Best Practices: Learning to Love the Deal
Top-notch negotiators aren't born with that talent; they develop it by practice. Here's how to sharpen your own skills before you ever sit down at the table.
- By Fred Bayles
- October 01, 2006
The talks had come to the usual negotiation roadblock: money.
QuickStart Intelligence Inc., an Irvine, Calif., Gold Certified Partner
that offers IT training and certification, had made a proposal to a client
for a custom class. The client then shopped around and found another firm
that offered a more prepackaged training session for two-thirds the price
quoted by QuickStart. The class was less than the customer wanted, but
the lower price was a bargaining chip.
"Our response was that we were talking about a custom class with
more value," says Hicham Semaan, QuickStart's president and CEO.
"Then we tried to find ways for them to cut down the cost without
cutting that value."
Semaan and the client determined that they wouldn't need courseware for
everyone taking the training. They decided to move to the client's facility
to further cut costs. In the end, vendor and client were able to collaborate
on a plan to trim more than $6,000 from a $50,000 contract. To use the
well-worn phrase, it was a win-win outcome. The customer got the custom
program it wanted at a more budget-friendly cost. QuickStart received
good value for its work and a continuing relationship with a client.
"The most important part of negotiating is to understand what matters
most to the person you're working with," says Semaan. "If you
ask the right question, you get a good feel for how they [weigh] the different
Sounds simple. But for many people, deal-making is anything but easy.
Although most of us spend a lifetime in negotiation -- from wheedling
a second cookie out of Mom to working out that complicated treaty called
marriage -- few of us enjoy the process when it comes to the business
"It is akin to the fear of public speaking. There's a barrier that
many people have when dealing with someone they don't know," says
Grande Lum, author of The
Negotiation Fieldbook: Simple Strategies to Help You Negotiate Everything
As founder and managing director of Accordence Inc., a Burlingame, Calif.-based
consulting and training firm specializing in negotiation, Lum sees many
people come in with the idea that negotiation is all about confrontation.
"It's the notion that the other person will take advantage of them,"
he says. "You expect the worst and, in some ways, you can create
that situation by anticipating it."
The other general misconception is that negotiating skills are innate
to some and inaccessible to the rest of us. Michael Wheeler, a professor
of management practice and a negotiation expert at the Harvard Business
School, says few negotiators are naturals.
"People assume you're either a born negotiator or not," he
says. "We can demonstrate over the years that people's effectiveness
can be improved."
The improvements also come to those who think they're natural negotiators
-- but who, in fact, come off as too aggressive. "In some cases,
confidence needs to be brought down a little bit," Wheeler says.
Wheeler's students sharpen their skills through mock negotiating sessions.
They study game theory and psychology. They analyze research that identifies
best practices. While we can't presume to offer a Harvard MBA course in
negotiation, what follows is a primer on some winning negotiation practices
followed by the experts, including Microsoft partners.
More Than Money
If the experts agree on one thing, it's the mistake many negotiators
make when it comes to money issues. That's the notion that any deal can
be cut by finding a middle ground in respect to the bottom line.
"The biggest misconception that I've encountered is that most people
think negotiation is about concession or splitting the difference,"
says Robert Bordone, director of the Harvard Law School's Negotiation
and Mediation Clinical Program. "If you have a customer saying $80,000
when you're saying $150,000 and you start by trying to get somewhere in
between, you're just haggling. If, instead, I ask 'Why $80,000?' I might
learn things that could lead to a better agreement for both of us."
Bordone uses the example of a company that wanted to pay less for a machine
than the supplier was asking. However, it wasn't a simple case of wanting
a lower price. The buyer was concerned that the machine would fail within
three years, cutting into the value of the purchase.
"Instead of fighting over the bottom line, you could set up a contingency
contract that says, 'Pay me something lower than I'm asking, but pay me
another $150,000 in the fifth year if you're still using the machine,'"
Bordone explains. "By doing something creative like that, you're
being attentive to the relationship. It's ultimately not good for business
if I get an extra dollar at the cost of creating tension with a customer."
Lum says the same is true for other forms of negotiation, such as arriving
at a salary package for a job prospect. "People see money as a measure
of value and self-worth," he explains. "That's where you try
to find substitutes, such as [a better] job title or less-expensive perks."
There are other substitutes for money: stretched-out payment schedules,
timetables of the delivery of services or goods, contingency agreements
for successes and failures.
"You might establish that time frame is most important," says
Semaan. "It might cost the customer more, but that might be more
important than cost. There are a lot of variables that you learn through
The best negotiators, say the experts, are the ones who have done
some preparation in anticipation of the issues. A key step in that direction:
Do some research to understand the other side's point of view. What do
they need out of the deal? What is important to them?
"You should write down a list on what you think might be important
negotiating points. What goals are shared? What issues are non-competing?"
He cites the case of a health-insurance company that wanted to renegotiate
a contract with a hospital. The main sticking point in the previous agreement
was the time in which invoices for services had to be submitted to the
insurer. The existing contract required filing within 90 days. The insurer
wanted to cut down the time to 45 days. The hospital wanted to extend
the deadline to a year.
The numbers weren't arbitrary. The insurer wanted a quicker turnaround
to allow for better, timelier budgeting decisions. The hospital wanted
more time to allow for flaws in its accounting systems.
"The insurer had just installed a new, more effective accounting
system and I suggested they lend their people to the hospital to help
fix its problems," Bordone recalls. "At first the insurance
people said the hospital would never do it. There had been a history of
contention. They said 'They don't like us.'"
As it turned out, the hospital was grateful for the help. The deal cost
the insurer a bit upfront, but the agreement had long-term benefits for
both sides, including a better accounting system for the insurer, quicker,
more accurate billing for the insurer and a closer relationship between
the two that eliminated some of the division and created something closer
to a partnership.
"These are the kinds of things you want to be doing," Bordone
says. "Whoever winds up paying for it, it is worth more than money."
Bordone says this example shows how you can save time and aggravation
by being open about your goals. "You need to first discuss: What
are the concerns in respect to the issues?" he says. "You can
make more progress if you understand each others' positions."
Still, it can be a tricky process to get both sides to open up about
their real worries. Bordone says it takes work for people to develop enough
trust to share information with people across the table.
"People don't often do that when they negotiate," he says.
"People are so concerned that they are going to get taken advantage
of that they don't want to give up information. It's only when you're
able to put yourself in the other side's shoes that you can make real
A Step-by-Step Approach
For the IT world, negotiations between customer and client are
more likely to be over consultation and services than products. That makes
negotiating even more complicated. Once an agreement is cut for a quantity
of widgets, the deal is done. But service agreements can cover months,
if not years, and change with each step.
"With goods, there's a finite end to the deal. Services are ongoing,"
Wheeler says. "There's a stronger relational dimension to negotiating
service agreements. There are surprises and understandings to work through."
But these longer-term relationships also offer new opportunities in negotiations.
Ken Ryder, vice president of Systemgroup Inc., a Mississauga, Ont., Gold
Certified Partner that specializes in application development and integration
services, tells of working with a Canadian health insurance company that
was looking for someone to help set up a billing and claims management
Instead of the tough, time-consuming task of laying out a soup-to-nuts
agreement, the two sides took a step-by-step approach with an initial
$30,000 contract for a proof of concept. That first step led to others
and eventually a $3 million relationship that lasted more than two years.
"If you break down a project into manageable chunks, it reduces
the risk," says Ryder. "You develop a roadmap to get you to
a destination with a couple of steps along the way. Often, as you move
forward, you can earn a trust that makes it easier as you move through
the next step of negotiations for the project."
This step-by-step approach also means that other members of your staff
outside the sales department may find themselves involved in negotiations.
"There are times when your consultants are the real sales force --
the ones that keep the sales going," says Jonathan Edmett, vice president
of sales and marketing for Solutions Consulting Group Inc., a San Diego-based
Gold Certified Partner specializing in enterprise resource planning and
customer relationship management. "A lot of business is done outside
the earshot of the sales guys."
Edmett uses the example of a step-by-step contract with a major West
Coast insurer that wanted to replace an antiquated system. He helped negotiate
the project's first $30,000. After that, the continuation of the business
relationship fell squarely on his project managers' shoulders. It was
that staff, not the sales department, that was instrumental in negotiating
the next phases of the contract, which was worth in the neighborhood of
"A vast majority of the time spent with customers is spent by the
project managers," Edmett says. "The customers look to them
to solve their problems and sometimes consultants are afraid to tell them
the truth. But if you teach them to paint an honest picture, let them
know what you're thinking, you develop a good relationship that leads
to easier negotiations on the next phase."
These slow-motion negotiations help in preparing a customer for the realities
of the magnitude and cost of a job you're bidding on. Edmett says some
of his clients initially want to pay $500,000 for work that would cost
his company $750,000 to deliver.
"Customers have a tendency to underestimate jobs because they don't
know [how much] work [is] involved," he says. "It's our job
to educate them about it. That's why we don't refer to it as 'negotiation.'
We call it 'managing expectations.'"
Tips for Negotiators
There's no shortage of books on negotiation. Among
the best known: Getting
to Yes (Penguin Books, second edition, 1991),
written by members of Harvard Law School's Program on
Negotiation. The program's
Web site is also a fine resource. Meanwhile, here
are some tips for handling the mechanics of negotiation:
1. Unclench those fists. Forget the notion,
made popular in some how-to books, that negotiation
is a battleground where you wear down opponents. Instead,
focus on the idea that bargaining isn't a zero-sum game.
A good deal for one side doesn't necessarily mean a
lesser deal for the other side.
2. Research the other side's position. You'll
be better prepared to negotiate if you understand what's
driving the other team. Have the last few quarters left
them feeling flush or frugal? Are they facing a deadline
that makes time a major factor in negotiation?
3. Stay flexible. Don't go in with a rigid plan
of attack that offers no wiggle room. There can be surprises
in any negotiations and you should be prepared to respond.
Some top negotiators have been compared to jazz greats
for their ability to improvise on the spot.
4. Consider the other side's budget. The days
of limitless cash ended with the dot.com bust of a few
years ago. Controlling costs is everything these days.
Be realistic about the cost of the deal to your team
5. Manage expectations. You know more about
your goods and services than your customer does. Negotiations
move more smoothly when you communicate the realities
of what you're offering before haggling about the cost.
6. Break negotiations into steps. It's easier
to negotiate a complex project in stages. Start with
a detailed proposal or feasibility study may help smooth
the way when you get to negotiating implementation.
Along the way, both sides develop levels of knowledge
and trust that can enhance long-term partnerships.
7. Involve your entire staff. Your salespeople
might be the prime movers in getting a deal rolling,
but almost everyone on your staff has an impact on further
discussions. Encourage project managers and consultants
to communicate with clients in ways that help move deals
to their next phase. -- F.B.
From Adversaries to Partners
In any negotiation, remember that the person you're dealing with
must report to superiors, just as you must likely do. That is why it's
so important to develop a good connection with your counterpart in negotiations.
"A good individual negotiation helps with the web of negotiation
that follows behind," says Lum. "You have to focus on building
rapport and developing a relationship. You can then have that person be
And don't make the common mistake of revealing a chip on your shoulder
when dealing with someone from a bigger company.
"When you're a small business, you can get intimidated by working
with someone from a much larger corporation," Lum says. "You
might be more aggressive than you realize and create a negative situation."
Lum suggests taking a cue from the way world-class athletes handle competition.
"The best are able to be more relaxed when the stakes are higher,"
he says. "You can't let psychological barriers get in the way. Like
a good athlete, a good negotiator has to stay in the moment."
But he cautions that sometimes a little hardball is necessary.
"I think there are times when you can't get away by holding hands
and singing, 'We are the World.' There are instances when you have to
be very assertive, and there are times to walk away from the table,"
Fred Bayles, a Boston-based freelance journalist, writes regularly about customer service and other business issues. He is a former national reporter for The Associated Press and USA Today.