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The best negotiation is when both sides end up equally happy and equally unhappy, but here are some tricks I've learned from far better negotiators than me. When I use these tricks, I find everyone is happy. When I don't use these tricks, everyone is usually broke.
1. Have a Bigger List
Let's say you are selling a company. One side is usually focused on the final price.
Make your list bigger. What are the terms of the non-compete? What is the length of the earn out? What are the salaries of the new top executives? What are the perks? What are the options packages?
The side with the bigger list can give up the nickels for the dimes.
2. Sleep Late
Carl Icahn, one of the best investors in the world, uses this technique. He schedules his negotiations for the early evening.
Our peak mental ability (according to Dan Ariely, author of Predictably Irrational, and many other books) is approximately two hours after we wake up until about four hours after we wake up.
So Carl Icahn will sleep until 4PM and then go to the negotiation at 6PM.
On the other side of the table are exhausted lawyers who have been working all day.
BAM! Who do you think will win that negotiation?
3. Keep Your Eye on the End Goal
Applied Semantics didn't want to sell to Google. They had raised some money and thought they could make it.
Larry Page told the CEO of Applied, "I'm not getting off the phone until you say yes."
So Applied Semantics sold themselves in exchange for one percent of Google. ONE PERCENT. This was before Google went public. So it was a total unknown what those shares would be worth.
Applied Semantics became the Adsense division of Google, which now accounts for ninety-nine percent of Google's revenues.
Are they upset? Shouldn't they have sold for more?
Of course not. They sold for over a billion in value and created the end goal of making one of the best companies in the world.
You can only get rich once. Don't worry so much about maximizing your percentage of something. One percent of two hundred and fifty billion is better than one hundred percent of nothing, as the saying goes.
4. Yes, And...
Use the improv technique of "Yes, and..."
In improv, the first performer creates the premise. The second performer can't change it or reject it, he can only build on it.
In a negotiation if someone says, "Well, you're only worth one dollar because you have X," you can say, "Yes, and we also have Y so let's take that into consideration."
Suddenly your value is higher because you didn't start a fight. You agreed and added.
5. Come Up With a Formula Before Negotiation
This is the part many people don't get right.
Why did Facebook buy Instagram for one billion dollars? Instagram had eleven employees and zero revenues.
On that basis, maybe Instagram was worth nothing. Or close to it.
But I'm sure the negotiation went something like this:
Facebook: You're lucky we are buying you for anything.
Instagram: Yes, and within three years we will add ten billion in value to your market valuation and revenues, etc.
Facebook: Hmm, okay, let's go somewhere in the middle then.
The formula can be based on how much value you have now. Or perhaps it can be based on some way of valuing how much you will add to the other side.
You can say in advance, "We will probably add two dollars in value for every customer you bring us."
If the other side says yes then the negotiation is now over before it started. You just have to add up how many customers they will bring you.
The side that is better prepared (knows all the numbers) will have worked out the better formula and will get the better deal and both sides will be happy.
This is obvious. But when someone calls you and wants to negotiate, always make sure you have an alternative.
I was recently involved in a negotiation where we really wanted the deal to happen. But still we identified at least five backup plans just in case.
It's no secret that being able to walk away from a negotiation is the best starting point in a negotiation.
7. Ask the Other Side for Advice
I occasionally do this. "You guys are the experts at this, we've just been focused on building our product, company, art, whatever."
Then I say, "If you were me, what would you ask for?" I ask them for advice because they are the experts.
And sometimes they give very good advice.
8. Have a Champion on the Other Side
If two sides are negotiating, you need at least one champion for what you are doing on the other side.
One time I was working with a company and GE offered us a billion dollars for the company. I went back to the CEO of the company I was advising and told him that.
He said, "Who were you talking to?" I told him.
He said, "One hundred percent chance this deal doesn't happen."
"But they offered!" I told him. "They actually made an offer."
"Trust me. No way. There's no real champion for you on the other side who is close to being a decision maker."
And he was right. That deal did not happen. They found a better way to get what they wanted for 1/200 of the price.
You can only cross the bridge to the other side if someone strong is there holding out their hand to pull you in.
9. Don't Be Fooled on the Steps of Negotiation
People think when they agree on a deal, that's the end of the negotiation. I'm sorry to say, that is only the beginning of the negotiation.
There's agreeing, there's signing, and there's closing. The final two steps are equally important and everyone assumes they are easy. They aren't. They are excruciatingly painful.
Agreeing is easy. I'll buy your product or business for X dollars.
Signing a deal involves all the little things that are the nickels and dimes (see above).
Closing a deal means both sides delivering everything they represented in a deal.
At each stage of this is buyer's remorse and seller's remorse and often things have to be renegotiated.
So every day after agreement, make it a point to stay in touch, be friends, keep focusing on the vision (particularly with the champion for your deal on the other side), have just as much energy to close all the details, keep in touch with the lawyers to make sure paperwork is going through, keep working on the alternatives (since the negotiation is not done til it's DONE), and so on.
So many deals fall apart after agreement. You don't need this pain in your life.
10. Most Deal Don't Work Out
You agree, you sign, you close, and STILL it's not the end.
Don't be the guy (or woman) who falls apart now that all the energy of the deal has been expended.
It's a negotiation and a deal because NOW there is work to do. There is a common vision to be achieved. There is a fantasy that must be made into reality.
Be that person. Be the one who delivers. You have a new baby in your hands as the result of this negotiation.
Now the hard work begins. Raise that baby to be a good adult.