Kyle MacDonald got much more than a house for his efforts. He published a book chronicling his experience and launched a speaking career. He’s doing well enough that he donated the house back to the town of Kipling. And he got to meet Alice Cooper anyway.
To identify items that may be valued differently by the parties, here are some things to consider:
• Perceptions
Some people will pay more to save face, look good, or have their ego stroked. They will pay a high price for a shirt with a designer’s logo stitched onto it, even though a similar shirt— same style, color, and fabric—may be available without any logo for much less. Some people will only wear a shirt with a particular logo, some are indifferent as to the logo, and still others hate the idea of advertising for a designer and would rather have a plain shirt. The perception of value is important, though it varies among individuals.
• Risk
People have different risk profiles. Some people are risk averse, while others boldly accept risk. A more risk averse party may be willing to concede more if her negotiating counterpart is willing to assume certain risks involved in the transaction. Most people hate risk and buy insurance to mitigate it, while insurance companies love risk because it’s very profitable for them.
• Combining similar resources and skills to achieve economies of scale
There is power in size, and there is power in numbers. Two or more parties can pool their demands to negotiate more favorable rates from suppliers. For example, a small neighborhood supermarket does not have the negotiating power of Walmart, but a number of independent grocers can band together to negotiate lower prices from a food producer.
• Combining different resources and skills to accomplish together what neither can do alone
Entities with complementary attributes can create synergy. For example, a landowner and a building contractor can form a joint venture to develop the property and get a better return than either might have otherwise enjoyed.
By exchanging currencies that are valued differently, each side can get more by giving up less! What painless concessions can you make that might be valued by the other party? What might they easily do for you that would be of great value to you? By focusing on interests and exploiting differently valued currencies, you are more likely to attain a win-win outcome.
OPTIONS
The purpose of negotiation is not just to convince the other side to let us have what we want. It is to improve our situation such that each of us is better off than we would have been absent an agreement. It is to solve a problem jointly for mutual benefit, rather than to compete for gain at the other’s expense. The solution to the negotiation puzzle—whether we are better off than we would have been without negotiating—is a function of the choices available to us, that is, our options.
An option is a possible solution to a negotiation. Looked at another way, an option is a package of currencies. The more options we can create, the greater the likelihood that one will be a win-win solution.
Returning to the case of the two sisters and the orange, what were their options? How could they have solved their problem? Sister A could have let Sister B have the orange, or Sister B could have let Sister A have it. They could have cut the orange in half in a misguided attempt at compromise. They could have tossed a coin or drawn lots to decide ownership. They could have fought over it. They could have bid for it. They could have brought in other currencies (a banana, strawberries, choice of which program to watch on TV) and agreed on some distribution of all the fruit (and control of the remote). Ultimately, they found the one option out of many that gave them a win-win result: one squeezed out the juice and the other grated the rind.
The sisters had quite a few options, and there are no doubt others we haven’t considered. Most of them were win-lose or partial win solutions. Only one was a win-win. Most of the options, although unsatisfactory, were easy to conceive. The win-win was more challenging. Too often, a negotiator will accept an outcome he deems good enough because it is easy. A great negotiator understands how to identify currencies, combine them into options, and design an option that maximizes and optimizes.
OUR THREE FAVORITE OPTIONS
Most negotiators begin with three options in mind:
1. The best deal I can get (usually a hard to attain ideal).
2. The worst deal I will accept (just better than the walk away point).
3. The most likely agreement I believe we can reach (which usually involves an inefficient compromise).
There are several problems with this limited range of options. First of all, you don’t really know the best deal you can get. You may have certain expectations based on your assumptions about what your counterpart has and wants, and within the context of your necessarily limited world view. There might be something better for you and you might not even see it because you are locked into your original position.
Similarly, you can’t be sure of the worst deal you will accept. You may have a bottom line price in mind, but the introduction of other currencies or new information could influence you to change that. For example, you may decide that the lowest price you will accept for your widgets is 93 cents per unit, but you may be willing to accept less if the buyer pays cash, or takes delivery at your factory, or orders an unusually large volume, or if he also buys some monogrammed widget covers, etc.
Furthermore, having this limited range of options in mind may give you false confidence that you are prepared, and it is essential to prepare for a negotiation in the face of uncertainty. However, this is not the way to do it. It would set a range based on arbitrary positions rather than interests.
Start generating options by listing and prioritizing your interests, then listing all of your currencies. List your counterpart’s interests and currencies as best you can. Remember, options are possible solutions to your negotiation. Currencies are the building blocks of options.
CREATING OPTIONS FROM CURRENCIES
To prepare well for a negotiation, you must first understand what you really want. You would be surprised to find that many people are not even sure of what they want.
Next, try to anticipate what your counterpart wants. You may never be sure of what he wants, but with a little foresight and research you can get a pretty good idea. Remember to test your assumptions later during your discussions—while laying the foundation and bargaining.
Finally, combine these currencies into a range of packages, or options. The more interests and options you have on the table, the greater the chance of a win-win agreement.
By focusing on options that promote interests rather than positions, we can create more value for each side. Each party may offer certain currencies to entice the other party. Recall that an option is one of a range of possible packages of currencies, for example:
Option 1
Party A offers currencies A, B, C
Party B offers currencies X, Y, Z
Option 2
Party A offers currencies A, D, F
Party B offers currencies V, Y, Z
Option 3
Party A offers currencies A, D, E
Party B offers currencies W, X, Y, Z
And so on.
Any option (set of currencies) is a potential solution. Obviously, you would prefer to offer the smallest, cheapest, and easiest currencies that would be acceptable to the other party. Bear in mind that what’s cheap and easy for you may be highly valued by them.
MULTIPLE EQUIVALENT SIMULTANEOUS OFFERS (MESOs)
One way to gain insight into what your counterpart values most is by pure trial and error. After making offers and counter-offers and getting rejections, you try to figure out what she wants or doesn’t want. This is time-consuming and inefficient, and may not provide much insight into what she is looking for.
A better way is to use MESOs. You can ask your counterpart “Do you prefer Option 1 or 2?” Recall that an option is a package of currencies, and you can create many options by arranging differe
nt currencies into packages. If she prefers neither, ask her what she likes or doesn’t like about those options. Based on that information, offer her Options 2 and 3. Continue until you have an agreement.
Here’s an analogy for how to use MESOs. When you’re having your eyeglass prescription checked the optometrist doesn’t just give you a box of glasses and let you try them on at random until you find the best one. That would be pointless. Instead, he takes a systematic approach. He will put the big goggles on you and switch lenses and ask “Is this better … [switch] … or this? This one … [switch] … or this?” You quickly zero in on the right lens and you’re done! That’s pretty much how the MESO concept works.
The big letter on top of the optometrist’s chart is the “E”. That’s also important in MESO. The Multiple Offers you are Simultaneously presenting to your counterpart should be Equivalent to you. In other words, you are equally willing to go with Option 1 or 2, but you are trying to calibrate what works better for your counterpart.
Using MESOs signals to your counterpart that you are flexible and interested in their preferences. You’re not just forcing your proposal on them. It also allows you to gather information about their interests, enabling you to match options to their needs and systematically improve the chances of reaching a win-win agreement.
CHAPTER 4
NEGOTIATING POWER AND YOUR PLAN B
“You got to know when to hold ‘em, know when to fold ‘em, know when to walk away and know when to run.”
— Kenny Rogers, “The Gambler”
I often ask the participants in my negotiation seminars this question: who has more negotiating power in one of their typical negotiations, them or their counterpart? The vast majority believe their counterpart has more power. This doesn’t make much sense mathematically—we would expect the number to average about 50%. You can infer two things from this:
1. it is very common for a negotiator to feel that the other party has the upper hand; and
2. if so many people feel that the other party has more power than they do, there’s a very good chance that your counterpart believes you have an advantage over him!
Perhaps you also feel powerless compared to the people you negotiate with. Take heart from the finding above, and be aware that there are many kinds of negotiating power. If you are lacking in some, you may be able to compensate with some of the other types of power.
LEGITIMATE POWER
Legitimate power refers to power associated with a position or office. For example, a vice president of a major corporation or the head of a government department has the power that comes with the position. Whoever holds the office holds the power, regardless of their intellect, competence, or personality.
Legitimate power often manifests itself through an impressive title, a magnificent office desk and chair, and a luxuriously appointed conference room. The holder of such power has influence with political bigwigs and corporate titans, instant access to the media, and an army of lackeys to do his bidding. He wears expensive tailored suits, sports a fine Swiss watch, and entertains clients at the most exclusive clubs. It is easy to see how anyone not part of his exalted circle could feel intimidated.
You may not have a fancy title like your negotiating partner, but some titles are just a lot of hot air. Despite your counterpart’s senior title, power suit, and club membership, you may be dealing with a weak negotiator.
You will be painfully aware of your own deadlines, sales targets, budget constraints, and other pressure points. However, you probably don’t know what pressures your counterpart is under, and it is unlikely that he will tell you. Everyone has problems, worries, and weaknesses, even Donald Trump and Sir Richard Branson.
Most people tend to overestimate their own pressures and weaknesses, while assuming their counterpart has a stronger position. When you face a seemingly powerful negotiating partner, it’s a good idea to remind yourself that she may have problems of her own. Perhaps she is under pressure to conclude a deal with you, and may not have as strong a hand as she is leading you to believe. You must ignore the trappings of power and focus on your interests.
Bear in mind also that traditional sources of power such as money and position are less important than they used to be, relative to other types of power.
EXPERTISE
An expert is a person who possesses extraordinary skill or knowledge in a particular area. In today’s complex, highly specialized world, expertise is a more important source of power than a title.
For example, I’ve had teenagers help me with computer problems. Despite their youth and lack of a title, these youngsters have power over me due to their superior expertise in the field of computers. When they tell me I need a new thingamabob, I get it. When they say it costs x dollars, I pay it.
Expertise is perhaps the most important form of power today, and anyone can develop it. What type of expertise do you have? How can you develop more expertise in that area, or in complementary areas? By increasing your expertise, you increase your negotiating power.
Perhaps your expertise is well-known. If not, you must let the other party know (subtly, of course) that you are an expert. Make sure he is aware of your credentials. Ask questions that show a high level of understanding, use the appropriate jargon, and refer to other experiences where relevant. You may be able to influence the other party and achieve a more favorable outcome if he recognizes your expertise.
Projecting expertise is subject to posturing and hype. It would pay to remember this when you find yourself negotiating with a so-called expert. Do not be taken in by the title, smooth talk, or cocky demeanor. It could all be an act. In any case, he is only human, and you both stand to gain from the negotiation.
If you are truly dealing with a bona fide expert, do not be intimidated. Experts are not always right, and their opinion is often just that—an opinion. In almost any major lawsuit, each party will engage an expert. These experts will contradict each other on every critical point. They cannot both be right! Don’t assume the expert opposite you is right either.
INFORMATION
Information is another source of negotiating power. The more you know about your counterpart, the subject of the negotiation, and your respective industries, the more power you have. For example:
• What does your counterpart really need? What are his true interests? What are his psychological and ego needs?
• Who are his constituents or stakeholders? What are their interests?
• Who are his competitors? What competitive pressures is he facing?
• What is his negotiating style? What tactics does he use?
• What is his financial situation? What are his budget constraints?
• Does he have any deadlines or time constraints? What is his business cycle like?
• Are there any relevant trends or changes happening in his industry?
• Is there anything in his background or track record of interest to you?
It is easier to gather information before you begin bargaining. Once you begin talking with your counterpart, you may find him reluctant to disclose much information, and he may be suspicious of your motives. Begin gathering information as soon as you realize you have an interest that you will have to negotiate to satisfy.
Let’s say you want to buy a new computer. Most people would simply go to a dealer, look at a few models, and buy one they think would be suitable. They may later find that it does not meet their needs or that they paid too much for it.
A good negotiator would first determine exactly what her needs are. Then she would research various models that could meet those needs. She would then compare prices at different dealers for her top two or three choices. A really good negotiator would even research the dealers to learn about their business practices and negotiating styles.
It is particularly useful to get information about the other party’s needs and interests. Understanding the other party and his interests can give you a tremendous advantage. Find o
ut everything you can about your counterpart, his company, and his needs.
Note that people have many needs, and not all of them are obvious. Do not overlook psychological or ego needs, which we will discuss in Chapter 6.
You can find a lot of valuable information online, in industry directories, and in trade journals. Annual reports and other company publications are also full of useful information. You might also talk to people who have previously dealt with the person or organization you will be negotiating with, or read reviews online. With all the information available on the Internet today, it is easier than ever to boost your negotiating power.
You can even talk to other people within your counterpart’s organization. When shopping for that new computer, wouldn’t it be useful to speak candidly with a service technician before you approach a salesman? Wouldn’t the technician give you valuable information about the pros and cons of various models, even competitors’ models, that the salesman would not mention while he is selling to you? That technician would be so flattered that you asked for his opinion that he would lay it all out for you!
Information is like gold. Begin gathering information as early as possible. This is the fastest and easiest way to increase your negotiating power.
I was sailing the Caribbean on a cruise when the “pirate” attacked. “I see you’re interested in the Max,” said the young lady in the little black dress (or LBD, the unofficial uniform of art gallery saleswomen). “I have a couple of other Maxes,” she cooed, leading me deeper into the section of the ship that served as the on-board art gallery. “Do you collect Max?” she purred.
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