Journey of a Serial Entrepreneur

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5 Steps to Better Negotiations

“Any business arrangement that is not profitable to the other person will in the end prove unprofitable for you. The bargain that yields mutual satisfaction is the only one that is apt to be repeated.” B. C. Forbes

Most of us take part in some form of negotiation everyday. In life, skilled negotiators are able to close better deals, and reach mutually acceptable agreements faster. Ever since I undertook this entrepreneurial journey, negotiations seem to have become common place. I have come a long way from my early negotiations, at that time, very often I did not get the best deal possible . Experience however is a great teacher, and although I have made many mistakes in the past, I have also learnt much, which has honed my negotiation skills . Listed below are some key steps to be undertaken during negotiations, to ensure that a mutually acceptable agreement is reached quickly, fairly and efficiently.

1. Motivations & Interests: At the heart of every negotiation, each side has a set of motivations and interests which enable them to take  certain positions on issues. Before beginning the negotiations, identify  your personal motivations and interests for resolving the issue at hand. Internal clarity helps greatly to communicate your message. Next, we need to understand the other side’s position, as also why they have taken it. What are their motivations and interests on the particular issue? The initial round or rounds of negotiation need to include candid discussion to ensure as clear a picture as possible. To read specific examples please click here.

2. Focus on the Problem: The entire objective of negotiating is to find a mutually acceptable consensus. To ensure that this objective is achieved, we need to keep the process as simple as possible. This requires us to understand each other’s perceptions to ensure that we are on the same page. It also requires us to keep emotional baggage off the table. Lastly, we need to ensure that during the negotiation process both parties communicate clearly, and listen attentively. At the same time, we need to be aware of non verbal communications as well. Being focused on the issue and not deviating ,greatly improves the speed at which to reach an agreement. To read more specific examples please click here.

3. Develop Options: The objective of the option development phase is to arrive at a set of mutually viable and beneficial options. To reach this objective much collaborative work is required. We need to have several candid sessions whose sole purpose is to chart out maximum number of options. Each side has to ensure that its position’s and interests are clearly communicated, with the entire focus on how to maximize expectations by working together on a macro level. To read more specific examples of developing options please click here.

4. Alternatives: These are options which form our backup options if negotiations break down and agreement cannot be reached. Before the negotiation process, one should clearly list down all the available alternatives related to the issue at hand. Then list down possible alternatives that the other side may have. This gives a better understanding of how much room there is to negotiate. Alternatives are vital negotiation tools and need to be used tactfully to ensure that a fair agreement is reached. To read more specific examples of alternatives please click here.

5. Objective Criterion: These are benchmarks which provide a fair assessment to rate particular options against. Negotiations which use objective criterion’s usually result in fairer agreements. Therefore it is important that before one begins negotiations, criterions are researched and decided upon. Whether it is for purchasing a business or negotiating a salary increase, one needs to identify quantifiable metrics which can help make the decision making process easier and fairer.To read more specific examples please click here.

Negotiations are usually not very straight forward. Much of the time, emotions get in the way which complicates matters dramatically and frankly confuses both sides on procedural matters. To say that we need to keep all emotion out of the picture is not possible. What we need to do is to exercise a great deal of self control, and constantly put ourselves in the shoes of the other side. Only once we begin to see negotiations as a two-sided process will we be able to progress to becoming a more skilled negotiator. I wish you the best of luck in all your future negotiations.

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Objective Criterions

“Here’s the rule for bargains: ”Do other men, for they would do you.” That’s the true business precept.” Charles Dickens

Most of us have at some time, played the high-lowball game during negotiations. For example, a while ago I was attempting to buy a domain I wanted. The seller had a listed price of $500, I put in a lowball offer of a $100 dollars straight off the bat. The $100 I offered, had no actual basis and was nearer to the $200 or so I wanted to actually pay for the domain. The seller and I had a number of correspondences back and forth, and a deal was struck around $230. Did I get a good price? Was my reservation price, one that had a logic basis? Unfortunately I could not answer any of these questions.

It therefore got me thinking, that having objective criterions are necessary to ensure that both sides get an optimal deal. In the case of the above example, companies such as Sedo are able to calculate the true worth of a domain through several established criterions that include, estimate of the domain name’s value, list of recent comparable sales, search engine friendliness, branding potential, legal situation and even, possible buyers. This estimation establishes the true worth of a domain. If the had seller relied and gone with such a report from a trusted authority, stating the domain estimate at $500, I would have had very little room to negotiate a price which was substantially lower. We can therefore see, that by adding objective criterion’s to negotiations, we can optimize the value created on the whole.

It is therefore recommended, that whenever you enter into a negotiation, be it changing terms of payments with your supplier, a salary increase for your staff or the sale of your business to a private equity firm, do research regarding the metrics that can be used fairly, to add objectivity to the negotiations. It is important that the criterions proposed are acceptable to both sides. A key characteristic of skilled negotiators is, they are always prepared. They know their underlying interests, the options available,  available alternatives, and a list of objective criterions to reach an optimal agreement for both sides.

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What are your Alternatives?

“The hardest thing to learn in life is which bridge to cross and which to burn.” ~David Russell

How does one assess whether one is really getting a good deal or not? To answer this question one needs to have a deeper understanding of the alternatives available. Lets say for example, we are negotiating a salary increase with our employer. We want an increase from $50k to $60k. We bring up the topic with our employer, who immediately refuses the suggestion blaming the current economic climate. We could be an extremely valuable resource for the company, but without any available alternative we have very little leverage in this negotiation. However if we do some research about market rates for our profession and may even float our resume around to get an idea what our market worth is we could arrive at a figure which gives us a better understanding of our market worth. With this figure we now have a foot to stand on during negotiation.

Alternatives however are rarely as straight forward in complicated deals where one is negotiating the sale of a business or better terms of payment from suppliers. They do however give us an important edge to see how far we can actually push during negotiations. Lets say for example I am selling my car and my reserve price is $20k I meet a seller whose maximum limit is $30k. In this case any price above my $20k reservation price will be a positive outcome for myself and likewise any price below $30k will be a positive outcome for the seller. This brings out the objective of negotiations which is to achieve a better deal than not negotiating at all. Revealing your alternatives during negotiation is usually not a good strategy unless it strengthens your position at the negotiation table. It is important to remember that alternatives should not be used to apply pressure or force the other side into a particular decision. They are markers to help us make an optimal choice.

Before the negotiation process, one should clearly list down all the available choices related to the issue at hand. I then list down possible alternatives that the other side may have. This gives a better understanding of how much room there is to negotiate. It is important to not use ones alternatives to apply pressure tactics to induce the other side to give in. Such tactics may work in the short term, however repeated use of such strategies will hurt your future chances of getting a better deal. One needs to be fair and ensure that each side is benefiting from the agreement to ensure better long term results.

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Options Development

Everything is something you decide to do, and there is nothing you have to do.” Denis Waitley

Often in negotiations, each side promotes their optimal outcome without taking into account mutually beneficial options. We often only concentrate on how we can get the most out of a particular predicament, rather than creatively coming up with alternatives for mutual gain. Other common problems leading to stalemates, is when each side looks for a single answer to resolve the issue, or views the pie as fixed, and looks for ways to increase their own share. These road blocks lead to slow negotiations, and can be frustrating for both sides. Below are a couple of ways I follow for option development:

1. Separate Brainstorming & Decision Making: The option development phase is an important one, and needs to be handled independently. If we mix the option development phase, with the decision making one, it could potentially lead to premature judgments. This phase needs to focus on the creativity of both sides, to develop options which cater to the bigger picture. At this stage there is no option which is too crazy, and both sides must feel comfortable in expressing their point of views and opinions. The end result of these sessions should be a developed list of potential options which cater to both sides and are mutually beneficial.

2. Cater to Interests: As mentioned in earlier posts it is important to focus on interests rather than positions during the negotiation process. This has great significance in the option development phase. For example, if we negotiate a larger equity stake in the business with one of the founders, it is important to let the partners know why you want 10% instead of the 6% offered. Is it because the 10% signifies the actual opportunity cost that you are foregoing to join the business? Explore the reason of the founders interests  and why they had offered 6%. Without this, the discussion is polarized to very hard positions, its either 10%, or I will not be joining. Such an attitude is not conducive to developing viable options.

3. Focus on Increasing the Pie: On a micro level when you look at an issue there are a couple of possible options available. For instance, if you are negotiating terms of payment with a vendor there are a limited number of options available to reach an agreement. However, if we take a 3 dimensional view of the issue at hand and take into account macro level factors to improve the situation, a number of options will become available. In the same negotiation with the vendor, if we zoom out and brainstorm new ways to increase the volume of business with the vendor through shared activities, maybe the vendor would be more inclined to negotiate more favorable terms. Broadening the scope of the issue is an essential trait of the skilled negotiator.

The objective of the option development phase is to arrive at a set of mutually viable and beneficial options. To reach this objective much collaborative work is required. Many individuals shy away from talking through options and stating their interests, only because they fear they may be giving too much away and may appear vulnerable. Such a stance will most likely lead to a limited set of options, most of which do not cater to the interests of the involved sides.  We must therefore introduce candor into our negotiation process to yield optimal results.

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Focus on the Problem

“When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.” Dale Carnegie

Dale Carnegie’s quote, eloquently summarizes a major challenge we face at the negotiating table. Negotiations tend to get complicated due to the fact, that as human beings we bring a lot of baggage to the process. In the seminal book “Getting to Yes” by Roger Fisher and William Ury, they have a dedicated section devoted to separating the personal element as much as possible, from the negotiation process. They identify three main segments which tend to complicate matters repeatedly, they are perceptions, emotions and communications. Listed below are a few tips on dealing with each segment.

1. Perceptions: As stated in yesterday’s blog post, if we do not look adequately into the other sides position and interests, our perceptions will be skewed. We may perceive an issue in a certain manner because of a particular reason, whereas, it could be due to something completely different. We need to open up candid discussions on both sides. Unless this is done, both sides will blame the other and point fingers. Each side needs to be part of negotiation process, as also clear on each other’s positions, to reach a mutually agreeable decision.

2. Emotions: This area tends to complicate matters during the negotiation process as a routine. To become an adept negotiator, one needs to become emotionally aware of ourselves and others. Emotions tend to play either a positive or negative role in negotiations. It is only when negative emotions such as anger, fear and distrust come into play, that reaching a consensus becomes very challenging. As skilled negotiators it is important to keep a constant check on our own emotional levels, as well as that of the other person. When we sense a boiling point it is important to diffuse the situation by either changing our stance or by temporarily leaving the scene. It is important to focus on the issue at hand and not take personal jabs at the other person.

3. Communication: During the negotiating process if the involved individuals are not able to communicate properly, chances of reaching any sort of agreement is minimal. We need to ensure that during the negotiation process both parties communicate clearly and listen actively. At the same time, we need to be aware of non verbal communication as well. Key factors such as eye contact, facial expressions and body posture are continuously communicating messages to the other side. We also need to be aware of the non verbal cues we may be receiving from the other side as well. Miscommunication is one of the primary reasons why negotiations break down, we must ensure that the focus on keeping channels of communication clear at all times is maintained.

The entire objective of negotiating is to find a mutually acceptable consensus. To ensure that this objective is achieved, we need to keep the process as simple as possible. If we complicate the process by bringing external baggage into the equation, chances of reaching a consensus become slim. We need to ensure focus on the issue at hand at all times. This will undoubtedly be challenging, and there will be moments when our emotions will get the better of us. However, if we always remind ourselves of the core issue and make a concentrated effort to reach a consensus, both sides will benefit.

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Understanding Motivations and Interests

“Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious–but their ambition is first and foremost for the institution, not themselves.” Jim Collins

At the heart of every negotiation, each side has a set of motivations and interests which enable them to take  certain positions on issues. When the sides lack an understanding of the other’s interests and motivations, reaching a mutually agreeable decision is very challenging. Before beginning any negotiations, there are a couple of steps I take, to better understand my position on the matter as well as the other individuals position. Chances are, we will not have all the information needed to make an optimal decision. However, the initiative to understand positions better, will greatly improve chances of reaching a common ground.

1. Identify Self Interests: When we enter a negotiation process, there are obviously some goals and targets  we want to achieve. For example lets say,  you want to exit a partnership in a business you have been with for the last 5 years. What are your reasons for wanting to exit? Asking ourselves questions helps to view the issue from an analytical aspect. Identify the reasons for your inability to work with the other partners, is it due to office politics, or to fund an financial emergency need ? We need to be clear about our position to quit when we go to the negotiating table. Internal clarification greatly assists in the communication of our message.

2. Understanding the Other Side: Once your position and the interests which led to its selection is clear, begin to focus on the other side. This is a critical step which gives a holistic view to the issue being discussed. Much of the time we forget to look at the issue from the other’s point of view. We need to not only understand the other side’s position, but also why they have taken it. Through this exercise, it is possible to come up with different positions which may be taken and create counter arguments for them. In the example above, the other partners may look at the sudden request for quitting as suspicious and may choose a hard line when negotiating terms of exit. You could be a critical member of the team whose departure will cripple the firm. As many possible positions should be taken into account.

3. Candid Discussions: Both parties need to have detailed discussions to help each other understand points of view from each angle. Sometimes this can be difficult when individuals do not want to cooperate, this is quite common. The fact of the matter is, if we choose to take the hard ball route, one side is forcing their position down the other side without paying adequate attention to the other’s interests. To make any progress, one needs to gauge what, and how, the other side thinks to be able to reach common ground. This is a difficult process if candid discussions are not part of the organization and will take time. However it is well worth the wait.

Negotiating is a challenging task. If we just look at the surface on “what the other side wants” instead of also asking “Why do they want it?” we will only have half the picture. By taking the initiative to understand our own interests as well as those of the other side, will provide us the ability to look at the bigger picture and make a more informed decision. Becoming stubborn and refusing to pay attention to the other’s interests, or dismissing them all together will only make the negotiations difficult.

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Having Trouble Getting to “Yes”?

Negotiation is “the art of letting them have your way.” Daniele Vare

Negotiations are a central part of our lives. During the course of a day, we negotiate a host of issues, ranging from simple ones, such as who gets dropped off first to work, to more complex ones, such as negotiating the equity split in your brand new start-up. In each scenario, those with better negotiating skills have an advantage to arrive at a decision in their best interest. However, acquiring better negotiating skills takes time and experience. I strongly believe, that a better understanding of the negotiation process  will dramatically improve these skills. On a macro level, all negotiations consist of three main components. They are:

1. Issues: This is the central cause for negotiations to take place. Examples can be, the sale of your company, a salary increase or a partnership agreement. It is essential that everyone involved in the negotiation is on the same page, and has a thorough understanding of the issue being negotiated. Much of the time, the involved individuals fail to see the issue correctly, which leads to complications that could easily have been avoided. Understanding the issue at hand and making sure everyone is on the same page is hence very important.

2. Positions: Once the issue has been presented, the involved individuals take positions. For example, if the issue at hand is a salary increase, the employee will take the position that his performance warrants a pay increase, and the employer could take the position that the employee’s performance does not warrant this. It is through negotiations that a middle ground needs to be found, where both the employee and the employer can reach a mutually acceptable decision.

3. Interests: The positions we take are always motivated by certain interests. In the above example, the employee may want to buy himself a condominium or, be getting married and needs a salary increase  to afford his changing status. The employer on the other hand, may be under strict instructions by senior management to put in place a salary freeze because of the prevailing economic uncertainty, hence his position to deny a salary increase. Negotiating interests means, negotiating about things that people really want and need, not what they say they want or need. Often, these are not the same. People tend to take extreme positions, often designed to counter their opponent’s positions.

Understanding these basic foundational blocks is critical before one delves deeper into negotiation tactics. We have to be able to see the picture from a broader perspective in order to reach mutually acceptable decisions. During the course of the week, I will share a few steps with you, steps which have made my negotiational skills more affective. I hope they will be of some assistance to you. As always your comments and feedback will be greatly appreciated.

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5 Steps to Manage Conflict

“The harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly; it is dearness only that gives everything its value. I love the man that can smile in trouble, that can gather strength from distress and grow brave by reflection. ‘Tis the business of little minds to shrink; but he whose heart is firm, and whose conscience approves his conduct, will pursue his principles unto death.” Thomas Paine

There is no doubt, managing conflicts is a challenging task. On my journey as an entrepreneur I have had my share of conflicts. I think working in close proximity and under much pressure, tends to raise conflicts more frequently in entrepreneurial ventures. It is hence important to know how to handle them more effectively. Losing a team mate, a client or a supplier can spell the end for a young startup. Listed below are five steps to help manage conflicts in a systematic and structured manner, and thus reach a fair and faster consensus.

1. Facts: Before anything is discussed or negotiated, it is important that all relevant details are documented. This includes finding core reasons behind the conflict, the stage the conflict is at, and the affected parties. It is important to be objective when documenting these factors, and ensure that each one of the affected individuals is part of the process. To read more about the fact finding process please click here

2. Ground Rules: Developing a set of rules and structure can greatly facilitate conflict resolution. It is important to let all the participants know what is expected of them. It also helps to formalize the actual negotiation process with a set agenda, and a mediator if possible. Setting up such a structure helps the negotiation process run smoothly, with each participant well aware, before hand, about the discussion agenda. To read more about setting appropriate ground rules please click here.

3. Negotiations: The actual negotiation stage brings all the concerned parties together, to discuss their points of view in a structured manner. It is important to insist that each participant keep their mind open to different options, even if they do not agree with them. Keeping a close mind and remaining stubborn makes the process more challenging to manage. During this stage, notes need to be taken down regarding options discussed and differences and concerns that were voiced. To read more about the negotiation stage please click here.

4. Evaluation: After the negotiation stage, all the participants are called back at a later date to discuss the options discussed during the negotiation stage. At this time, it is important to establish a set of objective criterions, to ensure the options discussed are feasible, fair and take into account the larger picture. There are several strategies which can be used at this stage to rank or combine options, and to come up with a mutually agreeable option. To read more about the evaluation stage please click here.

5. Closure: The final stage of a conflict management process involves bringing closure to the argument. This is done by  formalizing whatever was discussed and decided into a written document, which clearly outlines everyone’s responsibilities and roles. It is important that a commitment is made to follow through on what was decided. Periodic meetings can be established to ensure that everything is moving as planned, with suggestions and feedback provided along the way. To read more about closure please click here.

I have followed this system in conflicts I have been involved in. However, given the variances in every conflict, one needs to improvise along the way. Managing conflicts is a challenging task, especially when they have been brewing under the surface for long periods of time. Reaching a formal agreement acceptable to all the concerned individuals is a major feat. It requires patience, an open mind and the willingness to be flexible. It is much easier to be stubborn and refuse to change a position, rather than be adaptable and sacrifice for a more congenial and brighter future. 

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Closure

“The most intense conflicts, if overcome, leave behind a sense of security and calm that is not easily disturbed. It is just these intense conflicts and their configurations which are needed to produce valuable and lasting results.” Carl Gustav Jung

Closure is one of the most critical components of successful conflict resolution. Without it, there is always something unfinshed hanging in the air and this makes people uncomfortable. I am sure many of us have been involved in conflicts which have ended without the required closure. It is not a pleasant situation, and if you then have to continue working with the persons concerned, it can be most awkward. To avoid such situations and reach closure, there are a few things I work on ensuring. 

1. Written Plan: Ensure that everything that has been discussed and decided upon, is written down in a formal document. This document should outline levels of future responsibility, possible compensation agreements, changed working arrangements or any other directives that are to be carried out. Putting it all down on paper makes it tangible, and easy to take ownership of.

2. Commitment: It is important that once a mutually agreeable option has been accepted, tasks and roles allocated, everyone commits to whatever they were assigned. A personal commitment is as important as having faith in the abilities of others to carry out their parts. This is not a time to doubt the follow through abilities of others. At this time more than ever, it is necessary to begin and rebuild the trust which may have been lost in the process.

3. Periodic Checks: A system to routinely check the progress of what was decided and agreed upon is vital, to ensure everyone is keeping their end of the deal. Such checks help monitor team progress and provide valuable insight into the team or individuals working dynamics. Such meetings can be a sounding board for suggestions, complaints or feedback. 

Closure after a long drawn out conflict is a liberating and empowering feeling, and helps us face challenges with ease and confidence. It reminds us, that survival in this world, requires us to learn to be flexible and move forward. Being stubborn and refusing to see different sides of a conflict, renders us incapable of moving forward. 

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Evaluating Options

“There are three ways of dealing with difference: domination, compromise, and integration. By domination only one side gets what it wants; by compromise neither side gets what it wants; by integration we find a way by which both sides may get what they wish.” Mary Parker Follet

Once the negotiation stage has been cleared, all options presented and discussed need to be evaluated. During this stage, respective parties need to set their differences aside, and work towards reaching a consensus where both parties are satisfied with the outcome. This is by far one of the most challenging stages in the conflict management process. Much of the time such situations conclude in deadlocks, because one party may not be open to entertaining any option other than one which benefits them. Conflict resolution needs a certain level of sacrifice from each party to reach a mutually beneficial agreement. 

Some steps which can help reach a mutually beneficial agreement are:

1. Developing Criterions: Prior to starting this phase it is important to establish some base criterions. These include ensuring that all options discussed are feasible and fair. It is also equally important to identify a set of objective criterions which help each of the participants look at the larger picture. This helps set a tone which in turn helps the flow of the discussion and reaching a mutually beneficial agreement, faster. 

2. Ranking: To begin the process, rank the options discussed in the negotiation stage. This will help the participants decide jointly which options address the needs of the group and their own needs. This is a tricky exercise, as each participant would like to rank the options which benefit them the most, on top. To resolve this issue, each option should be graded against a set of objective criterions which are mutually agreed upon. This helps bring objectivity and fairness into the process.

3. Combining of Options: I have found that it is often possible to combine certain options, thereby creating a mutually acceptable option to both parties. Through this method we can bridge differences in opinions, which may limit parties to reach a mutually agreeable agreement. This takes some creativity,  at the same time, helps to think out of the box when resolving conflict. 

There needs to be much give and take at this stage. Sacrifices need to be made, at the same time it is important to remain objective and work towards a mutually beneficial agreement. During this stage one needs to be creative and think out of the box. A deadlock must be avoided at all costs, if a party becomes stubborn and refuses to change positions, we need to factor this dynamic in, and find alternatives which may be acceptable to them. 

 

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