Journey of a Serial Entrepreneur

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How to get from where you are to where you want to be

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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5 steps to get better strategic partners

“If we are together nothing is impossible. If we are divided all will fail.” Winston Churchill

Strategic partnerships have been an integral part of all the business ventures I have been, and am part of. They can be made with suppliers, customers or distribution networks. What is essential when selecting them is to ensure that you put effort into the evaluation and selection process. Partnerships are very easy to get into but very sticky to get out of. The following 5 steps will allow you to minimize the number of unsuccessful partnerships considerably;

1. Value Creation: All partnerships begin with the premise that together they can create greater value for their clients, partners or suppliers. The impact of the value has a magnified effect which makes the companies involved stronger and more competitive in todays cut throat market place. To learn more about how to identify ways in value creation please click here.

2. Common Vision: Identifying a common vision requires you to answer three questions, “Why are we wanting to embark on this partnership?”, “What do we hope to achieve through the partnership?” and “What changes need to be made to the current business models to execute this venture?” Once you have got detailed answers to these question you can construct a concise and specific vision statement. To learn the answers to these questions please click here.

3. Common Trust: To grow, any partnership requires you to establish a strong level of trust between those involved. This requires you to be honest, open and reliable when dealing with your partners. Trust needs to be earned and once you have, it can be leveraged to become a very strong competitive advantage. To learn more please click here.

4. Common Value Systems: These are integral in creating long term partnerships. They provide a common thread which both sides can relate to and work towards. Finding out about a partners value system requires you to dedicate time and resources towards researching it diligently , this effort is worth every cent. To learn more about value systems please click here.

5. Clear Contracts: Contracts are a critical component in any business deal. It is the document which binds two or more parties to an agreement they have reached. these contracts have to be written clearly, concisely and in an unambiguous manner. To learn more about writing effective contracts please click here.

True partnership is a two sided relationship where both companies strive to create value rather than making a quick buck. It is a strategy which has a long term impact on the bottom line rather than a quick fix. To make them work requires hard work and a mind set which is very different from the traditional “what can I get out of this partnership?” view. Choose your partners carefully and build visions together on how you are going to help each other reach your goals.

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Clear Contracts

“A verbal contract isn’t worth the paper it’s written on.” Samuel Goldwyn

Contracts are a critical component in any business deal. It is the document which binds two or more parties to an agreement they have reached. In my first couple of startups we didn’t pay too much attention to the detail which goes into contract writing and suffered as a consequence. Ever since, I have always had a legal counsel advise the companies I work with on how the contract should be drafted. In essence the pattern I have seen is, that the most effective contracts are those which state clearly and concisely what has been agreed upon by both parties. If any level of ambiguity is left in this equation it could have serious ramifications in the future.

The question that arises is that since legal counsel is expensive, how is a startup supposed to pay for it on a limited budget? You should look into your network of friends and see whether anyone is studying or practicing company law and can help you out. If not then  look at the internet to find reliable sources where you can buy some ready made templates for specific deals. This website helped me when I was drafting  agreements and covered the things that need to be looked out for when writing contracts.

Whichever method you choose make sure that you research it well before signing any piece of paper. Signing is the easy part, it gets a lot more complicated when you want to exit the contract in a clean and quick fashion. In the near future I will have a couple of legal guests writers contribute some articles to help you out in writing  clear, concise and unambiguous contracts.

 

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Trust

“To be successful, you have to be able to relate to people; they have to be satisfied with your personality to be able to do business with you and to build a relationship with mutual trust.” George Ross

Trust is the foundation for any successful partnership. Whenever we begin a relationship with a vendor, client or network partner, establishing trust must always be kept at the fore front. At Innovo we operate in a relatively sensitive area of human capital management for our clients. We do not begin pitching our services and products from the word go, understanding our clients needs is our primary concern. Once we establish what those needs are we evaluate if we can successfully provide them.

Taking on work which you do not have the expertise for delivering is a guaranteed way of eliminating any trust which you may have worked hard in establishing. Being a trusted and reliable partner requires you to work in the best interest of your client. That could mean referring your clients to a competitor if you believe they can do a better job than you can. These are the things which will be remembered. Once trust has been established it becomes your largest and strongest competitive advantage. Trust can be leveraged to gain valuable insight into your clients needs and processes. This in turn will help you to serve them better and build an even stronger relationship.

If there are three words which sum up developing trust they would be; honesty, reliability and openness. When evaluating your relationship with your partners or clients use that as indicators to gauge just how strong your partnership actually is.

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Common Vision

“You need to surround yourself with quality human beings that are intelligent and have a vision.” Vince McMahon

When two companies come together to bring about greater value they need to be guided with a purpose. This purpose outlines exactly why it is that they are going into this partnership, what they hope to achieve through it and what changes will have to be made to their current business model if they were to embark on this venture. A common vision embodies all these factors.

To reach this common vision requires each of the partners to answer the three questions outlined above. Firstly “why are we wanting to embark on this partnership?”. If both sides have done their preliminary research and believe that they could add substantial value together, that becomes a strong case as to why they should partner. At this stage you need to put in some serious thought about common value systems and how integration would have an impact on operations in the future. Once both sides have agreed that there is value in them partnering they can move onto the next question.

This is ,”What do they hope to achieve through this partnership?”. This is the stage where both sides have to develop key performance indicators which would measure the effectiveness of this partnership. For example by partnering they would be able to reduce their cost of market by 10% annually which could be re-invested into R&D. In other situations one partner could leverage off the others distribution network to reduce inventory by 2x. The important aspect when developing such a proposition will be to see that the value created is not channeled to one beneficiary only. It needs to be mutually beneficial to foster trust and future growth. Once this question is answered you can move to the last question.

This is, “What changes need to be made to their current business models to execute this venture?”. At this stage we need to balance the cost of this partnership and weigh it against the benefits. This is a tricky aspect since with partnerships there are a host of intangible factors such as staff integration, communication barriers or even different value systems which may affect the partnership. Either way the two partners must do their best to evaluate the costs so as to arrive at a realistic figure.

Once we have all the key factors, a common vision for the partnership can be developed. This will help guide the partnership and provide it with KPI’s and costs which can be constantly measured and kept track of. Partnering is a commitment and one must ensure to only make those commitments which are maintainable .

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