To stay in business and have a chance to generate wealth for themselves, most entrepreneurs have to be good negotiators. They have the most to gain or lose in any deal, are calculated risk takers, have the vision of what their company stands for and also have an innate sense of how to be creative and structure a deal. But most importantly, they have high aspirations and the drive to expect more out of every transaction. Their egos and financial well-being demand they deal astutely and get as much as they can from each exchange. When the company is starting out, they’re the ones responsible for negotiating with vendors, customers and service providers alike. They pre-set a high bar for results—a key piece of the culture of the firm they are trying to build.
Who's Negotiating for Your Company?
As an enterprise grows, the effects of being too small to be big, and too big to be small set in. The entrepreneur is faced with one or more money, business model, marketing and management team issues that places serious demands on time and resources. No longer able to deal directly with all vendors and/or customers, the entrepreneur will delegate these tasks to others. Who gets the “deal making torch” is often a decision that is critical to the future of the entire enterprise. Turning over the reins should be a matter of qualification and experience - rather than convenience. Often, it’s just the opposite.
While employees entrusted with deal making can be both loyal and honest, many times they lack the knowledge, skills, personality, training and experience to do the job adequately. Their motives for negotiating may vary from the entrepreneur’s—for example when they are selling on commission. In setting their approach to a transaction, they often lack an appropriately high aspiration. Whether it’s a buying or selling transaction, they may lack the same “deal making stuff” that made the entrepreneur successful. Unfortunately, when a bad negotiation hand-off occurs, margins and profits can start to erode.
Four Essential Points to Remember
When passing the deal making torch, entrepreneurs must ensure the processes and people are in place to negotiate just as effectively as they did early on. Based on our experience with hundreds of growth companies, as well as academic and empirical research, we have isolated four traits that top negotiators possess. Some traits can be taught, but some are innate:
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High Aspirations: This rarest of all traits is reflected in the negotiator who always expects more out of an exchange than others around them. They know what they want, how much they want, and what they are willing to do to get it. As a rule people with this trait get more in the end. They tend to be calculated risk takers based on their perception of the value of the reward they’re after, and their tolerance for risk. They set high goals, make high but reasonable initial demands and do not readily settle for less. (This is an innate trait and cannot be taught – you must hire for it!).
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Understands Power: This trait is a negotiator’s ability to sense sources of power and influence and use them to influence the other side. They always act as if they have power. Even if they really don’t, they can convince the other side that they do. The reverse is also true: acting as if you don’t have the power to influence the outcome is fatal. (Awareness of power can be taught – but a high tolerance for risk is a critical pre-requisite).
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Bargaining Skills: These traits involve the ability to use a variety of offensive and defensive tactics as well as concession and countering skills to gain advantage and get what’s desired from the exchange. These tactics can be both passive and aggressive. They are used to implement and defend strategy and influence the other side’s aspiration level. It means knowing what to give, when to give it, and what to get in return. They force the other side to work hard for everything they get. (To some degree, these skills can be taught and coached).
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Preparation: This has been proven to be the most important of all traits. Research has shown that when negotiators with average skills are well prepared, they can perform as well or better than skilled negotiators who are less prepared. Being fully prepared before important negotiations means having a plan; knowing what’s at stake and what you want and what you’ll give to get it; knowing your strategy and tactics and what the other side wants and deploying profile data about the other side, “Plan B”, etc. (This trait can be taught and coached).
In summary, entrepreneurs become naturally effective negotiators because they set high goals for themselves and their company. They have the most to gain or lose in any negotiation. But when the deal making function is delegated, the entrepreneur must insist that the negotiator he or she is delegating to is well prepared, properly coached, motivated by incentives for success, and in possession of the four traits described above. While they may not have the entrepreneur’s emotional attachment to the task of negotiating, their negotiating traits, skills, and performance incentives can drive positive results for the company.
