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“Most mistakes are made by people who open their mouth too much. They over promise and under deliver.” - Mladen Kresic
Do you want to learn how to negotiate like a pro? I recently had a chat with Mladen Kresic, Founder and CEO of K&R Negotiation Associates LLC, and he shared a lot when it comes to negotiating effectively.
Negotiation is something that we do every day, so a lot of people are intimidated by it. Most think of hardcore, adversarial negotiations, but actually, negotiations are not an adversarial process.
Negotiation is really an interaction between or among people because sometimes there are multiple parties to reach an outcome. And if you think of it that way, it's something we should all do willingly.
It begins with simple things like understanding that negotiations are something that occurs throughout your interaction with people.
If you're negotiating in an M&A deal, it's going to be simple things and just the discussion of the pros and cons of both and the risks and rewards associated with different alternatives. Those things are all negotiations that we could learn to do better, but first, we got to recognize we're actually negotiating.
The value-based approach is all about understanding the other side's interests and uncovering those interests, and negotiating to those interests so you can move them closer to your way of thinking. That's the way we define leverage.
Leverage is the ability to move objects of heavier mass with less force. Leverage in interpersonal relations is the ability to move people.
And value-based leverage, or what I call positive leverage, people move voluntarily. They move voluntarily because you're doing something for them. It's in their interest to move versus negative leverage, which is risk-based. In negative leverage, people don't move so voluntarily. They move because they have to.
People will act with more urgency in relation to risk. So negative leverage is very important.
First of all, you have to understand the portfolio of leverage that exists on all sides.
Everybody has some leverage, things that give them leverage. The clients or the customers have leverage, or the buyer has leverage, the seller has leverage.
The seller presumably has something to buy and wants. The buyer has leverage because they have money; they have maybe alternatives. So you'll have to understand those things. And then, you have to break down the goals in the interests of these two sides.
And I like to do that using something we call the risk-reward matrix. I like to understand what the other side is worried about in terms of risk, if they act, or don't act with me?
What are the rewards of not acting versus acting? Because that'll give me a good feel for what leverage lies there and what I need to or need to do to get them to act?
Presumably, I want them to act. And that will start in my mind populating a little set of priorities.
So, for example, in an M&A context. If I am the seller and I'm considering selling my business, I want to know not only what the alternatives I have, because they're going to give me some leverage.
I want to know and understand what the action, non-action, risk-rewards look like for the buyer's action, acting with me buying my company, and non-action, could build your own, don't do anything, or use your money for other things.
And I want to understand the rewards, and for the person who's the purchaser there will always be alternative uses of money. So I have to understand something about their business.
Ask Questions. I've learned over the years that patience and listening are two skills I really needed to develop to develop the portfolio of information to do the kind of analysis we were just talking about, to understand the risks and rewards of different alternatives.
You always have the opportunity to listen. You always have the opportunity to ask good questions.
First of all, I want to understand their business. So I'm going to do a little bit of research on their business. And then, I'm going to look at their drivers and what kind of hurdles they have in their industry.
And so I'm going to ask some questions about the biggest hurdles within those that I've seen on their website and all the research that we do.
And then I also want to know what drives them. What are they motivated by individually?
I want to know two things:
What's motivating them, which is the why question.
What are their objectives, current state, future state?
Because if we're going to do a deal, usually it's got to be related to enabling them to get to that future state.
If I can't, in some way, relate my deal to the future state, probably it's not going to happen. And it's going to be somewhere along with those priorities.
Huge. If you can show leadership characteristics when you're dealing with people, they're likely to follow. You can start moving them closer to your way of thinking.
To me, there are two essential characteristics of leadership, humility, and compassion. Capability, credibility, and the ability to deliver are all important as well. But if you have a lot of capability and credibility, you have a lot of confidence that comes with those things, the only way you prevent that from turning into arrogance is humility and compassion.
And empathy is within those two areas, especially if you're doing business and trying to get people closer to you.
It goes back to patience and listening. The question and techniques are critical, and the confidence to sit back and just listen and not jump in is so important. People make mistakes when they open their mouths too much.
They over promise and under deliver, which is you should be doing the exact opposite. And a lot of that has to do with patience and listening.
And we have something that we call the leverage cycle because it's such a simple set of concepts if there was a process.
But not everybody does it, which is if you have patience and listening, you're going to gather the information that boosts your knowledge and information in context. That's when you can build your confidence and confidence is bilateral.
You are not only trying to build your own confidence, you are trying to build the confidence in those people that you're dealing with.
Yeah, it goes back to one of these skill areas, the propensity to make concessions due to not having the knowledge or not having the confidence.
Concessions don't make sense to the other side because we don't know enough to move the levers. We don't have the confidence, and therefore that's a fallback. Let's split the difference.
If that's the case, why can't you go all the way to my side? If you're going to all halfway for no reason, come for no reason.
But you can be a lot more efficient if you understand the environment and save time.
We sometimes do these role-plays, and we do role plays on actual deals. These role-plays are so important because they get people organized around managing the agenda.
I want to manage, as much as possible, the roles of the people in the context of negotiations. And I want to work rules of engagement for my team.
Macro agenda is the entire interaction process that we will have to get to the result in an M&A context. It could be called from the letter of intent the lockup period through due diligence, all the way to closing.
And sometimes beyond closing, because there may be an earn-out, then maybe there's all kinds of things that happen after the closing in terms of integration and so on.
So that macro agenda is critical. And what I see mismanaged probably most often in that macro agenda is the three Rs, the resources, roles, and rules of engagement.
The micro agenda is what happens in each interaction you have with the other side because every micro agenda has one goal: to move the ball forward.
How you behave in engaging with the customer tells them a lot about how you're going to behave in the delivery of the service.
So if you're disciplined about agenda management, it gives them a lot of comforts that you are going to be able to carry out what you're promising to carry out.
If you're thinking about the M&A context, you want the other side to be confident, whether they are to the buyer or the seller, that the right deal is the one with you.
Most people in sales are pleasers. They want to have a relationship, which is not bad. But as a result, saying no to something doesn't come easily, and they get into these cascades. The behavior is so endemic that it just permeates the salesperson.
I am using everything available on the web in terms of resources because there's so much available. You can find so much information about people that's important.
Tools, we have a portfolio of simple tools. I use a set of very simple tools, the risk-reward analysis. It says four or six box quadrant: Action, no action rewards, and risks.
And then as you evolve your portfolio information, you populated more and more, and it becomes a very robust portfolio of information, which you can leverage.
And then the corollary to that, which I tend to use later in the cycle, is something I call the MID, which is a tool for prioritizing issues that are going to come up in negotiations. MID stands for mandatory, important, desirable.
If I can give something desirable to me, but it's mandatory to the other side or important, I can get something else in return that's more important to me, which creates positive leverage in many respects.
The key is to focus on the agenda and not be taken off your game. The more difficult person is the silent person, a person who gives you no input. This is where patience comes in. You have got to outpatient the other side.
I love getting the deal done and closing a deal. The deals that I work on are long-term deals. So they have to work for a long time. So getting a deal done in a way that works.
And problem-solving, I get pulled into a lot of troubled projects, trouble situations.
Seeing people's eyes light up when you start resolving them starts turning around a tense and negative situation. Doesn't always work, but that to me is definitely that's what keeps them coming back.
When I deal with people who don't know what they're doing, it's almost impossible to have a discussion and get any movement.
People that don't know what they're doing, that are ill-informed have paralysis of indecision. And you're not going to get anywhere.
I struggle most with one of the things I'm passionate about, which is agenda management.
We all struggle with it. Especially macro agenda management because getting people the resources lined up is not always easy, especially on the other side.
You might have control over your own resource, but you don't control the resources on the other side.
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