourage the other party to reveal more information and make concessions they wouldn't otherwise make. For example, suppose you're negotiating a software development project contract and need clarification on specific technical aspects. In that case, the other side may offer additional support or resources to help you understand, giving you more than you initially requested.

Moreover, acting dumb can also buy you time to think and strategize. When you act as if you need to consult someone else or take time to understand the details, you create a buffer that allows you to consider your next move carefully. This extra time can be beneficial in high-stakes negotiations where every decision counts.

Another example is purchasing equipment for a manufacturing facility. If you are unsure about the technical specifications, you might get the supplier to offer additional training or extended warranties to help you feel more comfortable with the purchase. This information gives you added value and puts you in a stronger negotiating position.

Negotiation Principle 3: Don't Let the Other Side Write the Contract

This principle is critical. Negotiation covers only some issues, and the person writing the contract can always put in their view on things that are contractually required but not discussed. I've seen many times how this can make or break a deal. Always insist on writing the contract yourself or reviewing it thoroughly before signing.

For instance, in a business partnership agreement, the party that drafts the contract can insert clauses that favour their interests. These could include non-compete clauses, ownership of intellectual property, or specific terms for profit-sharing. If you allow the other side to write the contract without a thorough review, you might be bound by terms you didn't agree to, which could put you at a disadvantage.

Another example is in employment contracts. Employers might include confidentiality, non-disclosure, or non-compete clauses that could severely restrict your future opportunities. By ensuring that you or a trusted advisor reviews the contract, you can negotiate these terms to be more favourable or at least understand their implications before signing.

In vendor agreements, allowing the vendor to draft the contract can lead to terms that heavily favour them, such as automatic renewal clauses, penalties for early termination, or limitations on liability. By taking control of the contract drafting process, you can balance the terms and protect your interests.

Negotiation Principle 4: Read the Contract Every Time

I've been severely bitten in a negotiation where I did not read the contract carefully. Now, I make sure I read it personally. Contracts can often contain hidden clauses that can come back to haunt you. Always read the contract every time, no matter how tedious it may seem.

Take the example of a lease agreement for office space. A company might only sign a lease after thoroughly reading the contract, only to discover later that there are significant penalties for early termination or restrictions on modifying the space. You can identify and negotiate these terms by reading the contract carefully before committing.

In another instance, consider a service agreement with a vendor. The contract might include automatic renewal clauses, additional fees for services assumed to be included, or specific performance metrics not discussed. Reading the contract carefully lets you catch and negotiate or adjust these clauses to better suit your needs.

Another example is in the context of software licensing agreements. These contracts often contain terms related to usage restrictions, data privacy, and intellectual property rights. By reading the contract carefully, you can ensure that you understand the implications of these terms and negotiate any that are unfavourable.

Negotiation Principle 5: Understand and decode Funny Money

Funny money refers to disguising much money as a smaller, more palatable figure. For example, in the UK, you can disguise 1 billion as 1.5 per month per person. One of them seems a straightforward thing to agree to. The Funny money tactic often makes a large financial commitment seem insignificant.

Consider a company negotiating a software subscription service. The service provider might present the cost as 10 per user per month, which seems reasonable. However, for a company with 10,000 employees, this translates to 1.2 million annually. The provider makes the overall expense seem more manageable by breaking down the cost into smaller units.

Another example is in the context of a loan. A lender might present the interest rate as a small percentage, making it seem insignificant. However, when calculated over the life of the loan, the total interest paid could be substantial. Understanding the actual cost allows you to negotiate better terms or consider alternative financing options.

In the context of employee benefits, companies might present the cost of benefits as a small percentage of salary, making it seem more affordable. However, when calculated annually, the total cost can be significant. Understanding the actual cost allows you to negotiate better benefits or consider alternative options.

Negotiation Principle 6: People Believe What They See in Writing

I've often seen that giving a proposal in writing is so much more impactful than saying it. The printed word has tremendous power over people. Always back up your verbal agreements with written documents to ensure clarity and commitment.

For example, if you're negotiating a service contract and verbally agree on specific terms, following up with a written proposal outlining those terms is crucial. Doing this reinforces the agreement and provides a reference point that both parties can refer to if any disputes arise later.

In another scenario, consider a sales negotiation. If you verbally agree on a discount or special terms, putting it in writing ensures mutual understanding later. The written document serves as proof of the agreement and can be referred to if there are any discrepancies.

Another example is in the context of project management. If you verbally agree on project milestones, deliverables, and timelines, putting these details in writing ensures that everyone is on the same page and provides a clear roadmap for the project.

Negotiation Principle 7: Concentrate on the Issues, not the drama

When you negotiate between cultures, you will often see all kinds of drama. The Chinese will want to drink with you, the Italians will wave their hands about and sound very passionate, the Japanese will seem to say yes to you all the time but never agree to anything, and the Indians will wobble their heads—you think they mean yes, but they mean no. People will feel 'insulted' and walk out or protect undying friendships. These are all smoke and mirrors. Keep your eyes on the core issues, not the behaviour, or you will never realize when the magician has pulled their trick on you.

For instance, in a cross-cultural business negotiation, you might encounter various behaviours that can be distracting or confusing. The key is to focus on the core issues, such as price, delivery timelines, and quality standards. Concentrating on the issues rather than the behaviours allows you to navigate the cultural nuances and reach a mutually beneficial agreement.

In another example, consider a negotiation where the other party tries to create a sense of urgency or emotional pressure. They might use tactics like walking out of the room or making dramatic statements. By staying focused on the core issues and not getting swayed by the theatrics, you can maintain control of the negotiation and work towards a favourable outcome.

Another scenario occurs in labour negotiations. Union representatives might use emotional appeals or create a sense of solidarity to pressure the employer into making concessions. The employer can navigate the emotional aspects and reach a fair agreement by focusing on the core issues, such as wages, benefits, and working conditions.

Negotiation Principle 8: Always Congratulate the Other Side

However poorly you think the other person may have done in the negotiations, you should always congratulate the other side when you're through negotiating. Say, "Wow, did you do a fantastic job negotiating that! I realize I didn't get as good a deal as I could have, but it was worth it because I learned so much about negotiating. You were brilliant."

You want the other person to feel that they won in the negotiations. Good negotiators always want the other parties to think that they won.

This principle is essential for maintaining positive relationships and ensuring both sides conduct future negotiations in good faith. For example, after concluding a contract negotiation with a supplier, you might say, "You did an excellent job negotiating this deal. I appreciate your flexibility and the effort you put into reaching an agreement. I'm looking forward to working together." These words leave the other party feeling valued and respected, which can lead to a more robust business relationship.

Another example is in the context of client negotiations. After finalizing a contract with a client, you might say, "I'm really impressed with how you handled this negotiation. I believe we've reached a deal that benefits both of us, and I'm excited to move forward with our partnership." This statement reinforces the positive aspects of the negotiation and sets the stage for a successful collaboration.

What to Expect in This Series

This series of articles provides a comprehensive understanding of high-impact negotiation frameworks. We will delve into various tactics and principles that can be applied in different negotiation scenarios. Whether you are a seasoned negotiator or just starting out, these insights will help you refine your skills and achieve better outcomes.

Negotiating works with a set of rules, just like chess. Like in chess, it has an opening, middle, and end game. The big difference between negotiating and chess is that, in negotiating, the other person doesn't have to know the rules. The first article covered key principles, and the next series will cover early tactics, mid-game tactics, end-game tactics, and how to manage pressure situations. I will publish one weekly for the next five weeks to give detailed frameworks to help readers become better negotiators.

Each article will provide detailed explanations, real-life examples, and actionable strategies you can implement immediately. By the end of this series, you will have a robust toolkit of negotiation techniques that will empower you to navigate even the most challenging negotiations confidently.

What's to Come in This Series of Frameworks

Negotiation Principles

1. Get the Other Side to Commit First

2. Acting Dumb Is Smart

3. Don't Let the Other Side Write the Contract

4. Read the Contract Every Time

5. Understand and decode Funny Money

6. People Believe What They See in Writing

7. Concentrate on the Issues

8. Always Congratulate the Other Side

Early-Stage Tactics

1. Ask for More Than You Expect to Get

2. Never Say Yes to the First Offer

3. Flinch at Proposals

4. Avoid Confrontational Negotiation

5. The Reluctant Seller and the Reluctant Buyer

Middle-Stage Tactics

1. The Vise Technique

2. Person with No Authority to Decide

3. The Declining Value of Services

4. Never Offer to Split the Difference

5. Handling Impasses

6. Handling Stalemates

7. Handling Deadlocks

8. Always Ask for a Trade-off

Ending-Stage Tactics

1. Good Guy/Bad Guy

2. Nibbling

3. Tapering Concessions

4. The Withdrawing an Offer tactic

5. Positioning for Easy Acceptance

Unethical Tactics

1. The Decoy

2. The Red Herring

3. Cherry Picking

4. The Deliberate Mistake

5. The Default

6. Escalation

7. Planted Information

Pressure Tactics

1. Time Pressure

2. Information Power

3. Being Prepared to Walk Away

4. Take It or Leave It

5. The Fait Accompli

6. The Hot Potato

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Sources:

These frameworks have been developed and honed through real-life experience negotiating across markets and industries.

They have been informed by various training programs and books - chiefly Roger Dawson's amazing 'Secrets of Power Negotiating', "You Can Negotiate Anything" by Herb Cohen and "Getting to Yes: Negotiating Agreement Without Giving In" by Roger Fisher, William Ury, and Bruce Patton.

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