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8.

NEGOTIATION SKILLS

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Negotiation is not a policy. It's a technique. It's something you use when it's
to your advantage, and something that you don't use when it's not to your
advantage
John Bolton
Do you have what it takes to be a successful negotiator?
During negotiations the negotiator will be looking for certain return, exit strategies
and other conditions based on how he or she values the potential of your
opportunity. At the same time, you'll be looking for certain terms and conditions that
you need to maintain control of your business.
Because you and the opposer will have different points of view, skirmishes are likely
to occur during negotiations. But if you deal effectively with these differences you can
influence the results of the negotiation to get what you want and reach an agreement
that's mutually beneficial to you and the opposer. There are a number of outcomes
that could occur as a result of negotiations. Depending on how you address the
negotiations, you will reach one of the following outcomes.
Win-Win.
Both parties achieve their goals and are satisfied with the outcome. For example,
both you and the opposer are happy with the terms of the negotiation contract.
Win-Lose.
One party achieves the goal at the expense of the other party. For example, the
opposer is happy with the terms of the contract, but you believe the opposer will
have too much control of your business.
Lose-Lose.
Both parties are dissatisfied with the terms of the negotiated contract. For example,
you feel that the opposer is demanding too high a return, and the opposer feels that
your valuation of your goodwill is exaggerated. The two of you cannot agree on
these points, but they are the only items that are preventing you from signing the
deal, so you leave them in and close the deal.
As you want to build a long, prosperous relationship with the opposer, you should
aim for a win-win agreement so that both parties feel that their needs have been met.

Become a Better Negotiator

The essence of negotiation is dealing with differences between two or more parties.
The final result of any negotiation must be an agreement. This can be a mutually
beneficial solution, an agreement to disagree or something in between. Both parties
must deal with the differences at hand; these differences must be communicated
with understanding of the other's points of view and with a logical, open-minded
approach to conflict resolution.
Typically a successful negotiator is a strong communicator. It's someone who's
willing to do whatever it takes to build a positive business relationship. It's someone
who's prepared to make compromises to achieve a larger, more creative and
mutually agreeable goal. To be a good negotiator:
Focus on Building a Healthy Business Relationship
Communicate Effectively
Handle Conflict Effectively
Understand Power and Use It Effectively
Disclose Information Effectively
Approach Negotiations Logically.
Focus on Building a Healthy Business Relationship
Focusing on a positive healthy business relationship helps you work toward a winwin agreement. By knowing that you're in it for the long haul, you may want to be
more flexible, open and understanding. You should listen more effectively, seek to
understand the opposer's viewpoints and adopt approaches that are conducive to a
win-win agreement.
Consider adopting some of the following approaches.
Use positive negotiation tactics.
Clarify expectations.
Separate people from the issues. Be Flexible and Creative

 Focus on interests.
Create solutions that are beneficial to both.
Communicate Effectively
Communication is probably one of the most important elements of the negotiation
process. It helps you build trust, ease tension and understand the opposer.
Here are some useful tips that will help you communicate better.
Encourage dialogue.
Use your voice effectively.
Deal with non-verbals.
Listen effectively.
Get your point across in writing.
Sometimes you need to put yourself in the other person's shoes. By trying to see
things from the other's perspective, you'll gain an awareness of what issues are
important to the other person and why.
Handle Conflict Effectively
Conflict will inevitably be part of the negotiation process as you and the opposer
have different points of view, goals and interests. To reach a win-win agreement, you
need to address conflict in a constructive way.
Being patient, handling stress and controlling your emotions are essential to
successful negotiations. You should have a high tolerance for frustration and take
whatever time is necessary to reach an agreement. Long negotiations, tedious
processes, conflict and unexpected events will increase your stress level. Keep your
emotions under control. It's healthy to express how you feel, but don't let your
emotions cloud your judgment or negatively affect your business relationship with the
opposer.
Be Flexible and Creative
You should seek creative alternatives that benefit both the opposer and you. If you
reach a roadblock, think "what else?" and you may be able to unleash previously
unexplored possibilities. Be flexible; don't reject the opposer's alternatives too
quickly. Avoid the desire to get everything and never give in. Admit that you don't
know something or that you were wrong. More specifically, the opposer's response to
your investment proposal and your response to the term sheet are the first
negotiation step. Use the term sheet as a guide, not a step-by-step list over which to
haggle.

Understand Power and Use It Effectively

Even though you might perceive opposer's as powerful because they control the
financing, you also have power. Power can come from a variety of sources, such as:
having a second-best option if you can't reach a deal with the opposer;
seeking to establish a two-way communication;
respecting the opposer;
probing for the reasons behind the opposer's position;
looking for alternatives that benefit you both; and
using an agreed upon method for assessing the value of the investment
proposal's elements.
Don't place too much emphasis on only one or two of those sources of power. You
should strive to have a good balance of each.
Disclose Information Effectively
When and how information is disclosed can make a difference in the results of a
negotiation. Essentially there are two main approaches to disclosing information.

Blurting It All out Reduces Your Credibility

The first approach consists of telling everything without any interaction or pauses.
The fact that you're providing so much information when the opposer spent little
effort asking for it might seem suspicious and reduce the credibility of your
information.
Disclosing Bit by Bit Increases Your Credibility
The second approach involves more interaction with the opposer. In fact, you
disclose information a few bits at a time. Because opposer's sense that they control
the flow of the information, they may be more confident about the reliability of the
information. Disclosure should be a two-way, not a one-way, process.
Be open to pauses in the conversation or silences.
Approach Negotiations Logically
Every issue needs to be discussed. There are two basic approaches you may
choose to take.
The first approach consists of addressing the easy points first to build momentum.
It's usually easier to start the negotiations by reaching an agreement on minor
issues.

The second approach consists of going over issues that are more important to both
parties and then using minor issues to sweeten the deal. If you decide to use this
approach, be aware of the way you present the issues on which you strongly
disagree. In this case it may be appropriate to start by going over past meetings,
conversations, resolutions and submitted documents. This would serve to bring the
proceedings up to the present. It would also enable you and the opposer to explain
the situation with your respective perspectives and express how you feel about them.
Use Conflict to Your Advantage
Conflict that isn't handled effectively is one of the biggest deal breakers within the
investment process. During negotiations, parties have different facts (e.g. one party
is holding back information from the other), different goals (e.g. both parties seek
competing outcomes for exit strategies) or even different values (the opposer

wants more control of the business than the entrepreneur is willing to give up). This
combination often results in conflict.

Conflict is an essential, healthy part of the investment process. You can prepare for it
and use it to your advantage to prove your ability as a competent businessperson
and to ensure that the opposer is someone you want as a partner.
Resolving Conflict Can Make You Look Good
Some conflict will be dealt with quickly and easily. By solving problems during
negotiations, you'll have proved your creativity and communication skills, as well as
your ability to develop mutually agreeable business relationships. The opposer
should be impressed with the application of your management capabilities.
Inability to Resolve Conflict Can Be a Valuable Lesson
Some conflict will result in irreconcilable differences between you and the opposer. It
may not be obvious, but this scenario is critical to your getting the best deal possible.
Let's say you hit a brick wall with your opposer during negotiations. You both strongly
disagree with each other and, based on what you've just experienced with this
particular opposer, you decide that you can never form a positive working
relationship. In this case, the presence of conflict has highlighted your mutual
incompatibility before you are business partners. It might be time to walk away from
the table. It's better to find out these facts before you both sign a legally binding
agreement.
Other Positive Outcomes
The word conflict stirs up images of people embroiled in an argument with tensions
running high. Conflict makes us uncomfortable, and often we shy away from a
conflict to avoid exposure to certain negative behaviours like anger and stress. By
dealing effectively with conflict, some positive results can occur.
Different points of view are expressed, increasing the likelihood of reaching a
high-quality decision. This is important because weaker alternatives will be
discussed and rejected for valid reasons.
Problem-solving skills can be enhanced. The participants are encouraged to
explore various alternatives.

 Critical issues are discussed that might not have been. If everyone agrees all the time,
then group members start to believe that they can't fail. They don't take the time to
evaluate strategies and may make unnecessarily risky decisions.

Understand Conflict Resolution Styles

Understanding how people deal with conflict may help you see it coming and handle
it more effectively. There are several typical styles, but most people rely on one
particular style out of habit. Often, too, we may unconsciously react very negatively
to another style just because it isn't our own preferred approach.
Be careful about trying to pigeonhole the other person into one style during a
negotiation. The way an individual addresses conflict may change based on the
situation at hand. And your reactions and behaviour may also influence the other
person to adopt a different style.
Examine Your Style and Reactions
Look over the following styles of handling conflict. Can you identify your own
preferred approach? Of the approaches you don't usually take, which ones make you
uncomfortable? If an opposer adopts one of those styles, how will you handle your
negative reactions? What will you do to exert a positive influence on the situation?
Avoid (Run away.) You completely withdraw from the conflict, as if it doesn't exist.
Accommodate (I give up, let's do it your way.) You put aside your goals and
basically give in, although inside you are frustrated and angry.
Force (My way or the highway.) You force your point until the other party eventually
gives up.
Compromise (Meet you in the middle.) You give up something and so does the
opposer, but neither of you is totally satisfied.

Collaborate (Let's do it together.) You and the opposer work together to find a
solution that satisfies both of you.
Use a Structured Approach
A structured approach to conflict resolution can help you reach a win-win agreement
in your negotiations. The following approach is simple, easy to follow and logical.
You should apply it during negotiations when the situation arises. It will instill
confidence in the opposer that you are a businessperson committed to building
collaborative solutions.
Like any approach, the following one is designed to be a guideline. Adapt it as you
see fit. Apply it not only during negotiations but also in your daily operations.
The diagram below shows this five-stage approach:

Open
Discussion
of
Problems

Identify
Difference
s

Build
Understan
ding for
Point of
View

Remove
Defensiven
ess

Begin
Mutual
Problem
Solving

The Five-Stage Approach

A) Open Discussion of Problems
During this stage, both parties should feel free to express any concerns that
they have, without fear of being ridiculed or judged. You can't expect to deal
with your concerns if you don't discuss them, regardless of relative
importance. Communicate fully. This approach can be a long process.
Remember that you're setting the tone for any future meetings or transactions,
so you want to establish an environment of openness and honesty. This will
also facilitate trust building with the opposer.
B) Identify Differences
Imagine if a deal fell through because you and the opposer thought you had
incompatible goals but, in reality, you didn't. That's why it's so important to
separate real from perceived differences in opinion. Be prepared to explain

the rationale behind your demands so that you and the opposer can
determine if you have different interests (a true conflict) or just different ways
of getting to the same result (perceived conflict).
Conflict arises from a difference in opinion or values. The cornerstone of
dealing with conflict is understanding the gaps between your desires and
those of the opposer. You need to do this before you can bridge these gaps.
C) Build Understanding for Point of View
You need to gain an understanding of the opposer's needs and ensure the
opposer understands your point of view. Conflict resolution techniques that
focus on positive outcomes of conflict may help you approach the issue from a
more workable angle. Here are some intervention techniques that you can
use.

Use open body language. (Maintain eye contact, nod in agreement.)

Physically show your willingness to be reasonable and open to
discussion.

Whether

you're

listening

or

speaking,

you're

still

communicating silently with the opposer through your body language.

Your audience responds more to what your body is doing than to what you
are saying so try to synchronise your actions with your words. Together
they can transmit your message much more clearly than each one can

individually.
Try to understand the other person's point of view. Listen to the
opposer without trying to think of what you'll say next. Focus on the

opposer, giving your full attention.

Acknowledge that the opposer has a point of view. Do this even if you

disagree with it.

Initially focus on points where you and the opposer agree. That way
you won't waste time discussing those points. Tell the opposer which
points you agree with and why. Ask the opposer to repeat the process for
you.

D) Reduce Defensiveness

When someone triggers one of our emotional "hot buttons", our instinctive
response is to defend ourselves by counterattacking. When we're defensive,
it's difficult to see the situation objectively our logic is clouded by our
emotions. This can create a vicious cycle of increasingly hostile exchanges
with one party trying to outdo the other.
Defensiveness can be detrimental to the relationship because the focus
switches from common goals to individual interests. There are several ways
you can break the cycle of defensiveness.
Disengage - Back off for a bit.
Empathize - Express an understanding for the other side's view.
Inquire- Ask questions focusing on the situation, not on the people involved.
Disclose - Use "I" statements to tell the other party how you interpret things.
Depersonalize - Separate your identity from your tasks/work.
When challenged during negotiations, you'll probably feel personally attacked.
Many of the issues causing a difference of opinion were based on your earlier
business decisions; the same ones that you thought were brilliant at the time.
Don't take things personally. Minimise your defensiveness. Ensure that you
don't lose your cool, and keep focused on your goal: successfully negotiating
an investment deal.
E) Begin Mutual Problem Solving
The binding thread for all the conflict management techniques is trust. If you
have a good relationship with the opposer, both of you will want to work
toward a mutually beneficial agreement. You'll likely feel more comfortable
using some of the strategies mentioned in this Step, like effective listening and
open body language, in order to achieve total understanding. Most of this
adaptation will be done subconsciously as your relationship with the opposer
improves and your communication and business development skills are
enhanced.
Capabilities Check
The negotiation stage is key to the future well-being of your business and toyour
ongoing relationship with the opposer. Make sure your skills are top-notchin this
area, and if you feel uncertain about some of your capabilities, considerretaining

an expert to guide and support you during the give and take ofnegotiations.
Negotiating Capabilities Check

Can You...
Remain flexible and creative in pressure situations?
Recognise where your power lies and use it

Rate Yourself

effectively?
Disclose information selectively to make the most of
it?
Remain logical even though emotions may be running
high?
Handle conflict effectively?
Use a structured approach to prepare for and manage
the negotiation process?
Use your understanding of conflict styles positively?
Communicate effectively?
A = Highly Capable B = Need Some Assistance C = Need Expert Help