Negotiation is an essential life skill, one we use to communicate, assess, and manage every day, in business and otherwise. For small-business owners especially, effective negotiating skills are crucial to the stability of their enterprises. Whether it’s negotiating with employees, investors, long-term customers, or suppliers, the best negotiations solidify deals that are beneficial and productive for all parties.
Studies have shown that business leaders who don’t understand the art of negotiation are 60 percent less successful than those who do. According to Salesforce, studies show business leaders who value trusting and collaborative negotiations gain 42 percent more value per negotiation.
To win satisfactory deals, small-business owners need to focus on pragmatic strategies coupled with empathetic traits that can help them win deals during the negotiation stages. These five tips can help small-business owners become expert negotiators:
1. Develop your bargaining strategy and style
Preparation is always key before each negotiation. First, both investors and small-business owners need to engage in research to identify their audience, the industry, its growth, and expectations. Molding a present strategy is necessary for a desirable outcome; otherwise you’re guaranteed to lose a deal. It’s also not uncommon for negotiators to modify their negotiating style, based on how the negotiation is progressing and the negotiating style of the other party. Harvard University, for example, identifies five negotiation styles. They include:
- Compete strategy – I win/you lose
- Accommodate strategy – I lose/you win
- Avoid strategy – I lose/you lose
- Compromise strategy – I lose/win some – you lose/win some
- Collaborate strategy – I win/you win
In negotiation styles that are both integrative and adversarial, the best tactic is the ability to walk away and take another deal. So, before you bargain, spend time identifying the best alternative to the negotiated agreement, also called BATNA, and take steps to improve the deal’s terms.
2. Use emotional intelligence
Pragmatic business negotiations need to be balanced with emotional intelligence so you can communicate clearly and develop a strong rapport with the negotiating party. In fact, a 2013 study conducted by researchers from both Oxford and Tel Aviv Universities concluded that “…entrepreneurs exhibit more persuasive behaviours and express emotions more frequently in negotiations than non-entrepreneurs. Entrepreneurs close fewer deals than non-entrepreneurs, but when they do, they claim higher profit shares. This suggests that entrepreneurs have a higher willingness to risk closing a deal for the chance of getting a good deal and to accept profit volatility.”
- Build strong bonds: Building a solid business relationship is essential for all parties looking to conduct business together. While limited time may hinder your social banter during these stages, research suggests that forming relationships and trust can improve the negotiation stages.
- Ask the right questions: To understand the counterparty’s perspective, asking detailed questions is imperative to seal the deal. Carefully identify questions that will allow the other party to expand upon their performance history, ideals, expectations, and financial standing to help craft and encourage responses that help you understand their goals. Questions like, “Can you highlight some challenge you’re facing this season?” may provide insight into their leadership and collaboration styles.
- Become an astute listener: Negotiators often think ahead as their counterpart talks. But staying completely present while astutely listening to them allows you to build more trust with this potential partner. Used by FBI negotiators, the mirroring technique — where negotiators repeat the last one to three words your counterparty uses — can help break down tough barriers while you listen. Additionally, acknowledge their apprehensions, frustrations, or subtextual phrasing. You’ll uproot valuable information and build a more trusting relationship.
3. Offer Multiple Options
MESOs, or multiple equivalent simultaneous offers, occur when counterparties are offered more than one offer at a time. Providing choice and flexibility gives each party a better sense of control in the negotiating stages. Several offers at once allow them the autonomy to choose what might work best for them, with a scenario that is equally beneficial for you. If the counterparty rejects an offer, ask them which offer would be most convenient for them and why. Research from NCBI reflects that when MESOs are used, deals are more likely to be accepted. Together, you can work on how to improve the offer for each party’s benefit. In fact, the MESO strategy allows you to decrease the chances of an impasse or cessation, while fostering more creative and collaborative solutions.
4. Find smart tradeoffs
If your business offer doesn’t provide for the needs of the counterparty, then finding smart trade-offs could help preserve your deal. The Harvard Law School reports that in a distributive negotiation process, negotiating parties often lose sight of the overall deal because they focus on demands of single issues, like price points. Think about multiple issues and outcomes to identify what both sides will want and need. Find the ideals and goals your counterparts find the most important and which ones they value less. This helps small-business owners provide concessions on one issue in exchange for a concession from them on another issue that you find highly significant to your business.
5. Propose plans for the contract and implementation stages
Each party may have different expectations on what the future holds for their investment. Oftentimes, negotiations stall or disintegrate because there are disagreements over how a specific business scenario will unfold. Small-business owners can propose contingent contracts, essentially an official bet of how business endeavors will unfold. If a party is wary of the third party’s completion process, the contract can penalize the other party if a project is late. In addition, it may reward them if terms are met early. Formulating a solid contract while identifying which party is responsible for each role and feature in the deal can help avoid issues down the road. Likewise, planning the implementation stage during the negotiation process, including setting milestones and deadlines, will help achieve success and long-term stability of your negotiated agreement. An integral part of your contract is the dispute-resolution clause, which could include escalation provisions as well as mediation or arbitration provisions. A legal agreement to meet scheduled deadlines and regular check-ins to assess and, if necessary, renegotiate the contract helps safeguard the deal and build trust between parties.
While each party becomes familiar with the other, patience and a keen ear are crucial for the negotiation process. A smoother deal can be made by splitting the remaining differences and, often, it’s a near-necessity when the deal is about to close. Remain mindful that all your negotiating steps before reaching a final number will determine how successful a resolution you achieve. Once you build the rapport and safety nets necessary to arrive at the most favorable deal, you can start focusing on heightening productivity and, ultimately, finding the best avenues of success for your small business.
This was originally published on SCORE NYC on May 25, 2018.