Negotiation Tips for Entrepreneurs [Use Silence as a Weapon]
[Negotiation is an art and as an entrepreneur, negotiating is something you will end up doing a lot (with customers, employees, vendors, investors). Here is a great perspective by Alok Kejriwal, founder of Games2win.]
No matter what you may be doing in life, you are always negotiating. It may be with a cab driver to drive you to your destination or with the restaurant hostess to get you your favorite table. Negotiating is unpleasant, but can be learnt quickly.
Ten simple ideas:
1. Use Silence as a weapon
One of the toughest things to handle is ‘silence’. If you notice, most people begin to ramble immediately if you remain silent. Silence is very uncomfortable in between active conversations and that disarms many people. I remember a very tense conversation in 2001 when I was negotiating a small VC round for Contests2win. I proposed my valuation and expected the VC to reply. She didn’t. I kept quiet too.
The silence was deafening.
I almost cracked and was about to say, ‘so why don’t you suggest what’s on your mind’, but I just held back. I heard breathing at the other end and then she said ‘ok’. Silence won me a well priced round of Venture Capital for my Company!
So many negotiations can be handled by just listening. Usually, the more talkative person will do anything to keep the conversation going. This also means that the person lands up negotiating against himself! If you are attentive and train yourself to listen carefully, lots of insights and idiosyncrasies of the other party become evident. If you are negotiating with say, a middle level executive, then just by listening, you can find out whom he calls Sir, how does he speak to his spouse and what makes him giggle. Use all these finer learnings in your future negotiations with him.
3. Research, research, research
Ashish Patil (ex MTV India) told me something amazing about Niren Hiro (Now CEO of Crowdstar – at that time GM of MTV India and Ashish’s boss). He recalled a pitch that both of them were going for to Frito Lay India (Delhi). Ashish told me that Niren had researched everything about the marketing person they were meeting at that time – where she had studied, what she enjoyed talking about, her kids and her passions. They even rehearsed what would be the discussion if the lady was in a good mood/bad mood/no mood. In the conversation that followed, Niren just used his knowledge of the person to become supremely comfortable with her. Frito did massive business with MTV India in the years that followed.
4. Role Playing
If you are going for a meeting with a colleague, carve out role-playing way before the meeting starts. I love the concept of ‘good cop, bad cop’. I always play the bad cop and remain aggressive in meetings and keep blaming my colleague for all kinds of things. He usually wins the affection of the client whom we actually came to negotiate with and the ending is always positive for us. The Client subconsciously ‘aligns’ with my colleague and hence the net negotiation always becomes positive for us.
5. Refuse what you want!!
I learnt an amazing lesson from a Steel Scrap buyer at the office of the Jindal Iron and Steel Company at Peddar Road, Mumbai. I used to run a transport Company at that time and the Scrap buyer and I would often land up negotiating with this rather tough business manager at Jindal. What the Scrap dealer taught me was amazing. He knew WHAT (let’s say X) he wanted to buy from the Business manager but directly asking for X never gave him the best price. So, he adopted an amazing ‘negative negotiating strategy’.
In the first few seconds of meeting the Business Manager, he would immediately tell the Manager ‘I am OK buying all the rest of the material but NOT X. Please don’t ask me to buy X’. The truth was that the Scrap dealer wanted ONLY X, but refused it as part of the buying strategy. The business manager got a high stuffing people with the stuff that they didn’t want – so he would retort by telling the Scrap Dealer ‘No – you have to buy X first’!!
6. Buy me or sell me.
In partnership discussions, when businesses sometimes need to get divided, valuing the share of the partner becomes very touchy and difficult. Assuming that you are an equal partner and selling out, the best stance is to approach say your partner and say ‘I am fine selling you my entire stake at, say, $100’. Remember to be reasonable and fair in your demands. Assuming that your partner is also fair, she will buy you at $100 or maybe say $95 or worst-case $90. Then it’s a small friendly discussion to wrap up the negotiation.
What happens if your partner says, ‘$100 is ridiculous. Sell me everything at $35’. Rather than arguing and creating acrimony, you should then completely change your stance and say ‘Fine, at $35, I am ready to buy your entire stake. Since that’s the price you offered to me, I assume that’s the same value for your stake’. This immediately drives home the point and lets the consenting and reasonable partners reach an amicable settlement.
7. Don’t say Yes/No on the spot.
I still remember a historic lunch with Gaurav Deepak (ex ICICI Ventures and now founder of Avendus Capital), Rajesh Jog (VC and Founder of eVentures) and my financial advisor Sushanto Mitra (Founder of Techcap Financial and now CEO of IIT Mumbai Incubator) at the MIG club at BKC Mumbai in 1999. I was negotiating my first ever funding in my life and could not contain the excitement when I was offered a couple of crores by each party in exchange for equity in my then cashless start-up. The moment they made the offer, I stood up, said ‘Done’ and shook hands with both Gaurav and Rajesh. Sushanto was destroyed by my impulsiveness.
I don’t care if I sold out cheap or not, but the lesson learnt was to have been much more patient while negotiating.
8. Test the seriousness of the intent.
Are you negotiating with someone who is really serious and not just wasting you time?
In 2000, Softbank China approached us and stated that they wanted to do a JV with us to replicate Contests2win.com in China. They invited us over for discussions. It was very tempting to have gone visiting China, but Ranga – then COO of c2w had a very interesting principle. He said ‘Alok, if they are serious, they should come to our office and pitch to us, rather than the other way around’. I agreed grudgingly. Softbank took the hint, arrived in our offices the next week, stayed at their cost for a few days and eventually funded what became Mobile2win.
9. Explain the negotiation logic clearly
I explain the concept of salary appraisals and increment % to junior employees in 2win via examples. I ask them the price of vegetables and essentials that their parents buy and then ask them to imagine what would happen if the milk seller suddenly increased (appraised) his prices by 50% and asked their mothers to pay 50% extra overnight. Most of them agree that it’s unimaginable. That’s how I then drive the point that salaries are also based on a Country’s inflation and should be increased proportionately. Most folks get the point and understand why 40 and 50% increments never make sense.
10. Make it a Win –Win.
Deals where you fool the other party (either due to their ignorance or foolishness) usually land up broken.
The GOOD KARMA of deal making and negotiation is Win – Win.
Make sure that even if you have the upper hand, you are fair and honest to the other party and that way you will enjoy the benefits of the deal for as long as you want to. Badly negotiated deals always get unwound and then the loser typically is the one who was not fair. In my case, Softbank taught me a beautiful lesson very early in life – they told me that the fairest deal structure in the world is 50-50. It makes both partners work equally hard and enjoy the fruits of the toil without discontent.
In India and so many other parts of the world, Mobile Telco’s butchered mobile content providers (VAS content business providers) by offering very unfair non negotiable terms (typically 20-25% to the content owner). The Telcos thought that they gotten away with a kill – until iTunes and Apple Apps store came along. Apple offered 70% to content providers and today each and overnight destroyed the model of the Mobile Operator Deck Monopoly.
[Reproduced from Alok’s blog.]