Business leaders cannot go it alone. should work with them employees, customers, investors, suppliers, partners and communities. Each of these relationships is at risk when leaders enter negotiations.
Here are some examples of how negotiations can put your business at risk:
- An engineering leader developing your company’s new product receives an offer from a competitor. If you can’t agree on a new salary package, your competitor will be better off and your company may lose an opportunity for growth.
- A major raw material supplier proposes a 20 percent increase in prices due to increased demand and a lack of production capacity. If you pay the price, your profit will vanish, but if you lose supply, you will fall short of your production goals.
- Your company is months away from cash crunch. Your principal investor is happy to supply the money you need — but only if you reduce your cash burn rate by $5 million and accept a 50 percent cut in your company’s valuation. If you accept the terms, your best people can leave. If not, you may be short of cash.
Turning these situations into a win-win for you and your negotiating partner is a skill that business leaders must master. Yale School of Management professor Barry Nelebuff is an expert on the subject—with “30 years of experience teaching conversation, strategy, innovation, and game theory,” according to wall street journal,
The goal of negotiation, in his view, is to make more through a deal than you can get without a deal. Here are three talking tips from Nelebuf and how you can put them to work for yourself.
1. Agree on the pie.
In a conversation, it’s easy to skip a very important first step: agreeing with your negotiating partner what pie you’re trying to split. Before you even have a conversation about it, you must agree on the pie.
One case – which is very common nowadays – is a landlord who wants to sell his property in a hot market. Instead of simply offering the property to the highest bidder, say $800,000, the landlord offers to sell the tenant for $790,000.
That price is not found relevant. Instead, as Nellebuff pointed out, the parties are actually negotiating a 5 percent sales commission—about $40,000. To this, the tenant tells the landlord, I am happy to pay the market value and want us to split the commission savings equally between us.
In this case, the tenant deal prevails. While the landlord thinks that a hotter market means he should get $40,000 more in savings, the tenant argues, “If you sell to someone else for $800,000 you’re only going to collect $760,000. If I sell to someone else.” buy a comparable house, I’ll pay me $800,000. So you need me as much as I need you to save that $40,000.”
Simply put, if you can make it clear how much you and your negotiating partner need each other, you may both be better off negotiating the right pie.
2. Enlarge the pie.
Once you’ve agreed on a pie, you should try to make it bigger. To that end, Nellebuff argues that you should “ask for things that are affordable to them and valuable to you, not what’s costly to them.”
For example, if an employee asks for an eight percent increase, the company has to pay it to everyone – making it very costly for the company. However, it may be possible to request a one-time bonus of $10,000 that the employer may not be required to pay to all employees.
3. Say “yes, if,” no “no unless.”
These days, many employees are getting job offers elsewhere and demanding a pay increase from their current employer before leaving.
Let’s say you enjoy working at the company and you want to say, however, that the one or two percent increase you have received over the past three years is not enough for you to sustain high inflation.
Instead of telling the employer that you will quit until you get a 20 percent increase; It’s much better for you and the employer if you tell them what they can do to be happy for you.
The Journal notes that helping employers see that it will be cheaper for them to pay you – generally happy and productive employees – than to “hire someone like you and pay them a lot more money”. For.
Do these three things and you’ll turn risky conversations into deals that better you and others.