You're pitching your app to an investor who's interested. But there's a problem. You have only one interested investor and he has many other startups to choose from. He can just get up and walk away. Your instinct will tell you to give him plenty of leeway during the negotiation. You'll probably abandon the margin you had in mind because it'll depend -- you tell yourself -- on what he's looking for. According to a new study from Germany, you're making a big mistake.
Reality is different than what's on paper
From the moment your negotiation begins, you're judging your opponent's prowess, while he's judging yours. You're the one with an app to sell and he's the one with the funds, but that's only what's on paper. Off script, an intricate psychological game is under way. Non-verbal cues trigger certain patterns of thought, behaviour, memories and emotions in both you and your investor, moulding both of your strategies from one moment to the next. This complex interplay decides how much power you -- and your investor -- ultimately hold over each other. This gives you the chance to boost your power even if you are lagging behind.
What the study showed
The German study simulated real-life negotiation situations with both face-to-face and computer-mediated protocols. These included scenarios such as a low-power seller selling goods to a high-power buyer and a job candidate negotiating salary and working hours with a prospective employer. The study found:
- Going into the negotiation with pre-defined goals boosts the power of the weaker negotiator.
- The weaker negotiator can resist giving in to bad offers by making clear "if...then..." plans before the negotiation begins.
- What happens at the beginning of a negotiation sets the tone for what follows.
The goals were realistic and related to aspects of the negotiation rather than simply to its outcome. The "if...then..." plans related to the plot twists within the negotiation. Conceding to unfavorable demands early in a negotiation shifts power away from the weaker player for the rest of the negotiation.
The psychology behind it
You function in one of two modes, most of the time. In Mode 1, you're guided by a clear goal that's independent of your environment and your brain programs your behavior in pursuit of this goal. In Mode 2, your behavior is guided by the cues in your environment. The first mode is reflective whereas the second mode is instinctive.
In the negotiation, you don't know how far your opponent -- who has all the power -- will push the boundaries. This uncertainty makes you defensive and pushes you into Mode 2. Once in Mode 2, your actions are no longer carefully thought out and you respond reflexively to what you're seeing and hearing. You may give in too easily to your investor's demands, as a knee-jerk reaction.
If you slip into Mode 2 and concede too easily at the beginning, your investor gains more control over the negotiation and the power imbalance is amplified and carried forward. Setting clear goals and "if...then..." plans locks you firmly into Mode 1, right from the start and prevents this.
It's tempting to assume that setting goals or having expectations is pointless if you have no leverage, but this study shows the opposite to be true. Goal setting and contingency plans may be especially effective when you have less leverage.
Having goals and contingency plans achieves three things. First, it gives you a sense of control, which keeps you calm. Second, each small goal that you hit during the negotiation gives you a momentum of confidence. Third, it prevents your emotional reactions from jeopardizing the deal.
- Define your goals clearly before you begin
- Have "if...then..." plans ready for every possible plot twist before you begin
- Take extra care to stick to plan at the beginning of the negotiation.