Note from the future: Post MBA I stumbled upon this post and was pretty embarrassed to see how poor a negotiator I was during this phase of my life. Nonetheless, I have kept the post here in its entirety to show how deep a hole I started in as an artist-entrepreneur. However, I have put notes into the text below to correct statements that I now find patently silly/dangerous. For the best book I have found on the subject, please read Wharton professor Stuart Diamond’s Getting More.
Everything about my life is tied to negotiation right now. I was not the kind of guy to read books to learn how to do business, but it is too bad because I have missed out on learning a lot. Three books that I have been reading: 1) Negotiation, 2) Negotiation in Asia, 3) Drafting a Partnership Charter.
Interesting to me that the authors of these books are psychiatrists. Also, that when I am reading it, everything makes sense, but somehow, I never would have thought about all of the ways to manipulate all these fine details.
Here are the rules that have been most useful to me in the negotiations so far:
1) don’t talk
I should clarify this one – I believe what I am referring to here is the advice to let the other party speak more than you. I still agree with this, but would put it differently: “Listen more than you speak.”
2) when someone asks a direct question, respond with a related question instead of answering directly
This is far too tactical to be good advice – I would argue that the right spirit would be to make sure that you understand the motivation behind a question before answering too quickly
3) double your ideal offers
Again, far too tactical. I now believe that full transparency is the best option – say what you truly need to be satisfied with a deal and invite your counterpart to do the same.
4) put as many topics onto the table as possible.
5) take a lot of notes.
6) make every request three times before considering conceding anything.
Tactical and transactional. Boo. Silly advice. Ask instead what it would take for your counterpart to consider offering you what you are asking for.
7) every concession you make, get something in return.
Fine, sure, but a silly way to think about this. If you give something up, find out what your counterpart may be willing to offer easily to add more value to your deal.
8) I imagine what they think I want from them and then I act like it is really not that important to me, whether or not it is.
Oh God, no. If something is important to you, let them know. Ask them to tell you what is important to them. Tell them what is not important to you too, and invite them to do the same. The best case is when something that is not important to them is actually very important to you and vice versa – this is where so much value can be created. If you hide what you value, you are shooting yourself in every foot.
It helps that The Rocker is a great negotiating partner, we often pretend to be a little misinformed even though we discuss matters and plan strategy every day.
Just so you have an idea of how effective saying nothing is, this was the situation on our first meeting on Wednesday:
1) They wanted a flat-rate 50/50 split with The Rocker finding some way to fit me into the picture.
This is the situation now without me having asked for anything, remember.
2) They propose a negotiable 33/33/33 split on about 30% of our current contracts between themselves, The Rocker, and me. The Rocker and I will form our own company in Canada. They will match all capital investment we make. They are exclusive to us, whereas we have no exclusive agreement with them.
The power of these negotiation techniques is actually quite staggering. I will not make an offer until they have identified something very close to what I am looking for.
I got lucky here, because this was a relatively simple negotiation about value that was to be created in the future – much better to be pretty upfront about the big picture of what will satisfy you even if you avoid talking about actual numbers or percentages.
So far the strategy has been this:
- ask them what they want
- ask them why they think they offer to the project
You should actually already know what your counterparts are bringing to the project, so this seems like a silly tactic.
- ask them if they think their skills merit the compensation they are asking for
Please don’t actually ask this question. Rather, figure it out for yourself and if you disagree, explain why.
- compare their skills to that of a known quantity; i.e. a typical manager commission
Sure, but I think of this as bench-marking and it should be done collaboratively early in the process.
- ask them how they would achieve their goals if we were not in the picture
Sure, it’s not a bad thing to discuss – just be prepared for the strong possibility that they really don’t need you!
- ask them if they think they can really deliver the product that they think they can
You should really know the answer to this question ahead of time.
It is interesting, by using this strategy, I have been able to list just about every one of their perceived strengths and weaknesses and their perceived notions of our wants and needs. I should mention that at the beginning, I would have never been able to guess this information. My initial strategy – that we create an exclusive 4-person partnership company in Taiwan – would have been a far better deal for them and a far worse deal for me that the one on which I am currently developing.
Again, I basically got lucky here, but this gloating is really unfortunate. I may have stumbled on favorable terms in the short-term, but by hiding what I was willing to offer, I may be hurting the long-time sustainability of this deal. Remember that for most major negotiations, a relationship-building approach is far superior to a transactional (tit-for-tat, win/lose approach).
So after every meeting (we just had number 3) I go home and write down (mentally at least):
- What they say they can offer.
- What they see as their strengths.
- What they see as their weaknesses.
- What they think we want.
- What issues they think are important.
I then try to question or cast doubt on their ability to provide the services they are offering or else suggest that that service is not terribly important to us. I question their perceived strengths. I point out their perceived and real weaknesses. I present a million alternative sources of what we want. I base a list of our important points on the ones that they are bringing up. Many times, the points that are important to them mean little to us, and vice versa. If we act like we are making a big concession for something that we really don’t care about, we can make a better deal.
This is a pretty good description of what should absolutely not happen during a negotiation. Better to be transparent about the value you can create for them and the value that they are creating for you. Look for ways that you can make each other stronger. When you find items that parties value differently, celebrate it together and use that collaborative energy to look for more examples. It’s the key to finding really good deals for all parties.
Frankly, I am amazed at the effectiveness of my technique. The most powerful weapon: silence. I have learned that if I wait long enough after a question or a statement, the other party feels the need to talk. Usually, it gives away the answer they want to hear or it questions some aspect of their argument or position. I have not answered a single question, and I have only said one thing: The Rocker and I have made a sizable investment in this project before they ever signed on and we must be compensated for this.
No, I really just got lucky. The producers had their own business that they were maintaining and were fine with anything that might bring them more revenue without too much work. If I had used the strategy of finding ways to reduce their workload but guarantee them a small risk-free share of any revenues generated, I could have probably gotten an even better deal and (spoiler alert) may have been able to preserve the relationship with this partner for longer than a single project.
Points to negotiate:
- What is the basic split of profits?
- What shall we set as a finder’s fee?
- What is the nature of the exclusivity arrangements?
- What about visas?
- What about office space?
- What are the job descriptions?
- What is the heirarchy/chain of command?
- Do we give ourselves salaries or do we work for free and split the profits or do we receive compensation for the work we do on a given project?
The interesting thing is that while I anticipated several of the topics listed above, most of my concerns have not even been brought up by the other party. The concerns that they have brought up give me a good idea of how I can tailor my questions to get the most information possible. The more they tell me about what they want and why, the more I can prepare myself for my eventual offer. The more they talk the better able I am to strategize the agenda for the next day.