In the complex and dynamic world of mergers and acquisitions, strategic alliances and deal making, too often the parties in a negotiation waste time pursuing concessions the other party can’t give or chasing after deal points of limited value just because the other party is offering them.
While there are many mistakes that can be made in a negotiation, here are four common ones:
- losing sight of your priority deal points,
- not understanding the other party’s desired outcomes,
- chasing after unimportant deal points the other party is offering, and
- offering concessions, the other party doesn’t value.
You have to know what really matters and communicate it effectively to the other party. You can’t expect them to know. A talented counterparty will take the time upfront to understand what matters most to you – price, certainty, how customers are taken care of, what happens with the employees, etc.
In the same manner, in order to bargain effectively, you need to understand the counterparty’s priorities, particularly those things that will affect value or their willingness to do the deal with you. Parties are often surprised at what matters most to the other side.
As with most things in business, the comfort level with whom you are dealing with can really matter, especially if there will be an ongoing business relationship after the closing.
Counterparties can, and often do, offer concessions you don’t value but which seem valuable to them. Pursuing these can result in you bargaining away valuable deal points in exchange. Acknowledge the deal point offered but be firm in pushing back if it is not on your list of priorities. Who can forget the story of the boy who went to market to sell his cow only to end up with some “magic” beans instead?
Finally, if you haven’t taken the time to understand their desired outcomes you can waste time and, potentially, frustrate the counterparty by offering concessions they don’t value or by asking for things they can’t give.
The Negotiating Matrix [1]
A systematic approach can ensure your achievement of the best outcome in a negotiation and will help you avoid these common mistakes. The Negotiating Matrix (below) will help keep you on task. The matrix focuses on what is most important to you and what the other party is after, in addition to what you can give and what the other party can offer.
Before sitting down to hammer out an agreement, ask yourself these four questions:
- What do we want?
- What can we give?
- What do they want?
- What can they give?
If you don’t know the answers to “what they want” and “what they can give” then spend some time with the other party before the formal negotiations begin to develop your insights.
Finally, be creative when listening to the counterparty’s “asks” as they may not articulate well what they really want. You might just find a solution that is different than what they asked for but which actually accomplishes what they want.
The Bottom Line
Most importantly, keep focused on the intersection between what you can give and what the other party wants and vice versa. Often the other party is looking for deal points that don’t “cost” you much but are of great value to them. Look for commonalities which one partner wants and the other can give in the upper left quadrant of the Negotiating Matrix as the basis for a deal.
[1] The author wishes to acknowledge Scott Garrett, Partner at Water Street Healthcare, for first laying out the matrix described herein on his white board many years ago.
