Business

A Yale Expert’s Three Tips For Better Negotiations



Business leaders can’t go it alone. They must work with  employees,  customers, investors, suppliers, partners, and communities. Each of these relationships is at risk when leaders enter into negotiations.

Here are some examples of how negotiations can put your business at risk:

  • An engineering leader developing your company’s new product gets an offer from a rival. If you can’t agree on a new pay package, your competitor will be better off and your company could lose a growth opportunity.
  • A supplier of a key raw material proposes a 20 percent price increase due to a surge in demand and a lack of production capacity. If you pay the price, your profits will evaporate but if you lose the supply, you will fall short of your production goals.
  • Your company is months away from running short on cash. Your lead investor is happy to supply the money you need — but only if you reduce your cash burn rate by $5 million and accept a 50 percent cut in your company’s valuation. If you accept the terms, your best people could leave. If not, you might run out of cash.

Turning these situations into wins for you and your negotiating partner is a skill that business leaders must master. Yale School of Management professor Barry Nalebuff is an expert on this topic — with “30 years of experience teaching negotiation, strategy, innovation and game theory,” according to the Wall Street Journal

The goal of negotiations, in his view, is to create more through an agreement than you could get without a deal. Here are three negotiating tips from Nalebuff and how you can put them to work for you.

1. Agree on the pie.

In a negotiation, it is easy to skip past a very important first step: agreeing with your negotiating partner which pie you are trying to split up. Before you negotiate about that, you should agree on the pie.

A case in point — which is very common these days — is a landlord who wants to sell her property in a hot market. Rather than simply offer the property to the highest bidder, starting at, say $800,000, the landlord offers to sell to the tenant for $790,000.

That price is not the relevant pie. Instead, as Nalebuff pointed out, the parties are really negotiating over the 5 percent sales commission — about $40,000. To that end, the tenant tells the landlord, I am happy to pay the market price and I want us to split the commission savings evenly between us. 

In this case, the tenant’s deal prevails. While the landlord thinks the hot market means she should get more of the $40,000 savings, the tenant argues, “If you sell to anybody else at $800,000 you’re only going to collect $760,000. If I buy a comparable house from anybody else, I’m going to have to pay $800,000. So you need me just as much as I need you to save that $40,000.”

Simply put, if you can make it clear how much you and your negotiating partner need each other, you can both be better off by negotiating over the right pie.

2. Make the pie bigger.

Once you agree on the pie, you should try to make it bigger. To that end, Nalebuff argues that you should “ask for things that are cheap for them and valuable to you, not what’s costly to them.”

For example, if an employee asks for, say, an eight percent raise, the company will need to give it to everyone — making it very expensive for the company. However, it might be possible to request a $10,000 one-time bonus that the employer might not need to offer to all employees.

3. Say “yes, if,” not “no, unless.”

These days, many employees are getting job offers elsewhere and demanding a raise from their current employer before quitting.

Let’s say that you enjoy working at the company and want to say, however, the one two percent raise you received in the last three years is not enough for you to keep up with high inflation.

Rather than telling the employer that you will leave unless you get, say, a 20 percent raise; it is much better for you and the employer if you tell them what they could to for you to be happy to stay.
Help the employer to see that it will be cheaper for them to pay you — a generally happy and productive employee — more to stay than to “hire somebody like you and pay them a whole lot more money,” noted the Journal.

Do these three things and you will turn risky negotiations into deals that make you and others better off.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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