---

Let us never negotiate out of fear,
but let us never fear to negotiate. John F. Kennedy, 1961

---

One moment you have superhuman confidence in your ability to drive a hard bargain, and the next you're praying that this guy doesn't eat you alive. An hour from now you've got to have a great offer prepared. Your mind is spinning: What's my first move? Should I make the first offer, or sit it out until he does? If I shoot really high, he's gonna think I'm nuts! What if he just walks out on me? 

1. Examine your options: What are your alternatives if the negotiation turns out to be a wash? 

Consider all your options. Brainstorm and list alternatives, even those that seem ludicrous. Crazy ideas can trigger creative thinking. Keep this up until you believe you have at least one good, viable choice that is available regardless of any negotiation. 

Let's make the initial example something we've all dealt with in one way or another: negotiating a raise. You're feeling pressured because your current financial picture demands more income. Your child just started private school, and you need to start saving toward her college education. The house needs a new roof, and it's been years since you took your family on a real vacation. 

Before you jump the gun and tell your boss, "I need a 20% raise," examine your other options. (You're not examining alternatives to negotiation in order to give yourself a rationale for canceling that dreaded negotation, although that could happen if you discover options that are better than anything the negotiation could elicit.) Studying your options involves asking questions such as:

• Can I get a higher paying job somewhere else? 
• Can I get solid offers from other companies, or at least talk to a recruiter, so that I have concrete alternatives? 
• Would more vacation time allow me to take on additional consulting work, thus increasing my overall income without a salary raise? 
• If I were offered additional stock options instead of a raise, would the promise of pay-off allow me to feel comfortable taking out a short- term loan? 

2. Discover the motivations of your couterpart(s): What are their underlying needs?

Why are they negotiating with me? Who else might already or potentially be involved in negotiations with them? Is time a factor? Why are they negotiating now? What's their driving interest? Do they have any other needs or desires that I can fulfill? What are they going to do if we don't come to an agreement? 

You've been contracting at a client site for four months, and your client is trying to hire you as an employee. You might ask yourself: 

• What will it cost your client to find & train another prospective hire? 
• What's the average salary for the job they're offering? Can they offer signing bonuses, additional vacation days and stock options, or anything else that effectively makes the compensation greater? 
• Are they expecting that you'll perform duties beyond the typical scope of this job description? 
• Do they have to hire someone by a particular date? 
• Is there a salary cap for the job offered? Are there other available jobs with a higher salary range?  

"I've learned that the salary cap for this position is $70,000 Even though I'll no longer have to buy my own benefits, accepting $70,000 would mean taking a cut in take-home pay. I understand you can't pay me substantially more than others in the company who hold the same job title that you're offering. So here is what I'm thinking we can do to resolve this. I noticed that there are two separate positions open in this department, both capping at $70,000. For the past 9 months I've been fulfilling at least 85% of both positions. If you'd be willing to design a new position for me that encompasses my current responsibilities, I'd be willing to continue working in that capacity at a rate of $90,000, plus a $10,000 signing bonus. All told, this would save you a sizable amount of money, $40,000, plus the amount you save on benefits for a second employee."

In the process of getting the information you need, you may have to give some away. Self-disclosure is a good thing: It furthers conversation, and it can make the other side better equipped to develop mutually satisfying creative options. But remember that you're really striving to give away the minimum quantity of information that still allows others to understand your key interests. While the intent is information sharing, never disclose what you're going to do if no agreement is reached. Emphasizing the options you have should your needs go unmet leads people to question the extent of your commitment to a successful negotiation. 

Regardless of how much you've already learned about your counterparts' options, take time at the beginning of each negotiation to ask questions. Anything you can learn about underlying needs and motivations is useful. If you discover something crucial, there's no law against modifying your first offer on the fly. If you're not a good quick thinker, you can always say, "That really changes my understanding of our situation. Can I take a few moments to rethink some things?" Most people will be happy to take a coffee or bathroom break while you gather your thoughts. 

You may be wondering how much time you should allot to preparation of a solid opening offer. Generally, some amount of time between two hours and two days is sufficient to prepare an opening offer. The specific amount of time is up to you. The more you know about the motivations and needs of everyone involved, the better your first offer will be. Consider the potential value of the deal to yourself and, if relevant, to your company. The more valuable the deal is to you, the more you should prepare. You'll come up with more creative offers that are more likely to fly. 

Also, factor in the number of parties involved. If you're negotiating as a proxy for your manager, you have to generate options that satisfy his/her interests as well as your own and those of the other side. If the negotiation involves three or more parties, make sure that you don't neglect the interests of any one side. Three-sided discussions in which one party feels sidelined can be particularly nasty, as can four-sided discussions that degenerate to a two-on-two fight. 

If you have effectively uncovered everyone's underlying needs, and have addressed those successfully in your offer, it will be difficult for anyone to suggest a counter-offer that is more fair. If your offer isn't accepted as is, it will set the precedent of using objective criteria for the development of fair options.

1. List all the scenarios that could satisfy your needs. 
2. Add features to these scenarios that increase the opportunity for all parties involved. 
3. Choose the option that maximizes the gain for all involved.  

But they'd done their homework, WellPrep had already developed an alternative product strategy that wasn't dependent on licensing technology. And they were convinced it was a viable strategy. WellPrep was prepared to shoot high, and they were armed with the knowledge that the businessman needed not only money but also publicity and credibility for his start-up. WellPrep used their knowledge to increase the options. WellPrep figured that free advertising on their own Web site would amount to a better deal than the businessman had ever hoped for. In any case, WellPrep had surplus advertising available, so this offer wouldn't result in any out-of-pocket expense. And it might even allow WellPrep to offer less cash than they had estimated the transaction would cost in the first place. 

WellPrep made a first offer that included $5000 less in cash than they had intended to pay, plus a free ad on their Web site for six months. The businessman jumped at it. The deal was worth $150,000 to the businessman. And it cost WellPrep only $25,000 cash. WellPrep had enriched the possibilities for everyone. They had never expected to license the technology for so little money, and the businessman could not have bought such great advertising even if he'd gotten every penny of his asking price. WellPrep maximized personal gain, and addressed the businessman's key needs more attractively than he had dreamed possible.

First, the more scenarios you come up with, and the more creative your attempts to increase the opportunity for everyone, the better your opening offer is likely to be. 

And second, the right first offer shouldn't be chosen based on who gets the greater raw gain. Yes, you're out to maximize your personal gain (or the gain of your team), and ultimately you're trying to create a better deal than anyone involved thought possible. But as you choose the scenario you will present as a first offer, remember that the best offer may set you up for substantial gain while the other side gets just a few perks. On the other hand, your first offer may set you up to gain far less than the other parties involved. Either is acceptable. If all parties involved believe they have been fairly treated, meaning specifically that some of their needs have been met more successfully than they could have been without the negotiations, and that no compromise made undermines anyone's potential to gain from the agreement, the negotiation is an outstanding success. Circumstances will have improved for everyone.

The Presentation Rules
You're ready to present your offer. You know what you're going to say. But how do you actually say it? Do you go first, or let them go? And to whom should you make the offer and when? 

Q: How do I actually say it?

A: Address their interests, use your interests to buttress the weak spots, and then come back to their interests. All the while, keep your non-verbal communication consistent with your words.

"After a careful review of your financial statements and the stock market valuation of similar companies, we're prepared to offer you a purchase price of eighty million dollars. With regard to your interest for a cash settlement, we understand your need for some immediate liquidity, so forty million dollars will be paid in cash. The remainder will be paid in our company's stock. With regard to your personal position, we believe that you add substantially to the overall value of the business, and that you provide the leadership that we need to incorporate your business into ours successfully. As a condition of the above acquisition terms, we ask that you agree to a position as Division Director of the business division that will comprise what was previously your independent company. Division Directors report directly to the CEO, so you will have a position of substantial influence. We ask you to commit to stay for two years, and we will offer you the same financial package you currently have which is in line with the salaries of similarly positioned people at our company." 

Use your interests to buttress the weak spots.
It isn't necessary to defend the fact that the offer meets your own interests. People will assume that your offer includes terms that are to your own benefit. However, if you are only partially meeting a specific interest of the other side, offering factual information about your own needs and motivations can make your offer more credibly fair. 

Let's say the president of the company discussed above wanted eighty million dollars cash for his company; His best imagined outcome included 100% liquidity of the business. His reception of an offer of half cash and half stock is likely to be more positive if your offer runs something like this:

"With regard to your interest in a cash settlement, we understand your need for immediate liquidity. We'd like to offer you forty million dollars cash. In order that we maintain sufficient cash reserves to ensure the viability of the overall business, the remaining 40 million dollars will be paid in our company's stock."

"Paying you in a combination of cash and stock will also leave us more resources to pour into developing the new division that is born of this acquisition. You'll be able to oversee the growth of your division and the stock value."

Q: Who goes first?

A: The answer, in a nutshell, is: Go first whenever you can; it gives you tremendous power. But if you doubt that you can prove the fairness of your offer, don't go first. 

Under some circumstances, you may not be equipped to make a legitimate first offer. You should allow your counterpart to make the first offer if either of the following are true:

• Others have expressed uncertainty about your understanding of their interests. 
• You are uncertain in your understanding of others' interests. 

You can arrange for yourself to go second by either encouraging discussion of interests until the other side spontaneously makes an offer, or by asking the question, "What would constitute a fair offer for you?" In doing this, you abdicate the first offer, and you lose the chance to set initial expectations in the negotiation. But making the first offer with a poor understanding of others' interests involves greater risk than the small power loss of going second: An offer that is perceived as selfish, manipulative, or malicious may create a newly antagonistic opponent who sabotages every subsequent attempt at a fair offer. 

Going second can help you maintain a better climate for negotiation, and it has an additional advantage. It buys you insight into others' interests that may help you design satisfactory options without giving away more than necessary. Although going first gives undeniable advantage to a prepared negotiator, going second buys you a last-minute opportunity to garner information and design a counteroffer that maximizes the possibilities for everyone.

Note: There are some alternatives that don't involve going first or second, in the ususal sense anyway. These options are a good choice if you have some understanding of the interests involved in the negotiation, but, due to a genuinely insufficient knowledge base, or you counterparts lack of faith in your knowledge base, you aren't confident that you should make the first concrete offer. 

A. Make a meta-offer.
A meta-offer delivers criteria for a fair offer rather than the actual terms of a deal. "I'm sure we both agree that the house should sell for a fair price. Why don't we get an independent appraiser to establish the value of the house?" You don't get the opportunity to set the dollar figure baseline from which negotiations will begin, but you will at least set the precedent of creating fair offers based on objective criteria.

B. Make alternative offers. 
"The independent appraiser we agreed on valued the property at a million dollars. I can give you a million dollars for the property today, or $275,000 per year for four years." First off, you communicate your interest in meeting the other sides needs. You also gain valuable information about their interests: Are they interested in more money overall, or immediate cash? And you retain some opportunity to set a concrete baseline from which to continue discussions.

In summary, then, going first gives you the power to use a credibly presented fair offer to drive straight towards your highest aspirations. Going second allows you to resurrect a negotiation for which you were ill-prepared and still come out with a creative solution that results in mutual gain. When neither choice quite fits the bill, try starting with a meta-offer or a set of alternative offers.

Q: Whom do I talk to?

A: If at all possible, make sure you're negotiating with someone who has the authority to make a decision. If you aren't, adjust your opening offer accordingly.

If the people you're allowed to work with are representatives who don't actually have authority to make decisions, then you have an additional challenge ahead of you. Your first offer must address the needs and motivations of both the representative and the deciding parties. In order for the representative to present your offer in a positive light to the deciding parties, the representative must be excited about the offer. Additionally, you must draw clear parallels between your interests and the terms of the offer, and you must present the relationship between your interests and the offer in such a way that the representative is able to convey it convincingly and accurately to the deciding parties. Negotiations involving representatives can become a bit like the children's game of "telephone": it's amazing how much story can be lost in the retelling.

If you're negotiating with a representative of the seller, try something like:

"I know your clients are interested in selling disk drives for as much money as possible. If we can be creative with the payment terms, I can be more flexible about the overall price I'm willing to pay. For instance, if the disk drives could be delivered in two weeks instead of six, and you can provide a quality guarantee, then there is a wider range of fair prices. A quality component in my hands sooner, allows me to bring my own product to market sooner. There is substantial value for me in bringing my product to market a month sooner." 

Additionally, your offer clearly indicates that price will be a function of delivery time and component quality, for the objective reason that a quality component delivered in two weeks will allow you to profit from sale of your own product much sooner. There shoule be nothing vague about the relationship between your interests and the offer, as you don't want the story to lose anything in the retelling.

Q: When do I make an offer?

A: It's important to hold off verbalizing your first offer until the other side believes that you understand their interests.

Let's say you offer a single cash price for a house. The home owners, however, are interested in making sure that they won't have to move for six months because they'd like their kids to finish out the school year in the same neighborhood. They only put the house on the market at the present time in order to ensure that it would be sold by mid-summer. The first offer you made is far above market value, and you think it will be received as a gift from God. Instead, their reaction is flat. You increase your offer and they seem insulted, almost hostile. You're confused because you made a careful study of the value of the home, as perceived by the owners and by an objective appraiser. Your real estate agent even thinks your offer is too generous. You increase your offer a second time and still no sale. 

You could have saved yourself a great deal of money with a question: I understand you're seeking a fair price for your home. Are there any other factors that determine a good deal for you? You would have found out right away that their needs hadn't been heard, and that for them it wasn't yet first-offer time.

Conclusion
All this information boils down to a manageable formula for an ideal first offer. 

The Prep Sessions: Study your options and discover the interests of the other side. 

• The Design Plan: Design creative options that enhance the possibilities for all involved. Choose an offer that both maximizes your gain and can be credibly represented as a fair response to the needs of the other side. 
• The Presentation Rules: Get in a room (or on the phone/fax/e-mail) with someone who has authority to make final decisions. Make sure that person is confident in your understanding of their interests. Confidently present the offer you prepared, making sure to submit objective criteria that establish the fairness of each point. 

Copyright 1997 Batna.com. Do not duplicate.