I've Got a Secret...
To get what you want in a negotiation, you have to listen closely and keep the other party guessing
Business is negotiating. From the day you start thinking about having your own company to the day you cash out, you're involved in one negotiation after another. You may call it something else-- raising money, selling, leasing space, hiring, buying insurance, getting a phone system, whatever--but you're negotiating every step of the way, and you'll pay a price if you don't recognize the process for what it is.
Why? Because you'll be inflexible. You'll focus too much on your own needs, and you won't hear what the other party is saying. As a result, you'll miss opportunities to get better deals.
I'll give you an example from my archive-retrieval business. A few months ago I ran into a serious problem. We'd had some unexpected delays in the construction of our second warehouse, and I suddenly realized it wouldn't be finished in time to accommodate all the new boxes coming in. We needed to lease additional storage space immediately. I contacted a local real estate agent.
Now, understand, I was desperate. I had no leverage in this situation. I needed a particular type of warehouse, one with very high ceilings; it had to be located within a few blocks of my facility; and we had to be able to move in at once. I knew there were only a handful of places that could meet the first two conditions. Anyone who could meet all three would have me over a barrel.
The negotiation began with my call to the broker. That's a general rule: You start negotiating when you have your first interaction with an outside party. I told the broker my specifications and said I was willing to pay the going rate--about $5 per square foot. He said there were very few such places available in my area at any price.
I said, "Well, I have another guy looking in other areas. I'd like to stay around here, but if the price and terms are ridiculous, I'll go somewhere else."
In fact, I was bluffing. I couldn't even consider going somewhere else unless the price and terms were outrageous. But you have to keep the other party guessing about your real needs and priorities, or you may not get what you want.
The broker called back a few days later. He said he'd found a place that met my requirements. Why didn't I take a look? I did. It was perfect. "This might be OK," I said to the broker. "What's the price?"
"The owner wants $6.50 per square foot and a five-year lease."
"Ridiculous," I said. "I won't pay more than $4.75."
Again, I was bluffing. I'd have paid even more than $6.50 per square foot if I had to. But now I had another factor to consider. Our second warehouse was going to be ready within a few months. If I signed a five-year lease, I ran the risk of being stuck with too much capacity.
So why did I focus on the money? Partly because I thought I could get a better price, but mainly for strategic reasons. That's another one of my rules: Negotiate first about a secondary matter, understanding that at the end of the process you'll probably let the other party get most of what it wants on the issue in question. Your concession on the first point will give you leverage when you bring your main issue to the table.
For the next few weeks, we haggled over the price, with the broker serving as the go-between. Eventually, the landlord came down to $5.80 per square foot, and the broker told me he wouldn't go lower. I said, "Well, there are other issues here. Maybe he and I ought to sit down and talk."
A face-to-face meeting of the principals is always a crucial point in a negotiating process, and most people blow it. How? By thinking only about getting what they want. Negotiating is give-and-take. To get what you want, you first have to find out what the other party wants. There's only one way to do that--by listening.
I make sure I listen by following two more of my negotiating rules. The first is, Have no preconceived notions. By that I mean don't make any assumptions about what the other party is thinking. Right or wrong, your assumptions will keep you from hearing what's being said.
The second rule is, Always assume that everyone else in the room is smarter than you are. If you get the idea you can outsmart other people, you stop paying attention to them. So I bring a yellow pad with me. On the fourth or fifth page, I write the word "dummy" three times. Whenever I catch myself thinking how brilliant I am, I open the pad to that page, give myself a silent whack, and go back to listening.
The landlord didn't follow my rules. In fact, he didn't come to negotiate. He walked in and immediately started talking about the price. He said he wouldn't even consider anything less than $5.80 per square foot. He had two other tenants who were paying $5.80 already, and he wasn't going to budge. Period. End.
In addition, he said, he wanted a five-year lease.
I listened and heard exactly what he was saying. The price was nonnegotiable--but we could discuss the five-year lease.
That was all the room I needed. I said, "Listen, I think $5.80 is a lot, but let's put it aside and talk about the terms. I can't make a five-year commitment. There are too many uncertainties in my business right now."
I explained my situation. He said, "OK, but I want the $5.80."
I said, "Well, if that's what you have to get, I suppose I can live with it, as long as you let me have a chance to get out of this lease at some point."
In the end, he gave me an option to void the lease after seven months, and I agreed to pay him $5.80 per square foot. It was a fair deal. We both got what we wanted most.
But the landlord could have done better. He should have come in prepared to listen and forced me to talk first. He should have opened by saying, "Nice meeting you, Mr. Brodsky. I understand our real estate agent has explained the terms of the lease. Are you ready to sign?"
I'd have said I thought the price was ridiculous. He'd have insisted that he couldn't charge me less than he charges his other tenants. Then I'd have brought up the five-year term of the lease. At that point he could have cut the discussion off, saying, "Do we have to go through every line in this contract? First you want to talk about price. Then you want to talk about terms. Next you'll want to discuss the air-conditioning. Either we have a deal or we don't!"
He would have put me on the defensive. He would have called my bluff. I might still have been able to get a cancellation option, but I'd have had to pay for it. Instead, he gave it to me for nothing--and I walked away with what was, in effect, a short-term lease for the same price that people with long-term leases were paying.
The upside for the landlord, I suppose, is that he now has a happy customer. What's more, my circumstances have changed, and I think I'll probably stay for the full five years of the lease. I may even decide to exercise my renewal option, which allows me to stay an additional five years at an agreed-upon rate.
After that, we'll have to sit down and negotiate another agreement. Assuming he reads this column, that means I have 10 years to come up with some new negotiating rules.
Norm Brodsky is a veteran entrepreneur whose six businesses include a former Inc. 100 company and a three-time Inc. 500 company. This column was coauthored by Bo Burlingham.
NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.