Com­pro­mise, con­ces­sions just part of the deal

The Denver Post - - BUSINESS - By Gary Miller Gary Miller is the CEO of GEM Strat­egy Man­age­ment Inc., an M&A con­sult­ing firm ad­vis­ing mid­dle-mar­ket pri­vate busi­ness own­ers. He can be reached at gmiller@gem­strat­e­gy­man­age­ment.com.

Strong ne­go­ti­at­ing skills are of­ten the sin­gle most im­por­tant dif­fer­en­tia­tor be­tween clos­ing good deals vs. great deals, or, not clos­ing any deal at all. Ne­go­ti­a­tion is more art than sci­ence, as it in­volves cre­atively “read­ing” your au­di­ence, know­ing when to dig in, and when not to. Of­ten, I have been called in to help close or save a deal. Many times, I have found that buy­ers and sell­ers are so locked in their po­si­tions that there is lit­tle op­por­tu­nity for give and take. Feel­ings are strained, at­ti­tudes are en­trenched, re­spec­tive po­si­tions are hard­ened and there­fore op­por­tu­ni­ties for com­pro­mise are lost.

For any ne­go­ti­a­tion to work suc­cess­fully, both par­ties need to feel they are get­ting a good deal. The deal can’t be lop­sided, for it to have any rea­son­able chance for suc­cess. I ad­vise clients that struc­tur­ing deals means work­ing to­wards a win-win out­come. This brings us to the art of com­pro­mis­ing with con­ces­sions.

Con­ces­sions are al­most al­ways nec­es­sary to com­plete any suc­cess­ful trans­ac­tion. While most busi­ness own­ers un­der­stand that ne­go­ti­a­tion is a mat­ter of give­and-take, you have to be will­ing to make con­ces­sions to get con­ces­sions in re­turn. But the process isn’t easy. Of­ten, con­ces­sions go un­ap­pre­ci­ated and un­re­cip­ro­cated. Don’t as­sume that your ac­tions will speak for them­selves. Un­less you es­tab­lish that you have made a ma­jor con­ces­sion, your coun­ter­parts will be mo­ti­vated to over­look, ig­nore or down­play your con­ces­sions. Why? Your coun­ter­parts want to avoid the strong so­cial obli­ga­tion to re­cip­ro­cate.

Em­pha­size the ben­e­fits of your con­ces­sions to the other side. My own re­search sug­gests that ne­go­tia­tors re­cip­ro­cate con­ces­sions based on the ben­e­fits they re­ceive, while ig­nor­ing how much oth­ers are sac­ri­fic­ing. One way for an owner to high­light the ben­e­fits he is pro­vid­ing is to con­trast his of­fer with those made by sim­i­lar firms (as­sum­ing they were lower).

Se­cond, timing is im­por­tant. Ev­ery deal has a life of its own. Don’t give up on your orig­i­nal de­mands too hastily. If the other side sees your first of­fer as friv­o­lous, your will­ing­ness to move away from it too soon will not be seen as con­ces­sion­ary be­hav­ior. By con­trast, your con­ces­sions will be more pow­er­ful when your coun­ter­part views your ini­tial de­mands as se­ri­ous and rea­son­able. So when you give a con­ces­sion, let it be known that what you have given up (or what you have stopped de­mand­ing) is costly to you. By do­ing so, you clar­ify that a con­ces­sion was, in fact, made.

Third, de­mand and de­fine rec­i­proc­ity. Es­tab­lish­ing you have made a ma­jor con­ces­sion helps trig­ger an obli­ga­tion to re­cip­ro­cate; but some­times your coun­ter­part is slow to act on the obli­ga­tion. To in­crease the like­li­hood that you get some­thing in re­turn for your con­ces­sions, try to ex­plic­itly — but diplo­mat­i­cally — de­mand rec­i­proc­ity.

Con­sider the fol­low­ing ne­go­ti­a­tion be­tween an IT ser­vices firm and a client. The client sug­gests that the IT firm’s cost es­ti­mates are un­rea­son­ably high; the IT firm be­lieves that the cost es­ti­mates are ac­cu­rate (even con­ser­va­tive) given the com­plex­ity of the project and the short dead­line. If the IT project man­ager is will­ing to make a con­ces­sion, she might say: “This isn’t easy for us, but we’ve made some ad­just­ments on price to ac­com­mo­date your con­cerns. We ex­pect that you are now in a bet­ter po­si­tion to make some changes to the project dead­lines. An ex­tra month for each mile­stone would help us im­mea­sur­ably.”

No­tice that this state­ment achieves three goals. It es­tab­lishes that a con­ces­sion was made, it tact­fully de­mands rec­i­proc­ity and it be­gins to de­fine the pre­cise form that rec­i­proc­ity should take. While each of these el­e­ments is crit­i­cal, ne­go­tia­tors of­ten over­look the need to de­fine rec­i­proc­ity. Re­mem­ber that no one un­der­stands what you value bet­ter than you. If you don’t speak up, you’re go­ing to get what your coun­ter­part thinks you value or, worse, what is most con­ve­nient for your coun­ter­part to give.

One hall­mark of a good ne­go­ti­a­tion is to es­tab­lish an en­vi­ron­ment among the ne­go­ti­at­ing par­ties of not nick­e­l­ing and dim­ing one another through the ne­go­ti­at­ing process. Rather, each side learns about the in­ter­ests and con­cerns of the other and makes good-faith ef­forts to­ward achiev­ing joint gains. Un­for­tu­nately, this is not al­ways pos­si­ble be­cause one side or the other does not ne­go­ti­ate in good faith. When trust is low, or when you are in a one-shot ne­go­ti­at­ing sce­nario, I rec­om­mend clients make con­tin­gent con­ces­sions. A con­ces­sion is con­tin­gent when you state that you can make it only if the other party agrees to make a spec­i­fied con­ces­sion in re­turn.

Con­tin­gent con­ces­sions are al­most risk free. They al­low you to sig­nal to the other party that while you have room to make more con­ces­sions, it may be im­pos­si­ble for you to budge if rec­i­proc­ity is not guar­an­teed.

A fi­nal ne­go­ti­at­ing tech­nique I use is giv­ing con­ces­sions in in­stall­ments. Re­search by Amos Tver­sky and Daniel Kah­ne­man in­di­cates that while most of us pre­fer to get bad news all at once, we pre­fer to get good news in in­stall­ments. This finding sug­gests that the same con­ces­sion will be more pos­i­tively re­ceived if it is bro­ken into in­stall­ments.

The above strate­gies are aimed at guar­an­tee­ing that the con­ces­sions you make are not ig­nored or ex­ploited. Ef­fec­tive ne­go­tia­tors en­sure not only that their own con­ces­sions are re­cip­ro­cated, but also that they ac­knowl­edge and re­cip­ro­cate the con­ces­sions of oth­ers.

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