Risk and Strategic Relationship Consideration Before Negotiation

Risk
Every deal has a certain amount of risk in it. If you are taking most of the risk, you deserve compensation against the occasional time when the risk becomes reality — when you have to fix something because you took the risk. For instance, if you are contracting a job and your client wants you to hire certain workers instead of him hiring those workers, you are taking a risk. You are taking the risk that they won’t show up or that they will do sloppy work or . . . or . . . or. You deserve — no, you need — to mark up the cost of those subcontractors because you are taking the risk that they won’t perform. Maybe not on this job, but someday you will have to make good for somebody else’s goof.

Strategic relationship
Watch out for this one. People will often try to get you to lower your price on the promise of more business in the future or because they are such an important customer. If none of the other factors that are listed above are present, don’t do it. It’s seldom worth it. These important clients can run you into the ground. More often than not, you want to take care of these customers with superior service. That will get them talking you up, and it will make it easier for you to hold your price with everyone else. After all, if Joe Big Shot is paying $X, surely everyone else will have to pay $X also

Preparing for Changes Before Negotiation

Anyone who has ever added a bathroom to her house or updated a kitchen knows that she will have to pay something when she changes from red tiles to blue tiles. Even if the tiles haven’t been ordered, most contractors let you know that “changes cost money.” At a minimum, the contractor has to change the order. He may have a hard time getting the new color, or it may not arrive on time. These are all risks that have to be taken into account. He ought to be compensated for that.

Scope creep is the most insidious form of a change, and it happens all the time. You have a big job. The client says, “Would you mind just doing this one little thing?” It sounds sort of like when you’re at home and your spouse calls out, “While you are up, can you get ----?” Typically, you’re happy to do it at home, and you’re happy to do it on a job site. The difference is that at home, you will be back in bed or back at the dinner table and that is the end of it. And sometime in the not-too-distant future, you will want to make the same request of your spouse.

At work, it’s usually a one-way request and once it starts, it doesn’t just stop there. Over time, you have done a lot of extra uncompensated work. Most companies have a policy to control this. If your company does not, install one now. At the very least, be sure that the customer is aware that he has been given something for free. You can do this a number ways. One is just to drop him a note saying that you were happy that you were able to do what he asked, and you wanted to let him know that there would be no charge for it. You put that in the job file, and that way you can keep track of these little extras. They tend to add up, but you forget all about them if you don’t make a note of them.

Time, Quality and Quantity Preparation for Negotiation

Time
Whenever someone wants something in a rush, pull out your pocket calculator. The price should go up. Even if you decide not to charge more, mention the possibility and push some buttons for a while. Many businesses post the extra tariff for a rush job. If you don’t have a preset increase for a job or product that has to be delivered with extra speed, at least be aware of the concept and think about charging a little extra for the pleasure of a fast delivery.

Quality
When specifications tighten up, the price must go up. There is nothing wrong with a customer being very specific about the shade of blue or the width of a cabinet, but pickiness comes at a price. It takes extra time for you to be sure that you meet those specifications, and you must factor that into the price.

Quantity
It almost goes without saying that a large order lowers the per-unit price whether you are purchasing widgets or legal services. Is the reverse ever true? Well, yes. If the purchase is so large that it corners the market or takes the supplier off the market, the price should go up, not down. For instance, if someone is buying so much silver that he controls the silver market, make sure he pays a premium for that purchase because after he has cornered the market, he controls the price that you can charge in the future. You and everyone else would be at his mercy. Or if you’re a CPA or a lawyer and one client takes so much of your time that you can’t service any other clients, then you have to be sure that you earn the same amount annually from that one client as you would from many clients. You also have to be prepared in case that megaclient dies or leaves you. This means that this megaclient does not get a price break and may actually pay more per hour than someone else.

How to stay informed on everything?

Prepare yourself on an ongoing basis for the most common negotiations in your life. If you sell boats for a living, you should know more about the kind of boats you sell than anybody else in the world. Attend boat shows open to the general public as well as seminars for the professional salesperson. Seek out the designers and manufacturers of your boats for detailed information.

Talk with your co-workers over the water cooler. Take advantage of all these varied resources. For instance, if you are a talent agent in Hollywood, know the type of material studios and production companies are looking for. Don’t waste your client’s time by sending him or her out to pointless meetings. Moreover, you don’t want your clients knowing more about the marketplace and having them tell you what companies they should target. Stay up-to-date on the latest deals, the latest information about the prices that things are being sold for, and the latest company mergers.

Staying informed will benefit both you and your client. The quality of the advice and information you receive varies widely. Decide what to keep in your treasure box of information and what to reject, but keep exposing yourself to anything and everything that can increase your stockpile of information. You never know when some bit of trivia can become your secret weapon in a negotiation.

Recognizing agendas: The source shades the results

As you gather information about the negotiation you are about to enter, remember that everybody has an agenda. Everybody. If agenda sounds like too strong a word — or if it sounds somewhat pejorative — let’s say that everyone has a point of view. No human is without bias. It’s the way we are wired. It’s not bad that the source you go to has a point of view.

That point of view may differ from yours. Prepare to be challenged if it does. Your job is to recognize that point of view and to factor it in as you gather your information. Say that you find a painting in your late grandmother’s attic and you’re curious as to what it’s worth. It’s a handsome painting, but you know nothing about painters or painting. You are trying to decide what to do with it. Your best friend is of no help whatsoever, so the two of you take it to various sources to find out what it is worth.

• Your mother: To her, this painting may have great value because of the emotional attachment that she has to it. She puts a high value on it.
• A gallery that takes paintings on consignment: The gallery may take an objective view of the painting — no emotional attachment. A high offer may be made if the painting is from a renowned artist.
• A pawn shop: A pawnbroker may offer a low amount of money because he is making a loan that he doesn’t expect to be repaid. The pawnbroker will have to sell the item. If you have ever been in a pawn shop, you know that there is a huge stock of items. Things must sit on the shelf for a while to allow people time to redeem them.

Each one of these people is giving you his or her honest opinion. Each one is coming from a different place, a different point of reference. When you talk to each of these people, you’ll need to factor his or her point of view into the person’s evaluation of what the painting is worth. Depending on whether you want to sell the painting or keep it and insure it, you will know what figure suits your purposes.

How to solve the mystery of value?

Some types of preparation seem almost instinctive to many people. Every family seems to have a designated researcher. If preparation know-how doesn’t come naturally to you or your family, try to make a game of it. If you are entering a negotiation to buy or sell a product or service, pretend that you’re solving a mystery — the mystery of value. What is the product or service worth? Forget about the asking price — what is it really worth?

Begin with these two important facts:

• Value is always in the eye of the beholder. When you finish with your research, only you can conclude the ultimate value a service or product holds for you. You’re the one who will be spending (or receiving) your money. You must decide.
• From diamonds to dime stores, experts compile price surveys and put out a report on what various items are fetching in the marketplace. These publications are how insiders know what’s going on in the world. Whether you’re buying a hotel or a holiday in a hotel, you can find insider information on the price of the purchase.

Don’t forget that values change over time. One important thing for you to decide, if you are a purchaser, is how long you’re going to keep the item you are buying. The longer you plan to keep your purchase, the longer it needs to hold its value. Information about normal depreciation is as available as information on current value — usually in the same place. Knowing the rate of depreciation for an item is certainly just as important as knowing its current value.

As you gather information, be sure to keep good notes. You can’t expect to keep all the facts you gather in your head. Good notes are easy to make as you go and can be invaluable as negotiations progress. Usually, one or two kinds of negotiation recur in your business. For those recurring negotiations, you may want to keep a separate notebook with the information you gather. For example, if you are a service provider or a consultant, your time is your inventory.

You may have a set fee (or fee range) depending on how much time you spend and how far away the contract takes you from your home base. (Remember: You usually can’t charge for jet lag recovery time, but you expend your time nevertheless.) Keeping accurate notes can help you determine whether your fee structure is adequate or whether you need to demand more during future negotiations.

Know the subject matter, before making a negotiation

When you begin the actual dialogue, make sure that you know more about the subject matter than does the person with whom you’re negotiating. You aren’t arming yourself with this information so you can be a showoff or so you can put the other person down or to make the other person feel inferior. It’s to make you the authority figure in the room. Don’t rush it. Let all your preparation come out naturally and with as many specifics as possible. Think of your favorite teacher you had in school — the one with patience and the ability to explain ideas clearly. That’s how you want to deliver the information that you have stored up for this meeting.

Also, if you’re really knowledgeable and someone says something that you have never heard before (and you suspect is not true), it carries a lot more meaning when you say, “Hmm, I haven’t heard that before. Let me check into it.” If you, with all your knowledge, haven’t heard of something, maybe it isn’t true. You won’t have to say anything. Everyone will fill in the blanks for you.

All organizations, big or small, have information available to you whether it is via the Internet, in print, or through word-of-mouth. You impress the person on the other side of the table when you walk into a room with all the knowledge at your fingertips. Sometimes, I hear people say that they overprepared for a certain negotiation. That’s never true. The fact that you had information that didn’t come out of your mouth doesn’t mean that you overprepared. All that preparation made you confident. You were unafraid of any question. You had it all in your head, and it served a purpose, even if the purpose was never put into words in the actual negotiating session. The negotiator with the most information wins!

Rob Reiner’s A Few Good Men is a film about playing detective and preparing for the ultimate negotiation — in this case a courtroom battle between a disgruntled lawyer played by Tom Cruise and an evil military commander, played by Jack Nicholson. Watch Cruise’s character and his team plan and strategize their courtroom argument. The preparation is intricate, the team knowing well that the defense will put up a tough fight. The story is based on fact, where a Marine at the Guantanamo Naval Air Station in Cuba dies after a hazing incident. Two Marines are charged with the death, but Cruise and his team suspect there is more to the story. They gather much information. The climactic trial is an engrossing battle of words, but with Cruise’s team well prepared with information about the commander’s notorious history, they win the case. Digging for information is hard work, but the payoff can be rewarding.

Always read insiders report before taking on a negotiation

Take time to find out what the people in the business pay for the goods or services you want to buy or sell. This strategy can save you a fortune over the course of your life. Don’t rely on what friends tell you, although they may provide good hints and direction. Go to the people who tell the merchants what to charge. Go to the source the insiders use. No matter what the subject, someone has devoted a lifetime of work to evaluating and commenting on it. This is just a fact of modern life. Nothing is too arcane to study, dissect, catalog, and chronicle. Often, you find out about these insider reports from someone trying to convince you of just what a great deal you are getting.

• For automobile dealers, the bible is called the Kelley Blue Book Auto Market Report.
• The cost of money for almost anything (home mortgages and interest paid on savings accounts or car loans) is printed regularly in The Wall Street Journal.
• In the entertainment industry, the daily periodicals Variety and The Hollywood Reporter announce script sales, weekend box office numbers, new production entities, and executive shuffles.
• Prices of gold and other basic metals are printed in the Sunday editions of most major metropolitan newspapers.

Ask questions to enhance your negotiation chance for success

Even after a negotiation gets under way, you can continue your preparation by asking your counterpart questions. Some people are reluctant to ask questions because they’re afraid of appearing dumb. This is false pride at its most expensive. You’re flying blind without accurate information. You can’t worsen your position by requesting information from your counterpart. Your job is to get a good outcome — not to impress the seller. If you have unanswered questions, ask. Keep in mind that the answer you receive to your question during a negotiation may or may not be accurate. Always accept it with respect . . . and then check it out for yourself. You have an obligation to be sure that any information you are relying on is, indeed, reliable.

What if you’re out of your element? Don’t try to hide your lack of expertise. If you’re dealing with someone who is really knowledgeable in a field, and you’re not so experienced, honesty — once again — turns out to be the best policy. Eventually, the differential will surface. It’s better to reveal your inexperience yourself, and then you can ask all the questions necessary and request additional time to research the topic.
You don’t have to make a deal until you are ready. Closing a deal is a voluntary act. Get your information from anyone you can — including the opposition. The more your counterpart wants to reach an agreement, the more quickly you will receive the data you need to make your decision.

Shopping the competition

Don’t hesitate to do your own research. Rather than read about what is happening in the marketplace, pound the pavement for the information. A firsthand look can be a real eye-opener. Suppose that you’re planning to purchase an apartment building. You may want to play the role of a prospective renter before ever offering to become an owner of the entire building. Walk through the neighborhood, visiting other apartment buildings. In an hour, you can become the world’s leading expert on the price and availability of apartments in that block or two. Talk with tenants in the building you’re planning to buy. That approach always produces more reliable information than talking with the owner or the owner’s representative.

Whether you are buying or selling, a shopping trip is one of the best ways to educate yourself about price, availability, and quality considerations. I’m not talking about buying — just shopping. Frankly, this is the only kind of shopping I really enjoy. The more we know, the better we feel. Don’t forget to make notes during your shopping expedition. You’ll be gathering a great deal of new information. You may remember most of it; but without good notes, you won’t remember where you got the different pieces of information.

Visiting the library

The library is one of the most underused negotiating resources in your community. Reintroducing yourself to this great institution can be a blast. The library has all sorts of resources you can use to find the value of various goods or services. Of course, the Internet has sharply decreased everyone’s visits to the library, but it remains a good source for hard-to-find periodicals and research materials.
When you go to the library, don’t be afraid to ask for help. Librarians are among the most helpful people in the world, and most city libraries designate a staff person to assist in research

Browse the Internet for Negotiation Preparation

Browsing the Internet is perhaps the easiest and fastest way to research the marketplace because the Internet is a giant warehouse of information on any topic you can imagine. The list of reliable search engines continues to grow and improve as technology evolves. If you visit the Web sites for search engines Google, Yahoo!, and Ask.com (to name just a few), or use Wikipedia to research various topics, you’ll discover that nearly any information you need is at your fingertips. Make it a habit to visit any or all of these Web sites before entering a negotiation. Remember, knowledge puts you a step ahead of the game.

But don’t believe everything you read on the Internet just because it’s sitting there in black and white. Anybody can put anything up on the Internet to be read by the world. Check your sources carefully. Information from the Internet is not like the information you find in a book from a reputable publisher in which editors have pored over every sentence for clarity and accuracy. Blogs in particular require scrutiny because most of them present the unabashed opinion of the author. Many sites are sponsored by commercial entities whose sole and undeniable aim is to change your mind about something or sell you something, and if the best way to do that is to leave out some essential facts, so be it. That being said, the Internet is a mighty awesome source of information.

But no one source is perfect for providing answers to everything. If the Internet doesn’t help you find the information that you need, the following sections discuss other resources that very well may.

Gathering Information: The One with the Most Knowledge Wins

Some people think that power comes from size, gruffness, or clout, but the easiest and most effective single thing you can do to increase your power is to prepare. You may be facing the greatest negotiator in the world, but if you’re prepared, and the greatest negotiator isn’t, you have the upper hand. Yet people routinely shortchange themselves when it comes to preparation. Even experienced negotiators often sacrifice solid preparation on the altar of self-confidence or a crushing time schedule. Some negotiators don’t fully appreciate the value of spending the extra time and effort on thorough preparation. To others, preparing just feels like drudge work.

Preparation doesn’t have to be dull. Preparing for a negotiation can trigger the same type of excitement experienced when preparing for a military scouting mission. Your palms may not sweat, but the rush is similar. You’re about to head into the unknown. The outcome is uncertain. Pulling together data is like girding your loins, checking your ammo, becoming secure, and getting ready. Prepare as though you are going into battle.