The following is a guest post by Ty Kiisel. Ty is a contributing author focusing on small business financing at OnDeck, a technology company solving small business’s biggest challenge: access to capital.
The ability to negotiate a business deal is an important part of running a small business. It’s not uncommon for a business owner to regularly negotiate with both suppliers and customers regarding things like sales contracts and purchase orders. The ability to successfully negotiate a deal that benefits your company and maintains good relations with the other side is the hallmark of a savvy business leader. With that in mind, here are five keys to successful negotiations:
1. Know what you want to achieve.
Unlike the negotiations that take place between mobsters in the movies, most successful business negotiations are a give and take. This can still be true even if you don’t intend to do business with the other party ever again. But if you’re trying to build a long-term relationship with either a supplier or a customer, it’s even more important. Keep those long-term objectives in mind when negotiating to address short-term needs. Sometimes, a too-aggressive negotiation style can burn bridges and damage relationships.
What’s more, in addition to understanding your objectives, if you can identify what the other side wants, you’ll be in a better position to come to terms. A good way to start any negotiation is by determining the key objectives of both parties so you can come together to meet both needs. For example, if your goal is to reduce the price of a particular commodity important to your manufacturing process and their goal is to sell it to you at the best possible profit, somewhere in the middle could be a multi-year contract or a bigger order for a discount. What the supplier loses in short-term profit margin could be made up in volume.
It’s sometimes easy to forget the objective and get sidetracked in a negotiation. Keeping what you both want to achieve front and center will enable you to stay focused and achieve your objective.
2. Know what you’re willing to give up.
Before the negotiation starts, identify what you’re willing to give up and where you’ll draw the line. As mentioned above, great negotiators know that it’s all about give and take, but they also know going in what they’re willing to give up. Fortunately, what you’re willing to give might not be exactly what the other side is asking for, but if you understand their objectives (as well as your own), you might be able to offer them an alternative that still meets their objectives and makes the negotiation successful.
I once had a colleague who was exceptionally good at this. He was incredibly flexible when negotiating, but knew exactly how far he would go. He was respected for being fair, but not a pushover. Most of the time, both sides of a negotiation he was involved in would get what they wanted out of the deal. Because he wanted to maintain long-term relationships, he was very keen on making every negotiation a win for both sides.
3. Be prepared.
This Boy Scout motto is incredibly important and should be your mantra before negotiating with a supplier or customer. In a courtroom, most lawyers never ask a question if they don’t already know the answer. They know it’s the surprises that can derail a negotiation.
Make sure that you’ve done your homework before the negotiation starts. This not only includes identifying what you want to achieve and what you’re willing to give up—it might also include rehearsing what you’re going to say, how you’re going to present your side of the negotiation, and how you plan to respond to what you anticipate will be their response. Be prepared.
4. Don’t be intimidated.
In most cases, the person or persons you’re negotiating with want a successful outcome as much as you do—regardless of whether you’re the customer or they are. They may be bigger or have more years under their belt than you and your business, but if both parties are looking for a win/win situation, there’s no reason to be intimidated.
If, for some reason, you’re negotiating with a bully who doesn’t care about your objectives, you might choose not to do business with them anyway. I want the people I do business with to be healthy and profitable, because that’s how they stay around so I can do business with them in the future. If someone is willing to hurt your business so they come out on top, I’d walk away.
5. Don’t be afraid to walk away.
Be aware of conversational tone and body language to evaluate how things are going. If things start going downhill and it doesn’t look like you’ll meet your objectives or you’ll have to give up more than you’re willing to give, don’t be afraid to walk away. Remember, you need to also win for any negotiation to be successful. Making a bad deal is worse than making no deal at all.
When I was a teenager buying my first car, my dad told me, “Don’t buy the first car you see.” He wanted me to know that there were lots of opportunities and lots of cars, so I shouldn’t fall in love with the first classic Mustang that caught my eye. The same is true when negotiating with suppliers or customers. There will be other opportunities with other people who really want to do business with you and your company.
What’s more, on more than one occasion as I’ve been ready to walk away, we finally came to terms. It’s been that way when buying a car, and it’s been that way in business. If it’s not a good deal, be prepared to walk away.
Over the course of my career, I’ve witnessed good negotiations and bad—and I’ve been on both sides of them. The best negotiations happen when both parties understand that they will get something they want out of the negotiation. One-sided negotiations, even if successful, often come with long-term negative consequences.