Sunday, May 26, 2024

Getting Ready: The four-step pre-negotiation analysis all business leaders need

Preparing properly is the key to a successful negotiation for all entrepreneurs and business leaders.  It is essential to view this time as an opportunity to broaden your perspective and to imagine what your negotiation partners are thinking as they prepare to meet with you.

This is not easy. A pre-negotiation analysis requires being able to look at your own narratives and emotions critically. It means putting aside time to focus on interests – both yours and theirs – and thinking about the risks and opportunities you face.  In our book, Entrepreneurial Negotiation: Understanding and Managing the Relationships That Determine Your Entrepreneurial Success, we include real-world examples of how to do this, drawn from our interviews with successful entrepreneurs.  When the stakes are high, the relationship is important, there is significant uncertainty involved, and emotions and ego can get in the way, a good pre-negotiation analysis is imperative. Here are four keys to preparing properly:

1.Clarify Your Own Interests, As Well As Theirs

The first step in a pre-negotiation analysis is to clarify the interests of everyone involved. This means mapping wants and needs that could serve as the basis for mutually advantageous trades.  List both tangible interests as well as intangibles.

Sometimes, real interests are hiding beneath exaggerated demands. It may require some digging to differentiate between the other side’s stated positions and their underlying interests.  Try to answer this question: “Why is this important to them?”  Underlying motives can be intuited by reviewing the relationship history, prior proposals, and recent communications. For example, a start-up trying to negotiate the sale of a new product to an established corporation may review the stated reasons the corporation needs the product: operational reasons, marketing pressures, certain features (in order of priority), and delivery dates, as well as their needs in the area of quality, customer service, payment terms, liability, legal clauses, and others. These can be augmented with information from open sources, such as newspaper articles, interviews and social media postings, as well as by investigating what their emotional concerns might be. Working hard to enumerate everyone’s interests, including your own, in rank order, can prevent making the mistake of missing something important that’s being said because you are too focused on your own concerns.

Be ready with multiple proposals likely to meet the other side’s most important interests reasonably well, while meeting your interests very well.  For example, if you realize that time to market is more important than a fully featured product, you may have a proposal that includes fewer features, but earlier delivery. Be ready to provide independent evidence and arguments to justify the reasonableness of your proposals.  Use several slightly different proposals (any of which are fine with you) to smoke out the other side’s priorities.

2. Assess Opportunities And Risks

Think hard about what you give up or what you lose if no deal is reached. What would happen to the parties if all sides are stuck with their “walkaway” alternatives?  Once you have done your best to confirm your own walkaway as well as the other party’s walkaway, you should be able to determine whether there is a trading zone, and if so, what its boundaries are. Within this zone, if there is one, there will be an edge that is great for you and barely acceptable to your negotiating partners. When there is a zone of possible agreement (i.e. the range between the two side’s “Best Alternative To A Negotiated Agreement”), there is still the question of where within those boundaries a deal with be struck. For example, the start-up should consider not only what would happen to them if they don’t get the deal, but also consider what alternatives does the potential customer have as far as making this product themselves, sourcing it elsewhere, or simply going about their business without it.

On the opportunities side, think hard about the agenda items that must be addressed during your upcoming meeting.  Each agenda item might relate to several interests (both your and theirs). If important interests are missing, add more agenda items.  There is value in adding additional agenda items if they enable you to generate more trades, that is – giving them something that is important to them in exchange for something that is very important for you. Try to consider what package of items would be desirable for you, and also acceptable to the other side. You may be tempted to negotiate agenda items one at a time; that would be a mistake. Consider timing, price, payment terms, assurances, publicity (who gets credit), and future deals at the same time. What trades are possible?

3. Identify Information Gaps – information To Seek

A common mistake is jumping too quickly to conclusions about the other side. It is easy to become blind to disconfirming evidence once you are sure what the other side is going to say (and why). This may be found by talking to others who have experience negotiating with the people you are about to negotiate with.  Most importantly, have a list of information gaps and questions ready. Having such a list will help you listen to their answers before you assume your initial assumptions are correct; as well as to listen closely for confirmation that your tentative assumptions are right.  Think hard about the other side’s strongly held values.

Developing these habits during your pre-negotiation analysis will help you later (during both your pre-negotiation moves, and while at the negotiation table), to pick up on things that you didn’t expect.

4. Anticipate The Best Means Of Creating Value

If you could control the content and pace of an upcoming negotiation, what process would you choose, and why? What are the best process choices for creating value? Be ready to offer process leadership, by suggesting a way to proceed, that will lead to the most favorable outcome for you and for them.

For example, you can prepare to negotiate about how you are going to negotiate. Invest some time thinking through your process preferences, or steps that can be added (i.e. joint fact finding) that might benefit both sides. Often the parties show up to the negotiation wanting to immediately “get down to business” by trading positional statements on price and delivery dates. This usually leads to “haggling,” rather than value creation. Instead, begin with a short period of brainstorming during which nothing said can be construed as a commitment.  This almost always helps generate new ideas and possible trades or packages. You will need buy-in from the other side, of course, so be prepared to explain that what you have in mind will be good for both of you.

In many ways preparation is the most important step in any entrepreneurial negotiation.  As part of that preparation, a pre-negotiation analysis is essential. It will help result in a realistic, deliberate, and rewarding session.

Samuel Dinnar and Lawrence Susskind are the co-authors of Entrepreneurial Negotiation: Understanding And Managing The Relationships That Determine Your Entrepreneurial Success


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Samuel Dinnar and Lawrence Susskind
Samuel Dinnar and Lawrence Susskind
Samuel Dinnar is an instructor at the Program on Negotiation at Harvard Law School, with a 25-year track record as a global entrepreneur, hi-tech executive, board member, and venture capital investor. Lawrence Susskind has been an innovator and Professor at MIT for more than forty-five years. He is one of the founders and directors of the Program on Negotiation at Harvard Law School, and the founder of the Consensus Building Institute.