New Venture Lab: Equipping Christian Entrepreneurs

One of the most memorable classes at Harvard Business School was in a negotiation class where two teams were involved in a negotiating exercise in front of the entire class.  Those of us that were watching had been handed out a brief that outlined what each side wanted.  Both parties were negotiating for the same lot of oranges.  One party was told they needed the peel of the orange to make a new pharmaceutical product, while the rest of the orange would be merely waste.  The other side -- you guessed it -- only needed the juice and the peel would be a throw away.  We watched as the two teams negotiated against each other because they did not know what the other side needed.  Finally, the break through came when one side muttered something aloud and the other team pounced on it due to the new insight and the negotiation quickly came to a close at a much lower price.  The lesson: tell the other side what you are looking for.  I happen to love sales and negotiation, but just in case sales or negotiation is not in your DNA, here are some useful tips summarized from a Harvard Business Review article:

The Idea

High stakes. Intense pressure. Careless mistakes. These can turn your key negotiations into disasters. Even seasoned negotiators bungle deals, leaving money on the table and damaging working relationships.

Why? During negotiations, six common mistakes can distract you from your real purpose: getting the other guy to choose what you want—for his own reasons.

Avoid negotiation pitfalls by mastering the art of letting the other guy have your way—everyone will win.

The Idea in Practice

Negotiation Mistakes

Neglecting the Other Side’s Problem

If you don’t understand the deal from the other side’s perspective, you can’t solve his problem or yours.

Example: A technology company that created a cheap, accurate way of detecting gas-tank leaks couldn’t sell its product. Why? EPA regulations permitted leaks of up to 1,500 gallons, while this new technology detected 8-ounce leaks. Fearing the device would spawn regulatory trouble, potential customers said, “No deal!”

Letting Price Bulldoze Other Interests

Most deals involve interests besides price:

• a positive working relationship, crucial in longer-term deals
• the social contract, or “spirit of the deal,” including goodwill and shared expectations
• the deal-making process—personal, respectful, and fair to both sides
  Price-centric tactics leave these potential joint gains unrealized.

Letting Positions Drive Out Interests

Incompatible positions may mask compatible interests. Your gain isn’t necessarily your “opponent’s” loss.

Example: Environmentalists and farmers opposed a power company’s proposed dam. Yet compatible interests underlay these seemingly irreconcilable positions: Farmers wanted water flow; environmentalists, wildlife protection; the power company, a greener image. By agreeing to a smaller dam, water-flow guarantees, and habitat conservation, everyone won.

Searching Too Hard for Common Ground

While common ground helps negotiations, different interests can give each party what it values most, at minimum cost to the other.

Example: An acquirer and entrepreneur disagree on the entrepreneurial company’s likely future. To satisfy their differing interests, the buyer agrees to pay a fixed amount now and contingent amount later, based on future performance. Both find the deal more attractive than walking away.

Neglecting BATNA

BATNAs (“best alternative to a negotiated agreement”) represent your actions if the proposed deal weren’t possible; e.g., walk away, approach another buyer. Assessing your own and your partner’s BATNA reveals surprising possibilities.

Example: A company hoping to sell a struggling division for somewhat more than its $7 million value had two fiercely competitive bidders. Speculating each might pay an inflated price to trump the other, the seller ensured each knew its rival was looking. The division’s selling price? $45 million.

Failing to Correct for Skewed Vision

Two forms of bias can prompt errors:

• Role bias—overcommitting to your own point of view and interpreting information in self-serving ways. A plaintiff believes he has a 70% chance of winning his case, while the defense puts the odds at 50%. Result? Unlikelihood of out-of-court settlement.
• Partisan perceptions—painting your side with positive qualities, while vilifying your “opponent.” Self-fulfilling prophecies may result.
  Counteract these biases with role-plays of the opposition’s interests.

By: James K. Sebenius

Source: Harvard Business Review