In the wake of the global financial crisis entrepreneurs, start-up companies and small business owners are finding it harder and harder to get deals, whether with potential funders, or with large customers and suppliers who are putting the squeeze on terms. It is vital that these smaller companies understand more about the deal-making process or they risk financial ruin as big business and the recession make it harder for SME's to get a foot in the door.
Technology is partly responsible for the increasing importance of deal-making skills because it has made the world a much smaller and more inter-connected place. As a result, we all need deal-partners to help us reach a potentially much wider audience. Technology also enables everybody to compete in everyone else's space, so we all need deal partners to help us compete effectively. We also have to respond quicker than ever to market opportunities before they disappear, so we all need deal-partners to help us execute at pace.
So, how can start-ups and small companies maximise their chances of closing deals in their favour if they are to prosper in this new ‘Deal Economy’? Much is often made of the importance of the management team, the protectability of the product and the credibility of the marketing plan, but SME’s should add the importance of negotiation skills to that list. It can be the difference that makes a difference.
Here are some tips to help SME’s negotiate more effectively to get more of what they need when faced with tougher or more experienced opposition:
1. Have a winning attitude: Good negotiators bring an effective attitude to the negotiating table. Research shows that good negotiators feel positive about themselves, and believe that they can win. Having worked for many years with Simon Cowell (a winner if ever there was one) I can say that this kind of attitude is self-fulfilling.
2. Understand your own sources of bargaining power: To be able to believe it can win, the SME needs to marshal its bargaining power. Who holds the aces? Un-trained negotiators often under-estimate the bargaining power they have on their side by focusing exclusively on the “market power” of the other side. Yet there are many other sources of bargaining power – nine to be precise – including expertise, information, and access to influential networks. These sources of bargaining power are rarely distributed 9-0 in favour of anybody, so the SME needs to understand that and not be daunted by the perceived market power of the investor.
3. Know where you are in the negotiation process: Most negotiations follow a set pattern, with a number of recognisable and distinct stages. If you know what stage you are at and how to handle that stage then that will automatically give you a big advantage.
4. Be prepared: It’s often the early stages of a negotiation that get overlooked, because they require an investment of time. These include “Preparation”, and “Exploring “Needs”. SME’s are always in such a tearing hurry trying to develop business and cash-flow that time spent on preparation can seem like something of a nuisance.
In fact it is an investment of time – fail to prepare and you prepare to fail. I have seen an SME fail to close a deal with an orderly and detail-minded angel investor by turning up for the meeting wearing odd socks. If you don’t know what your deal partner expects from you then you won’t get much of what you want.
5. Take time to understand the needs on both sides: Good negotiators know that you can’t expect to engineer a win/win outcome if this stage is skipped in the rush to get to the “haggle”. “Needs” are the underlying emotional requirements that each side has from the deal – not to be confused with organisational “wants” such as “price” or “quantity”.
These needs are critical to understand, because they underpin the whole negotiation, and yet they are often unspoken, so they are not easy to spot without a trained eye. Does the investor have a “security” or “reassurance” need? If so they will be focused on guarantees and risk control in the deal. Do they need to achieve something unique as a result of the deal? If so the SME needs to focus on the innovative and original nature of its product. Does the investor have a “belonging” need? If so the SME must be sure to make them feel at home as part of the company going forward.
6. Don’t be afraid to bid first: Contrary to popular belief, it can be beneficial to go first when bidding as this sets out your own agenda and allows you to shape the negotiation the way you want. It's a common misconception that it's better to go second as it avoids giving away your position. In fact, if you don't set out what you want early in the bidding process you may not get a second chance.
7. Close as quickly as possible: If the parties can get through these early stages and bargain successfully they will arrive at the final stage of any negotiation, “closure”. SME’s need to know how fluid this moment can be. It must be bottled immediately before the investor changes his mind, is impacted by new economic factors, or finds something else to invest in. I remember an SME failing to close its deal with an investor because it insisted on arguing about commitments for the next round of funding before the deal was closed for the current round.
8. Select the right behaviour: There are 12 different negotiating behaviours to choose from, but most of us only use one or two (our “favourites”) irrespective of whether they are working or making things worse. Make sure you choose the most appropriate behaviour for the person you are dealing with and for the stage of the negotiation you are at.
Effective negotiators are able to exhibit all of these skills effectively. If SME’s know the importance of managing the three angles of successful negotiation - attitude, process and behaviour, they will be more equipped than anyone else to prosper in today's new deal economy.
About the Author
Clive Rich is a professional negotiator, lawyer and mediator based in London, who has closed deals and generated new business worth well in excess of $500m for companies and personalities including Sony BMG, Simon Cowell, MySpace, Robbie Williams, 19 Entertainment, Apple and the Royal Opera House.
Clive holds regular 'Secrets of Negotiation' events which provide SMEs, tech start-ups and entrepreneurs with the skills to successfully negotiate investment, licensing, distribution and exit deals. He also provides a host of affordable legal advice to Digital SME’s via his ‘Orbit’ service, helping to protect them against typical legal “black holes”
The Clive Rich 'Close My Deal' iPhone app delivers a complete set of interactive negotiating tools, content and tips in a single application and is available from the iTunes App Store.
Clive Rich is an excellent negotiator and can be found on Linkedin and the web! I met him this year and have interacted with him on several occasions. He hosts a series of videos with key advice on negotiating. I have seen them all and enjoyed them, you can either try the link or search him in YouTube for more of his videos. He also has a blog which is very informative and a "Close My Deal" app website.
I was very excited that Clive agreed to write a guest article for this blog. I am grateful for his input and enlightenment and hope you will find it useful. Thank you Clive!
You can follow Taffy Williams on Twitter by @twilli2861 and you can email me with questions at firstname.lastname@example.org and my company website or photo website. You can also find me in the group Startup Group on Linkedin. The blog is now listed on Alltop®.