Confessions of a Serial Entrepreneur: Rules of engagement: My mini-masterclass in negotiation

 
Richard Farleigh
TWO elderly sisters sat opposite each other at their kitchen table, both eyeing up the single shiny orange between them. A silent solution presented itself, and they smiled and simply divided it in two. While this kind of natural goodwill had allowed them to live in harmony for many years, the reality was that it wasn’t a very good outcome. Only one of the sisters actually wanted to eat the orange. The other just wanted to use the peel to add flavour to a sponge cake.

Clive Rich gave me this example to show how negotiations don’t always produce the best result for either party. I’d met Clive at an event and arranged a coffee – he’s an interesting guy, a qualified barrister and an entrepreneur who started Lawbite.co.uk, which offers simple law for small companies. He’s also worked as an “International Negotiator” for 25 years, and I was keen to tap him for any tips. After all, small firms are in almost continual negotiations with staff, suppliers or customers, and in our personal life we are often buying or selling. Here’s what I gleaned from Clive.

Do some homework before you start negotiation. Will proceedings be warm, cool, hostile or even wacky? Are you dealing directly with the decision-maker? Are they relaxed or nervous? Are they trustworthy?

Know your strengths. Clive’s view is that most parties underestimate the strength of their position. He cites the case of two huge multinationals which both believed they were at a severe disadvantage when dealing with each other.

Have a Plan B if the negotiations drag on or fail. Sounds obvious, but people can get too focused on one outcome. I have seen cash-stricken small businesses get done over by VCs who promise to invest, drag things out, and then drop the price just before the company runs out of money. The hapless companies were too trusting to look for other sources of funding.

It’s not always about the price. Sometimes you can give up things which are not worth much to you, but, like the orange peel, they are important to the other side. Perhaps you may be focused on price, but you can be flexible on timing, the payment schedule, the level of guarantees, or other extras. Clive claims that a vast number of deals are completed where both sides could have achieved a better result; one could have achieved a higher “price”, the other more “extras”.

Don’t bluff or lie. Clive surprised me on this one. I have usually assumed that you need to at least give the impression that there are other parties interested in the deal, just to keep a little bit of pressure on. In Clive’s experience, being deceptive usually backfires. I’m reminded of a mate of mine, Henry, who as a child was “negotiating” with his parents for a day off school by pretending to have a stomach ache. When they called the doctor, Henry was locked into his story. He ended up needlessly having his appendix taken out.

Be the first to make an offer. Clive claims that the final result for most negotiations is closer to the opening offer than to the responding offer. By going first, you get to put a stake in the sand and set the agenda. Assertive language is best. “I want” or “I require” is better than “I prefer”. That does not mean you can make a ridiculous first approach – sometimes that will simply annoy the other party.

The one time when it is best to let the other side open the negotiations is when you think they are stretched or nervous. They may just throw in a desperate offer and pleasantly surprise you.

A good result can be too good. You may sometimes get a far better deal than you expected, but it is not always a good idea. There may be longer-term issues at stake, such as your reputation and your on-going relationships. After all, we all need to share our oranges sometimes.

Richard Farleigh has operated as a business angel for many years, backing more early-stage companies than anyone else in the UK. www.farleigh.com