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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Selecting the Right Name

“When you think of the blur of all the brands that are out there, the ones you believe in and the ones you remember, like Chanel and Armani, are the ones that stand for something. Fashion is about establishing an image that consumers can adapt to their own individuality. And it’s an image that can change, that can evolve. It doesn’t reinvent itself every two years.” Ralph Lauren

If you think coming up with the next million dollar is challenging, correct selection for the name of your business is not going to be any easier. A name formulates the foundational base of your entire business. It communicates what you do to your target segment, what differentiates you from the competition and is ideally meant to instigate curiosity to find out more. A logical argument often used against this methodology of thinking, is that names such as Google, Amazon and Monster do very little to reflect what they do, yet, they have become mega brand names. The fact of the matter is, the businesses mentioned above were pioneering companies which revolutionized internet search, online shopping and online recruiting. They are built on very sound business models and due to the sheer superiority of their products/services they have become household names today.

Getting the name game right is something I have been giving more time towards, in my more recent ventures. We named our first design agency “Synaptic Creations”. I am not a biology student but picked up the word from a friend who told me synapses were the gap between two neurons, over which impulses lead to learning. It made sense at the time and we went with it. The word creations however, is too generic and reduced the ability for us to expand into other areas as well. It also confused some individuals who thought we may be some genetic based start-up. The name would fail several of the benchmarks I now have, for appropriate names for a business. It is important is to learn from mistakes made in the past to help you get it right the next time.

Most of the time, start-ups have to select their own name unless you have managed to secure some major early stage funding. If you have I would recommend NameLab or similar brand name consultants. If you are on your own, there are basic guidelines, namely, keep it short, keep it simple, avoid generic terms, the name should be easy to pronounce and spell and, should be unique. I do advocate a structured process to help you think in a more focused manner, which will in turn help you in deciding on a name which has been looked at from all angles, and has had major thought put into it.

Firstly, we need to think through the space we will operate in. Use questions to get your team thinking along the same wave lengths. These could include:

1. What would be the word you would want customers to associate your business with?

2. Who are you target customers?

3. What are the unique components of your business model?

4. How are you different from your competition?

5. What words best describe what your business does?

6. What emotions do you want your name to instigate in the customer?

Develop similar questions based on your business concept, and come up with as many permutations as possible by mixing and matching. Create a filtered list of names which passes the basic guidelines. If possible do a focus group or collect feedback from friends and family on the names you have shortlisted. This process will take a lot of time, so plan in advance for it so that there is no need to make a rushed selection. This is a name you are going to have to live with for a long time, you need to make it count!

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How to Position your Brand

“A brand should strive to own a word in the mind of the consumer.” Al Reis and Laura Reis

When you walk into a supermarket with the intention of buying eggs, do you actually pay attention to the branding on the eggs or do you pick up whatever is available? I usually pick up whatever I find. However the decision is more complicated when I want to get a soft drink. Brands such as Coke and Pepsi have spent billions of dollars positioning their products as the only cola alternatives. A frame of reference has been created and no matter how many new rival products are introduced in this category, it is almost impossible to dislodge the current leaders. 7-Up did something very interesting with its positioning when it rebranded itself as the “Un-Cola”. Since it could not use the word cola in the customers mind, it reframed it’s positioning relative to its competition and took up a unique position in the minds of customers.

Naturally having the edge of being first in a certain category, has it’s advantages. However, competing in markets where there is already some competition, we need to figure out a way to convince potential customers, to use our product/service instead. This requires a lot of creativity and understanding for your target market and your competitors offering. As mentioned in prior posts, we have to take into account the sort of persona we want to project and what competitive edges we want to bring to the forefront. Take for example the rent-a-car business in America. Hertz had a large edge over the No.2 provider Avis. That was until Avis capitalized on its position by using the tag line “Avis is only No.2 in rent-a-cars, so why go with us? We try harder.” This statement dramatically helped the profitability of the company and more importantly helped customers develop a reference point between Avis and Hertz.

As a start-up organization we often cannot afford to pay tens of thousands to brand consultants to help us  develop positioning strategies. However all is not lost. The end goal is to own a word in the mind of the customer, or be able to communicate your business concept in 5 words or less. Much effort needs to be put into name selection and the use of words as discussed in the brand personality post. These will be discussed in greater detail in the next post in the series.

To get you started on what your product/service should be, there is a great positioning rule called the 4D Rule:

1. Desirable by the customers

2. Distinctive from the competition

3. Deliverable by the company

4. Durable over time

A well positioned brand will lie at the intersection of all four requirements.

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Why should I choose your brand?

“A product is something made in a factory; a brand is something that is bought by the customer. A product can be copied by a competitor; a brand is unique. A product can be quickly outdated; a successful brand is timeless.” Stephen King

Yesterday’s step regarding the personality of your brand, should get one thinking of all the factors that need to be covered to successfully attract your target customer. The next couple of steps will cover essential components which need to be thought through clearly when building a brand. The component I will talk about today is the answer to the question above, namely, your competitive advantage. If one cannot answer why a customer should select your product over your competitors, there won’t be a business to build a brand for. To answer this question correctly, one needs keen insights into the internal selection process of your target customers. Communicating with your target customers and finding out what their needs and requirements are, is the only way to do this. 

For example, you want to launch a new web based product which aims to provide an ability to manage your contacts and communication logs. The market place is currently filled with such products, and include Highrise, a product I use for the same function. When this new service comes along, and they have essentially replicated existing product features and functionalities, there is little chance of success. Even if minor changes have been created, they stand to lose this competitive edge when these functionalities will be copied by existing players. This is an example of when business owners have not put enough thought into the reason for creating the service, for whom it is being created, and how they plan to provide long term value to the target customer.

On the other hand, take for example, the social networking space. Friendster started off with a bang and a small niche social networking site called Facebook, they entered the market, and addressed key concerns regarding, privacy, communication tools and useful applications to make the experience more enjoyable. They clearly addressed the question “why should I choose to switch to your platform?” This leads to an important conclusion, which is, businesses and brands have to be rooted in strong business models which address customer needs in an unique way. Our branding strategy needs to continuously communicate this competitive advantage to our target customers, reminding them of reasons they should choose us, over our competitors.

Related Articles:

– What is your competitive advantage?

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