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The art of negotiation

Want to cut a deal? Liz Donnelly discovers three rules of Kiwi dealmakers

Want to cut a deal? Liz Donnelly discovers three rules of Kiwi dealmakers

Someone has a great ideaand needs money to make it happen. Someone else is scouting for a solution to a problem, a  fantastic idea or people to invest in. Each has something the other wants. It’s time to negotiate.

1. Clue up

The better briefed each party is, the more professional the negotiation will be. Consider your priorities, your desired outcome and the alternatives. Prepare statements that support this position and anticipate possible responses. Know your individual strengths and weaknesses and spend time on both, perhaps doing role plays. Create three lists: a non-negotiable list (including the point when you walk away), a list of concessions, and beside each concession something you are prepared to trade.

Research on the other party is vital too. What do they want? What are their alternatives? Study the backgrounds of everyone you will deal with and the company culture and values. Jenny Morel of venture capitalist Number 8 Ventures likens this to getting a map of the terrain before setting out. “If you need to contact them to gather this information, keep things controlled,” she says. “Every contact forms part of the negotiation.” Once the information is collected, prepare another set of questions and anticipate the responses. At this point you may be able to flag what’s going to be a win for the other party if you offer it during the negotiations.

2. Find sweet spots

Negotiation is often the beginning of a business partnership. Instead of squaring off in full armour against a perceived enemy, plan to work together for a good result (‘win-win’). This co-operative approach is more productive than ruthless jousting until a winner emerges (‘win-lose’). Andrew Harmos, an NZX and Westfield director who acted for Australia’s Prime Infrastructure on its NZ$680 million bid for Powerco, says the jousting approach only works “if the team that loses thinks they have in fact won”.

You won’t know everything about the other party, so retain room to manoeuvre while remaining true to your plan. “In a negotiation to sell part of a business we discovered the accounting treatment was incredibly important to the person we were selling to,” says Morel. “We hadn’t even considered that. Another time we found a continuing cash income was valued more than a capital sum, even when, logically, the two should have been the same.”

Once the teams meet, follow your principles. This is about more than ethics and honesty: it ensures consistency and it influences the way in which your position is advanced and protected. The whole negotiation will flow logically from the principled position—and it’s difficult to debate with logic.

3. Always be closing

The first party to name a price sets the field for negotiations. Morel suggests one approach is to describe to the other party how you see the business (or idea) and how you would value it—so you come to the same conclusion on the valuation. When the moment arrives to pitch a price or ask for one, take a deep breath and take the plunge. Then listen carefully to all offers and work out the other party’s reasoning. Bargaining and compromise come at the end; you don’t need to make bigger concessions than are absolutely necessary and if you’re aware of the context you’re better able to react.

As negotiations progress take note of discrepancies and clarify every point immediately. If you keep silent and talks proceed it’s on the assumption you accept that point. If something becomes a real thorn and you decide to yield, trade it for something. If bullying tactics begin, call for a time out or find another angle. Change the frame of the negotiation to suit you no matter how urgent the situation.

Stress levels can be high. Know when it’s time to quit and be prepared to walk away from the deal, even if this hurts! Ensure all parties understand the terms. Put it in writing, sign on the dotted line and shake hands.

Sometimes seemingly insurmountable obstacles can be overcome by thinking laterally. Alistair Duff, general manager of programme partnerships at TVNZ, negotiated an innovative deal around the last Rugby World Cup involving Steinlager, the New Zealand Rugby Union and TVNZ. The World Cup was sponsored by Heineken, but Steinlager re-established their connection with the All Blacks by funding five rugby documentaries called The Mighty Pride. Duff and his team then negotiated another deal with Fairfax which sold over 100,000 Mighty Pride DVDs.

Negotiation is actually about building a relationship that’s sustainable. In the future it’s likely you’ll be working alongside the person you’ve just negotiated with. So start as you mean to go on: clued-up, cooperative and professional.