Business Law: Negotiating for Results

By Nina L. Kaufman, Esq

Negotiation is both an art . . . and a science. Whether it's getting the kids to do their homework, choosing a film to see with a friend, or setting a price for your services, negotiating permeates every aspect of our lives. Whatever the size of the deal, a negotiation involves two sides, each needing something from the other, and each wanting its needs met to the greatest extent and at the least expense. How you negotiate is the art. How you succeed in negotiation is the science . . . of preparation, listening, and compromising - three principal steps that business owners often do not take the time to grasp.

HOW TO PREPARE

Preparation starts long before you attend a meeting, respond to a telephone inquiry, or create an email proposal. Take the example of "Renee Davis Design," a graphic design and marketing strategy firm. Renee was recommended to "Anonyme," a leisurewear company, for a branding deal that could introduce Renee to a higher level of, and new industry for, clientele. Anonyme needed a new branding strategy and a revamped image, and to use them a variety of media including print and Web. Before agreeing to a deal with Anonyme, Renee asked herself questions that you, too, should consider:

1. What is your business and its needs? Get back to "brass tacks" about the kind of work you do. Anonyme had diverse needs, which had to be fulfilled quickly. Was Renee sufficiently talented to translate the branding strategy to tangible form, such as stationery, media kits, and website? Did she have adequate time or staffing? While the work might generate a bigger-than-normal fee, was leisurewear-focused Anonyme really within Renee's target market? Could she devote her undivided time to such a large account, to the exclusion of her other clients? Would Anonyme follow Renee's direction, or would its corporate culture impede change? What non-financial needs do you have (such as "I want to work with progressive companies")?

2. What is your bottom line? Know your financial parameters, such as your profit margin. Renee had to consider the cost of both her time in performing Anonyme's work, and that of any outsourced help. In setting her price, what was the least amount Renee could charge and still be profitable? At what milestones would Renee be paid? Overestimating your ability to perform and the other side's willingness to pay timely could be disastrous.

3. What kind of bargaining power do you have? Consider how much leverage you have with your negotiating partner. What do you offer that the other side wants or needs? In Renee's case, Anonyme needed creative and strategic thinking implemented quickly. As a result, Renee was able to negotiate favorable terms into her agreement with Anonyme that were not initially offered. Your bargaining power is linked to the risks you accept. If your leverage is weak, you may be forced into a take-it-or-leave-it deal. Be honest with yourself about the level of risk you feel comfortable accepting.

HOW TO LISTEN

Listen with your mouth closed. Negotiating partners generally do not raise issues that are insignificant to them. If you are so busy talking about your own needs, you will not hear what is important to the other side. Listening enables you to learn the other side's concerns if the relationship goes awry. This includes "penalties" such as price reductions for missed deadlines or interest charged on outstanding invoices.

When you listen, you can get to the "heart of the art." By listening carefully, you will hear what the other side wants (or wants to avoid) most. Once you know that, you can control the negotiation.

HOW TO COMPROMISE

The art of successful negotiation makes each side feel that it "won." The science of compromise - based on preparation and listening -- reveals which issues are deal breakers and which are "give-aways."

In negotiating with Anonyme, Renee made three lists: an "A" list of items she felt Anonyme considered unimportant (e.g., interest charged on unpaid invoices); a "B" list of items that Anonyme considered vital (e.g., contract price and obtaining intellectual property rights); and a "C" list of items that could go either way (e.g., payment at intervals). Renee determined that any of her "deal points" (like contract price) to which Anonyme did not agree would cause Renee to "walk."

Renee raised "A" list items first, both to establish an environment of agreement and to secure those "A" list items that were important to her. Renee then moved to the "B" list items, to see where Anonyme might be flexible. Where Anonyme would not budge, Renee used items from the "C" list as bargaining chips. For example, Anonyme insisted on obtaining intellectual property rights in all of Renee's ideas ("B" list). Renee limited that (by drawing on the "C" list) to designs and concepts that Anonyme actually selected. Also, Anonyme agreed to pay only $25,000.00 (a "B" list item) - enough for Renee to profit, but not to the extent she hoped. So Renee negotiated the right to be paid at milestones ("C" list), which reduced her financial risks and bolstered her cash flow.

CONCLUSION

Renee got results from her negotiation with Anonyme because she took the time to prepare her deal points. She held fast to them and was not tempted by lesser (to her) considerations, such as "I want Anonyme on my client list." In any negotiation, whatever its size, take careful notes of what you agreed upon and confirm it in writing. It's also best to have an attorney review the writing to make sure that the language you use does not impose any unintended legal obligation

A negotiation that doesn't result in an agreement is not necessarily bad. It may be the right result. It's a far better thing to know in advance that your arrangement with the vendor/client/landlord/bank (or other negotiating partner) would not work to your mutual benefit rather than to find yourself mired in a situation from which you have no easy or inexpensive escape.
 

© 2004-2009 The Legal Edge LLC. Nina L. Kaufman, Esq. is an award-winning business attorney, author, and speaker. Under her Ask The Business Lawyer umbrella, Nina offers easy-to-understand business law resources that protect small businesses and save them money. To learn more, and receive our FREE "LexAppeal" ezine, visit http://www.GreatBusinessLawTips.com  or contact Contact Us. This article is for your general information only. Be sure to consult with an attorney regarding your particular situation to make sure you get the specific advice you need.

Nina Kaufman, Esq. Award Winning Business Lawyer, Author & Speaker