Two hours later, we jointly decided that these two very bright men were not in a position to establish a value for their start up company. In this newsletter, I will tell you how we arrived at that decision.

Old Wives Tale

There is an Old Wives Tale that suggests that you never make the opening offer in a negotiation. You let the other guy do that. And, most of the time I totally disagree. There are several really good reasons to make an opening offer: 1) You set the negotiation anchor, 2) You establish the “zone of agreement”, and 3) You are more likely to end at a number that is more favorable to you than if you let the other guy set the number.

But in this phone call, I decided that the other guy was going to make the opening offer. Why? There were several pieces of information that we did not have, and therefore, we could not accurately set the anchor point. If we did, we would be negotiating against ourselves, and I HATE to do that!

Before you make the opening offer

Before you make the opening offer, you should be able to answer these questions. If you cannot, you must carefully consider allowing the other guy to make the offer.

• What is the market willing to bear for your service, product, idea etc? In this case, we simply had no way of knowing the answer. It was a seven year old start-up in uncharted territory. No one else was offering what these guys were.
• What is the value to the other company? Again, we did not have any idea what the company’s service offering could do to their bottom line.
• What is the company willing to pay for this service, product or idea? Again, we had only a guesstimate at best. No hard number.

What the owners had was a FEELING of what their company should be worth. And, that is not enough. What you feel is not good enough when you are negotiating a high stakes deal with a very large corporation. In the end, the three of us decided to allow the other company to make an offer to buy. After they made us an offer, we looked carefully at the financial analysis that supported their number. A short three months later everyone came to an agreement on the acquisition price.

I strongly suggest that you know the answers to at least one, if not two, of the questions outlined above before you make the opening offer in a high stakes negotiation with a sophisticated negotiation partner. If you do not know all three answers, let the other guy make the offer.

It happened to me recently. I was hired by a company to negotiate the purchase of some equipment, but the other side was not willing to negotiate. It was, “here is the price, take it or leave it.” I was mightily surprised since this purchase was worth more than ten thousand dollars to them.

Distinguishing the “warning signs” that they are unwilling to negotiate from the signs that they are just busy can be confusing. Here are some of the “warning signs” that I encountered. Think back to your most recent negotiation. Did the other guy say similar things to you?

* Sales person told me that she did not have room to move (i.e. lower the price) even though she knew a competitor did discount its items. Pretty obvious, except that people ALWAYS say that.

*  Sales person warning me – twice – that the competitors’ product was inferior. Again, this is pretty standard.

*  Sales person did not respond to email and voicemail request to put a quote together, even though I talked to her over the phone at the beginning of the process and told her that we were also getting quotes from two competitors. Now, this is where I got the message. I was aware of the earlier two “warning signs”, but I was not sure what to make of them.

Because all of these “warning signs” could be attributable to other circumstances, you need to look at the all of them in total to see the larger picture.

What did we do? We had a BATNA. Our Best Alternative a Negotiated Agreement with them was to purchase the exact items we wanted from a seller on eBay. (I was stunned at what you can find on eBay, even commercial equipment. Who knew? Not me.)

Here is what I would like you to take away from this newsletter.

1) The “warning signs” that someone is unwilling to negotiate are confusing. Only by keeping track of them and looking at the larger picture can you determine that the other guy really is not willing to negotiate, rather than over worked and frazzled like the rest of us.

2) Some people and businesses are not willing to negotiate. Maybe they dislike it. Maybe they are so comfortable with their profit level that they can watch a customer spend its money elsewhere. Who knows why.

3) Have an alternative to negotiating with them. Make sure before you start negotiations you know what you will do if they are unwilling to negotiate with you.

http://www.talkshoe.com/talkshoe/web/talkCast.jsp?masterId=14122&cmd=tc 

Are you selling to companies doing more than $250 million in revenue? Having trouble closing the sale and seeing actual dollars come through the door? Want to do business with large accounts, but don’t know where to start? Then join us for True Lies: Five Ways to Get Real About Landing Large Accounts. Our panel of experts will debunk the myths of doing business with big organizations and provide insight into how to stop spinning your wheels and start building solid customer relationships with a strategic framework that will deliver real results.
 

Your collaborators for this free breakfast event include:
·         Tracy Corley, Marketing and Creative Strategist, TsuluWerks, Inc. She’ll share how to build lasting relationships by getting noticed and getting in the door.  
·         Pete McDowell, Sales and Business Development Guru, Performa Business Development. He’ll share how to profit from your customer relationships by having high value conversations.
·         Jeanette Nyden, Legal Eagle and Negotiations Guru, J. Nyden and Company/ Rodger I. Kohn P.S. She’ll share how to level the playing field and negotiate on your terms.
 

This event is for owners of growing businesses, their executive team, and sales managers who are looking to:
·         Grow their revenue,
·         Diversify their accounts, and
·         Increase efficiency within their sales organizations.
 

Don’t miss this exciting opportunity to have these three gurus share their experience and expertise on nurturing the sales relationship with large accounts. Continental breakfast will be served and space is limited!
 

Register today with Rodger I Kohn, P.S. by calling Jennifer at 206-386-7363 or emailing her at jennifer@riklaw.com

Companies rarely look at their contractual obligations early enough in an economic downturn, often missing opportunities to re-negotiate terms. It is as if the fear of tipping off the customer, vendor or supplier that there might be a cash flow problem outweighs the bottom line necessity to re-structure an agreement.

Re-negotiating the terms of some of your contracts can be risky. I urge you to carefully consider these three pieces of advice. Following them will give you a plan of action, easing the process for you.

Start now. Don’t wait until you are in crisis.

Assign someone to review all key contracts. Look for terms that could be re-negotiated like, charge backs, payment terms, interest or shipping and delivery provisions.

Request small, but meaningful changes.

Rather than asking for the one monumental change ask for smaller, more incremental changes. Payment cycles are a great example. Companies often agree to payment terms without calculating the impact on cash flow.

Create a proposal.

Don’t wing it. Because you are changing terms that impact your bottom line more than they impact the other company’s bottom line, you have more at stake if they say no. Thoughtfully create and pitch the proposal.

Companies that engage in an open dialogue with their customers, vendors and suppliers often gain two intangible benefits; a deeper sense of trust and help when you really need it. Contrary to your belief that the other company will not work with you or trust you, companies that are treated with respect treat others with respect.

Don’t wait for a crises to contact valuable vendors, suppliers, and customers. The fact is, once a company is in a Chapter 11 re-organization, all the debtors contracts and obligations are re-negotiated. Rather than wait, enjoy the benefits of re-negotiating your contracts today. Start now by looking for small but significant changes.

NBC’s Position:

The article claims that NBC provides the bulk of video downloads to Apple, but that over all revenue for video downloads is a “minuscule” portion of Apple’s profit. By starting a competing site for video downloads NBC hopes to challenge Apple’s dominance in this area. The article also notes that this is a negotiation tactic.

Confusing Tactic:

 Ok. This is a true confession — I am confused. How is the world will this tactic work? Can you tell me? Apple has one of – if not the most well known – sites for downloading music and video in the US and Apple is going to negotiate with NBC because it started its own site? The confusing part to me is how this will create leverage to bring Apple to the table.

I get that NBC has some great content that young people want to download like the Office (of which I am a huge fan!). But, video represents such a small part of the content downloaded. More importantly, no one knows about this new site, and everyone, possibly even my 91 year old grandma knows about the iStore.

The article correctly notes that other studios like Disney, ABC, HBO or Showtime, all of whom also have video content will not likely join NBC and Fox (who is teaming up with NBC). Which means I have to shop at many different stores for my content? I have an iPod, and so do all of my friends. (My husband has a Creative Zen, but he’s cranky about supporting anyone who dominates a market. I must say, I have the cooler of the two devises!)

Where is the Leverage?

So, how does this tactic get GE leverage? I teach negotiation skills and I am not clear. Is NBC like my cranky husband and wants to challenge Apple JUST because Apple owns the market today? Would it then be wiser to court Creative Zen to have NBC be exclusive to their software like ATT and the iPhone? Would that give NBC leverage?

Is History Repeating Itself?

This story reminds me of stories I read a long time ago about a movie studio that fought with Sony over the Beta tapes (for the younger readers, these were like the VHS tapes.) The studio spent over 11 million dollars in the ‘80’s and lost the battle. Then in the ‘90’s the studio used the technology to make even more money on its movies through rentals and purchases. Today, DVD sales make up a huge percentage of film profits.

My question is this: Does NBC’s competing site actually give NBC any leverage with Apple or will they be spending millions of dollars to fight a losing battle? I really don’t know. If you have thoughts, please let me know. I am curious.

Not Funny Because It’s True
The first and most disturbing reason is that it is true. And, that realization makes my blood boil. It’s true that companies, whether large or small, often employ this tactic. Those who do are met with everything from frustration to black listing. Yes, you read it correctly. Black listing.

I had a conversation with some purchasers from some of the nations’ largest corporations some months ago. We were having an informal chat at a trade show after a speech I had given. Several purchasers said that bidding low and then coming back for increases meant that the offending company could face being black listed. Yet, the crazy, unreasonable system that we have in America with lowest bid and reverse auctions actually encourages the “bid low and make it up later” mentality. Go Figure! We’ll blacklist you if you get caught, but we encourage it whole heartedly.

Not Funny Because It Is Fraud
The second reason is that it is tantamount to fraud. Yes, fraud. If you intentionally induce someone into a contract and knowingly mislead them, and they then rely on that information to their detriment and suffer for it, it is a fraud. Most companies do not sue for fraud because it is hard to defend against the “extenuating circumstances” argument. I know because I’ve litigated these cases. It is really too bad because this “bid low and make it up later” attitude runs rampant within both small companies and large companies and it is just wrong. In the end, it hurts the customer, whether the customer is a large or small company. It hurts them financially and it makes everyone cynical, suspicious and aggressive with one another. Score one for the lawyers who get to sort it all out. We’re the ones making the money on these deals!

It is a fascinating letter and reply letter well worth reading. The gist is this: Angus and Robertson (an Australian book seller) wrote a childish, swarmy letter to an Australian publisher. The bookseller ranked all of their suppliers based on how much net profitability each supplier made the bookseller. Then, calculating that the publisher fell below a certain amount in net profitability charged the publisher the difference due immediately. That’s right. The bookseller was not making enough profit, so it said, and it felt compelled to charge the publisher the difference.

That’s absurd. It is not the publisher’s business to make the bookseller a certain profit. There are so many variables that are so completely out of the control of the publisher, such as the cost of overhead, stupid marketing, wasteful advertising, poor business decisions, unprofitable stores and the list goes on and on that to punish, yes, I mean punish, one of your suppliers for your bad business mistakes is outrageous.

And that is exactly what the publisher said in a well crafted letter back to the bookseller.

It is worth remembering that it is not anyone else’s responsibility to help you make your business profitable. It is solely your responsibility. I mean it. Suppliers can help you by offering innovation, speed, quality, and the like, but how you make your profit is entirely your responsibility. Do not shirk it and make it mine, unless of course, you plan to give me the keys to the place and a majority vote, then we’ll talk.

Please take the time to read both letters. It will help you counter this same argument that your customers might make of your company.

 
Considering Nuances
Snohomish PUD General Manager Steve Klein reportedly said “(Arbitration panels) ‘don’t have to consider the nuances,’” when explaining Snohomish PUD’s decision to settle with Enron. In fact, neither do judges or juries. I mean sometimes, and especially in contracts, the law directs judges and juries to look at the contract and not at the outside or parole evidence.

 
The lesson that I took away from this is the only suitable and reliable place to consider the nuances to this situation was by negotiating a resolution. I suspect that had Snohomish PUD not filed a lawsuit and had that claim not been set for a hearing before a binding arbitration panel, the parties would not have sat down to consider the nuances.

 
Last Minute Negotiations
It is a fact of litigation (and I was a full time litigator in Chicago for 10 years) that settlements happen at the very last minute. I know colleagues that negotiated settlements while the jury was entering the courtroom to deliver a verdict.

 
There is a very strong desire by all human beings to exert some control over their destiny, and turning something over to a judge, jury, or arbitration panel takes away your control. I suspect that this sense of control also played a part in the settlement between Snohomish PUD and Enron. Both parties wanted to exert some control over the outcome and the only way to do that was by negotiating a settlement.

 
My advice to you
My advice to those of you who may have a lawsuit pending, it is not too late to negotiate. In fact, this may be the best time to negotiate a settlement.