by Norm Brodsky
Whenever I catch myself thinking how bril iant I am, I open the pad to that page, give myself a silent whack, and go back to listening.
The landlord didn’t fol ow my rules. In fact, he didn’t come to negotiate. He walked in and immediately started talking about the price. He said he wouldn’t even consider anything less than $5.80 per square foot for the space. It was his rock-bottom offer. He had two other customers who were paying $5.80 already, and he wasn’t going to budge. Period. End. In addition, he said, he wanted a five-year lease.
I listened and heard exactly what he was saying. The price was nonnegotiable—but we could discuss the five-year lease.
That was al the room I needed. I said, “Listen, I think $5.80 is too much, but let’s put it aside for a second. Let’s talk about the terms of the lease. I can’t make a five-year commitment. There are too many uncertainties in my business right now.”
I explained my situation. He said, “OK, but I want the $5.80.”
I said, “Wel , if that’s what you have to get, I suppose I can live with it, as long as you let me have a chance to get out of this lease at some point.”
In the end, he agreed to give me an option to void the lease after seven months, and I agreed to pay him $5.80 per square foot. It was a fair deal.
We both got what we wanted most.
But the landlord could have done better if he’d approached the meeting differently. He should have come in prepared to listen. He should have forced me to talk first. He should have opened by saying, “Nice meeting you, Mr. Brodsky. I understand you’ve talked to our real estate agent, who has explained the terms of the lease. Are you ready to sign?”
I’d have said I thought the price was ridiculous. He’d have insisted that he couldn’t charge me less than his other tenants. Then I’d have brought up the five-year term of the lease. At that point, he could have cut the discussion off, saying, “Do we have to go through every line in this contract?
First, you want to talk about price. Then you want to talk about terms. Next, you’l want to discuss the heating and air-conditioning. Either we have a deal or we don’t!”
He would have put me on the defensive. He would have cal ed my bluff. I might stil have been able to get a cancel ation option out of him, but I’d have had to pay for it. Instead, he gave it to me for nothing—and I walked away with what was, in effect, a short-term lease for the same price that people with long-term leases were paying.
The upside for the landlord, I suppose, was that he had a happy customer. What’s more, my circumstances subsequently changed, and we wound up staying for the ful five years of the lease and then some. Fifteen years later, we were stil there, and we were leasing more than twice as much space as we’d had to begin with. So it turned out to be a good deal for us al .
Ask Norm
Dear Norm:
I’ve often heard that there’s a point in every negotiation when the next person who talks loses. I’m trying to land a large account I want very badly. I’ve made a proposal, and my contact has passed it along to his financial people. He’s supposed to come back with a counteroffer.
I’ve called him twice, and he hasn’t had the information. I know that he thinks we can provide his company with savings it can pass along to its customers. He was planning to give one of his customers the savings info at a meeting coming up shortly. Should I call him before the meeting or wait for him to make the next move?
Daniel
Dear Daniel:
If I fol owed that rule about not talking first, there would be dead silence in many of my negotiations. I don’t think you should worry about losing the negotiation as much as landing the customer—if not now, then later. The question is, why isn’t your contact cal ing you back? Some people are embarrassed to deliver bad news. You need to make it easy for them, or you’l never find out what the problems were. If I were you, I’d wait until the deadline passed and then leave him a voice mail saying, “I realize the meeting was yesterday, and I just want you to know that we’re stil interested in working with you in the future, even if the answer on this deal is no. So please give me a cal .”
—Norm
The Detective Habit
I don’t mean to suggest that successful negotiating is al about strategy. After al , how do you choose the right strategy? Experience plays a role, as does instinct, but most important, I believe, are those habits of mind I mentioned in the introduction—especial y the habit of questioning what you see on the surface, examining the underlying elements, digging to find out what’s real y going on. That habit al owed me to make the best purchase of my life.
My business, as you may know, is located on the Brooklyn side of the East River, directly across from midtown Manhattan. Our first warehouses occupied most of one block. Alongside that site were 588,000 square feet of undeveloped waterfront land. For years, I’d wanted to buy the block next to mine (172,000 square feet) and build a new warehouse on it, but it wasn’t available. Then suddenly, in the fal of 1999, al 588,000 square feet came on the market just as I was getting ready to close a deal on some real estate a couple miles away. I immediately put that deal on hold and began looking into the possibility of buying the land next door.
On the face of it, I didn’t have a chance. The land, though relatively cheap by Manhattan standards, was way out of my price range. What’s more, there was bound to be competition. I knew that a lot of people would be interested in an opportunity to buy waterfront property zoned for commercial development and located in the heart of the city, with a panoramic view of the Manhattan skyline. If there was a bidding war, I’d lose.
But that was, as I said, on the face of it. Was a bidding war inevitable? Not necessarily. Most people assume that money is always the key factor in a sale. In fact, many other issues come into play, and some of them may be more important than money. Only the sel er can tel you for certain which ones wil be decisive.
Then again, sel ers are often reluctant to give out that information—for the same reason I didn’t want the warehouse landlord to know my priorities. It’s always better to keep the other side guessing. In this case, moreover, the sel er was a bank based in the Netherlands that had an office in Iowa. A real estate agent was handling the deal. I knew the agent wanted to sel the property for as much as possible, but what did the bank want? Maybe the obvious answer—a lot of money—wasn’t the correct one.
Fortunately, I had on my staff two people, Ben and Sam, who had experience in these matters. (See chapter 15.) Ben tracked down the banker responsible for the property and let him know we were interested. “So is everybody else,” the banker said. “Get in line.”
“But our offer is real,” Ben said.
“I have a lot of real offers from companies bigger than yours,” the banker said. “Where’s your financing? I’m getting sick and tired of not being able to close this deal.”
It turned out that the bank had given a mortgage on the land to a guy who’d defaulted in the late 1980s. The bank’s attorneys had tried to foreclose, but the buyer blocked them for years with various legal maneuvers. After final y taking possession of the property, the bank had signed a contract to sel it to a developer, subject to certain conditions. When the conditions weren’t met, the sale fel through. “I’m not going through that again,” the banker said.
Although the banker didn’t name a price, it was apparent that the size of the offer wasn’t the primary issue in his mind. The bank had already contracted to sel the property once for a lot of money and been burned. I thought about what the banker had said. What he real y wanted, I decided, was a deal that was absolutely certain and that would close fast, preferably before December 31, when his bosses would total up his numbers for the year and see how wel he’d done. My guess was that we could get the land for 20 percent less than its market value if we could communicate our wil ingness to satisfy what I thought were the banker’s biggest concerns.
By communicate, I don’t mean “talk.” The banker wasn�
�t going to believe mere words. We were going to need rock-solid financing, and we’d have to put down at least 10 percent of the bid as a deposit. To demonstrate our commitment, moreover, we’d have to make a significant portion of the deposit nonrefundable.
Sam and I contacted the investment company we knew in Washington, D.C., Al ied Capital. What we wanted was a letter of commitment for the ful amount of the bid. I asked the investors to come in as partners. We’d buy the land together; I’d keep the block next to mine for the new warehouse; then we’d sel off the remaining 416,000 square feet, and the investors would keep the proceeds. I’d get the land I wanted, and they’d get a substantial profit. The investors agreed, provided I met two conditions: I had to put up the nonrefundable portion of the deposit, and I had to find someone else to come in as a partner and commit to buying a portion of the remaining land.
Finding that partner proved easier than I expected. I cal ed a friend of mine who owned a business in the neighborhood. His land had recently been rezoned for housing, which had made it much more valuable. “Yeah, sure,” he said, “I’d buy some of your property in a second. I’m going to sel my land anyway, and I’d like to stay in the area.”
So al the pieces were in place. We could make an offer and close the deal fast. As long as the title was valid, we didn’t have to attach any more conditions. Other bidders would probably insist on doing an environmental study and an appraisal, but I knew that an environmental study had been done recently. I had a copy of it. As for the appraisal, I’d just had one done on my own land next door. Why would I need another?
In October, my partners and I submitted our bid and asked the bank to name its conditions. The next day, a purchase-and-sale agreement arrived, with a closing date in thirty days. We were instructed to sign and return the contract with a 10 percent deposit, al of it nonrefundable. Those terms weren’t acceptable, but they confirmed my assessment of the bank’s priorities. What’s more, we were prepared. We offered to close in sixty days, instead of thirty days, and insisted that only a quarter of the 10 percent deposit be nonrefundable. After a week or so of tweaking, the agreement was signed. Sixty days later we owned the land.
I’m sure that the other bidders were surprised. At least one of them, a major utility, had offered 20 percent more than we had, and I suspect there were others that had put in even higher bids. Immediately after we closed the deal, people began coming to us wanting to buy the unsold portion of the property for twice as much as we paid for the entire site.
Even the bank’s attorney was baffled by our success. “How did you get this deal?” he asked us. We just smiled.
Once the sale closed, the friend I’d brought in got his 25 percent, and we eventual y built warehouses on our 25 percent. The rest we wound up sel ing to the Trust for Public Land, so that it could be turned into a state park.
Don’t Worry, Be a Little Unhappy
In a perfect world, al negotiations would end like the ones I’ve mentioned—with both sides walking away happy to have achieved its most important goals. But the world isn’t perfect, and not al negotiations are amicable ones. Take the dispute I got into with one of our suppliers a while back, a company that handles long-haul shipping for my delivery company. We were paying the supplier in thirty days, but—because of its bil ing procedures and banking arrangements—it wasn’t actual y getting the cash for almost fifty days. The guy we were dealing with at the shipping company told us we had to pay faster. We said it wasn’t our fault that it took so long for him to get the cash. If he needed the money sooner, he should speed up his bil ing process and change banks. We argued back and forth for a while. Then the guy announced he was going to hold on to one of our shipments until we paid $6,700 that he said was past due.
I was furious. Understand, I’d been working with these people for a long time. I’d been a good customer. I’d sent them a lot of business. Now, instead of negotiating a reasonable settlement to our dispute, they were holding my shipment hostage, forcing me to choose between paying their ransom and jeopardizing our relationship with a customer. That wasn’t fair. When I tried to complain to the shipping company’s owner, he wouldn’t return my phone cal s. So I asked my people how much we owed the supplier altogether. It was about $13,000. I said, “OK, pay the $6,700 and get the shipment released. Then don’t give them another dime. Let them sue us for it. We wil never, ever do business with these people again.”
Unfortunately, those kinds of disputes happen al the time in business. They go with the territory. A customer, a supplier, an employee, a competitor, a partner—every now and then someone delivers a low blow that hits you where it real y hurts, and you get angry. So what do you do?
Cal a lawyer, of course. That’s what I did for the first twenty years I was in business. I didn’t think twice about suing people who’d done me wrong, or forcing them to sue me. Compromise was not in my vocabulary. Once you crossed the line, forget about it. You became the enemy. I was wil ing to duke it out in court no matter what the cost.
It took the experience of going through bankruptcy to knock some sense into me. After I filed for protection from creditors, there was a series of hearings to determine whether my bank would be al owed to close me down. I was in violation of my loan covenants, and the bank wanted out. My only hope lay in the bankruptcy code. Under Chapter 11, I could petition the court to order that my arrangement with the bank continue as before, in effect forcing the bank to keep lending us money. With some six hundred jobs at stake, I figured I had a strong case—so strong that I didn’t even consider trying to negotiate a new deal with the bank. I was certain I would win.
The judge had a different idea. At the end of the first morning’s arguments, she announced that she was leaning toward deciding in favor of the bank. I was shocked. I was panicked. I was about to lose my company. Out in the hal way, I went up to the bank’s lawyers and offered to do a deal.
They wouldn’t even listen. “You heard the judge,” they said.
That afternoon, there were more arguments—and the judge surprised us again. “At this point, I’m inclined to grant the plaintiff’s motion,” she said as we were getting ready to adjourn for the day. “We’l continue this hearing in the morning.” On the way out, the bank’s lawyers said they’d reconsidered and were ready to talk after al , but now I was in no hurry to settle.
The next day was a repeat performance. I final y realized that the judge was sending us a message: she wanted us to negotiate our own deal.
During one of the breaks, my lawyer and I sat down with the bank’s lawyers and hammered out an agreement that neither side liked very much, but that we both could accept. Back in the courtroom, we informed the judge of the deal. She looked at me and said, “Mr. Brodsky, you understand now, don’t you?”
I said, “I understand what you were doing, but I don’t know why you did it.”
“Then let me explain,” she said. “The best deal in the world is when everybody walks away a little unhappy. You’re not going to get everything you want here, Mr. Brodsky, and neither is the bank. I could tel you what to do, but isn’t it better if you work it out by yourselves?”
Ask Norm
Dear Norm:
For eight months I’ve been negotiating a licensing agreement with a company to produce a toy I’ve invented. The process has been painfully slow. I’d send a proposal in; the company would ask for changes. I’d compromise. The company would ask for more changes; I’d compromise again. At one point, my contact insisted on taking the contract to a lawyer— whotore it apart. So we started all over again. After several more months of this, I received a fax demanding a whole new set of changes. I couldn’t believe it. I’m beginning to think that my negotiating partner isn’t serious. Whenever we get close to signing, he comes up with more stuff to change. At what point should I give up and move on to another manufacturer?
John
Dear John:
You shouldn’t be surprised at what’s happened. Good negotiators a
lways try to get the best deals for their company by taking as many bites of the apple as the other party wil al ow. Your problem is that you let the other side set the ground rules. You should have insisted up front on separating business issues from legal issues and not letting lawyers raise business issues after they’ve been settled. I’d advise you to tel your contact something like, “I’m sorry, but I’ve gone as far as I can at this time. I stil think that your company is best for my product, but you’re leaving me no alternative other than to look elsewhere. Maybe I’l find out I’m being unrealistic. If so, I may come back.” If the guy says you can’t come back, he probably wouldn’t have done the deal anyway.
—Norm
For me, it was a revelation—probably because she was talking to me at a point in my life when I was ready to listen. In any case, her words changed my entire approach to handling disputes. Prior to that day in September 1988, I must have been involved in forty lawsuits, many of which went al the way to trial. Since then, I haven’t had a single dispute wind up in the courts.
Good things happen when you accept the idea of walking away from a dispute a little unhappy. You stop letting your emotions dictate your business decisions. You don’t get caught up in anger, or revenge. You look for solutions instead of problems. You start to think about outcomes you can live with, rather than trying to get everything you want. In the process, you save yourself a lot of money. I’m not talking only about the legal fees, either. Even more costly is the time you spend thinking about a lawsuit, meeting about it, worrying about it—not to mention getting deposed and sitting in court. When you look at the numbers, it almost never pays to use lawyers to resolve disputes.
Which brings me back to the dispute I had with the long-distance shipping company. The supplier’s people said I owed them another $6,500. I said that, by holding up a shipment, they’d violated our contract and damaged my relationship with a customer, and I shouldn’t have to pay them anything. It would have cost each side at least $10,000 to go to trial. When the dust settled, even the winner would have been several thousand dol ars out of pocket. Meanwhile, we would have endured months of aggravation and countless distractions from what we should have been doing, namely, building our respective businesses.