Last week Rob Cottingham pointed me to ReadWriteStart piece entitled Learn to Negotiate and Close. It’s filled with some good – if unfortunately titled – advice particularly around focusing on listening and not derailing a deal by talking too much (“Two Ears, One Mouth”) as well as speaking to your client/prospective partner’s interests (“Wait Until You Hear Them Scream”). One section, however entitled “Using Tension to your Advantage” felt problematic and tweaked the negotiation consultant in me.
For example, in that section they advocate:
Donald Trump (the real-estate developer), in his book “The Art of the Deal,” talks about guiding the other side to the point that they really want the deal and think it is in the bag. Then he backs off and demands major concessions. Smart buyers everywhere have learned some variation of this tactic.
This is when you get a knot in your stomach and may witness table-banging and raised voices. All of this unpleasant stuff is good news. Experienced deal closers recognize these as signs that a deal is closing. The absence of these signs is actually a cause for concern!
One thread running through all good negotiations is some sign of real pain from the buyer that leaves you confident you are not leaving too much money on the table. Of course, the buyer knows you will be looking for this and will send signals that you have reached their limit. The skill comes in differentiating between fake pain, as in “This is well above our budget, and my boss will kill me if I agree,” and the real thing. The buyer will also be looking for the same signs from you.
From my experience negotiating, this statement is fraught with problems – and can be downright dangerous as advice. Here are a few reasons why:
First, unless you are a deeply skilled mind reader, “reading the signs” isn’t an executable strategy. Indeed, the real risk with this strategy is that by adopting it, you shift your goal. You cease to be focused on creating a deal that you would find acceptable and start trying to identify the deal you think your counterpart will be willing to accept. You metric for success moves from what you want (or need), to what you think you think they will accept.
The fact is, you will never know the limit of what you counterpart is willing to accept until they are walking away – and even then, maybe it’s all part of an act? This belief that a good negotiator can tell the difference is simply untrue. Maybe you can read when they are bluffing and when they are not… but I’m willing to bet that however good you think you are, you can’t read them that well. Indeed, you probably have no idea what is going on in their head (just like they probably don’t know what’s going on in your head).
Promotes poor communication
This is the other part of this approach that is problematic. It promotes poor communication, and to be blunt, lying. If I think you are looking for signals that I’ve reached my limit – I’m going to send you those signals, whether you’ve reached my limit or not. In essence, I’m going to lie to you. And if I’m lying about that… what else might I be lying about? This is the dynamic that this approach helps reinforce. Rather than a negotiation that allows us to brainstorm creative solutions or identify what is really important we spend our time dancing around the issues and pour our energy in to focusing on “what signals we are sending?” and trying to “read” them.
The fact is once you tell me something is a deal breaker, and then you compromise on it – I learn that dealbreakers for you aren’t really dealbreakers, they are just efforts to manipulate me. Do that more than once and my trust in anything you say will quickly erode… which will inevitably lead to me to ask myself: why am I doing business with you?
Break down trust
The fact that poor communication breaks down trust isn’t academic. Good negotiations can only occur if there is some basic degree of trust. My willingness to share information, to brainstorm, to see the problem from your perspective are all made easier if I believe I can trust you. Breakdown trust, and you breakdown the very environment needed to create wealth and good outcomes.
If Trump tried to pull that last minute deal changing arrangement on me I’d consider walking away or throwing a bunch of my own last minute demands into the mix. Indeed, I’ve had this happen to clients before and I advise them to say: “Wow, it sounds like you’d like to change the terms of the agreement I thought we’d already agreed upon. If you aren’t happy with those terms I’m willing to reopen the negotiation over them, but have a bunch of terms I’d like to see renegotiated as well. If those issues back to the table, I think I’ll bring forward a number of my own as well.” This usually shuts this strategy down – while they may want to renegotiate pieces of the deal they aren’t thrilled with, they probably aren’t willing to do so at the risk of also renegotiating the parts of the deal they are thrilled with. There is a reason you’ve both come this far – you both believe the deal is mutually acceptable.
The real danger with the Trump strategy however (and the reason I’d seriously consider walking away) is that it underestimates the risks of exploiting the tension. While some people might cave to Trump, I’d be asking myself the question: do I want to do business with someone who is going to constantly try to exploit me rather than work with me? Maybe Trump’s deals are always purely transactional and he’s never going to work with his counterpart on an ongoing basis. But many deals I work on don’t complete the relationship between the two parties, they start the relationship. Do you want a business partner you can trust, or one that is always seeking not to create wealth, but hive it off for themselves? Worst still – what I am teaching Trump? Every time he adds last minute changes, even if I only cave on one or two of them, I’m teaching him to make last minute demands. I’m helping make this problem worse in the future not better. All this to say that if you don’t have some basic level of trust in the person you are going to work with, are you going to share critical information? Are they going to share it with you? What is the likelihood of your business taking off in that environment? Not that good, I suspect.
Stay focus on your interests and goals
For me, exploiting the tension runs real risk of derailing the negotiation or worse, the relationship with your counterpart (nothing is more toxic than an agreement between two parties in which they hate each other/don’t trust each other, it’s pretty much guaranteed everybody will lose money in that situation). Obviously I have lots of advice around negotiating, but two things I like to keep front and centre are:
First, identify what will make you happy. In short, know your goal – what you need and why. Money is important, but so are other things: stability, duration, trust, good process, the capacity to withstand surprises. All of these (and countless others) might be important to you – figure out what really matters. In addition identify external benchmarks – outcomes from other similar deals – that you can use as reference points. Few deals are genuinely new, most deals are structured around what has occurred before. These are powerful reference points that can be persuasive to the other side (and to your own sense of fairness)
Second, create conditions for a good negotiation. The how you negotiation is as important as the what you negotiate. What irks me about the above advice is that is advocates for a how that promotes poor communication and erodes trust. You and your counterpart can set the rules for how you are going to work together – make sure you do. And remember, you are constantly modelling behaviour regarding how you expect your counterpart to act. Ultimately, some negotiations are going to get nasty – but they don’t all have to be that way and it starts by not assuming they have to be nasty.
Ultimately you can spend your time trying to “read” your counterparts or your can create an environment where you can just ask them. My preference is to focus on the later. In doing so you’re more likely to develop creative outcomes and grow the value of the deal.