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NEWS
My previous articles on the subject of dealmaking have referred, more often than not, to the crucial subject of planning. In order to fully understand the impact of planning in doing deals, let's first step back and take a look at the big picture. Before companies begin to achieve any degree of success, they need to plan their 'go-to-market' strategy. The same applies to individuals. Imagine you are planning to buy a new house. The critical factors you will consider will typically be price, area and size. You will then set about looking for the house and the negotiation follows. In the case of companies, this strategy can be depicted as follows: Step 1: Business Strategy (eg: defined market, products, etc.) Step 2: Sales Strategy (eg: 'go-to-market' through channel partners) Step 3: Sales Tactics (eg: TAS, etc. or The Dealcloser™ process) Step 4: Negotiation Strategy (eg: mandates, discount levels, etc.) Step 5: Negotiation Tactics (eg: The Dealmaker™ process) Step 6: Closed deals If you had to draw a flow diagram for the steps to your new house, it would result in a model like the one above. You would define the price, location and size, and then you would decide whether to use an estate agent or not, and so on. Personal decisions are similar to those of businesses. For individuals and business alike, here is the alarming reality (extract from "Negotiation: Organizational Alignment of Strategy and Execution Process" by Brian J. Dietmeyer and Samuel R. Tepper (Think! Inc. 2002)):
Why no negotiation strategy and tactics? Companies recognize that sales processes increase revenues but they don't seem to understand the impact poorly defined negotiation strategies and tactics have on profitability. Increasingly, professional buyers are thinking of negotiation as a process, whereas business and salespeople are still thinking of it as tactical. From an individual's perspective, poor negotiating strategies and tactics have a direct impact on your wealth! Back to the house-buying example. Assume you have now defined the location, the price range you can afford and the size of house and garden you want. You understand that to get the large garden you need for your children and dogs, a cluster complex is not suitable so you need a stand-alone house. You have also decided to use estate agents as you do not have the time to deal with lots of different sellers. You now start looking for a house. Your sales strategy and tactics could be along the lines of: as you are in no urgent hurry to buy, you will take a long term view of the market and watch which houses don't seem to be selling. You will wait for the seller to have (assumed) time pressures and then you will go in with a cheeky offer. Just as an aside, you can always increase an offer on a house - but you can almost never make it less! Your negotiation strategy will be to start as low as possible, without putting yourself too far out of the ball park, and then move up if you have no choice. Your negotiating tactics will be that every time you have to increase an offer, you will ask for something to improve your deal - such as the seller leaves all their tennis racquets and balls behind for the tennis court, or they include the outdoor furniture, or whatever. You should, ideally, end up with a great house at a very good price - your reward for you for doing your "big picture" planning properly! Before you rush out and start buying yourself a new house, there is another level of planning that needs to take place. Above I referred to a "ball park". We all seem to instinctively know what a ball park is, but how do you define it? In our example, the ball park would be the highest price you are prepared to pay for a house vs the lowest offer the seller will accept. If you knew the seller's lowest price, that is where you would do the deal. If the seller knew your highest price, that is where he would want the deal to be done. In the real world, very seldom do we know the other person's limits. So, the best we can do is guess these limits. Not very scientific, I know, but dealmaking is a large part art and only a little part science. Determining the ball park takes time. You need to conduct research and give the matter considerable thought. In our example, you will need to know for what price similar houses in the area have sold, understand the market trends (eg: are house prices dropping because of a looming interest rate hike?) and the like. You also need to decide the maximum you will pay for the house, the boundaries of the location you will consider, and the biggest vs smallest size the house and garden need to be. It is important to understand that it is only for your key issues - ie: the critical factors - that you will determine a ball park. You then need to make a list of all the other items you might want to include in the deal - the seller's furniture and art, fixtures and fittings, plants in the garden and in pots, pool and garden toys, etc. This should be a very long list. The items on this list are commonly referred to as your negotiating, or trading, variables. Only once you are armed with a ball park for your key issues and your list of negotiating variables are you in a position to start negotiating! You have probably realized that the planning part of any deal will take a lot longer than the face-to-face side of the transaction. Experts on the subject of planning believe you should invest anywhere between four and eight hours (depending on the complexity of the deal) for every hour of face-to-face time. Four hours planning for a one hour meeting or presentation is probably the very least you should invest! When you do finally start negotiating, be sure to focus on your key issues. Do not get bogged down with your trading variables. What is the point of having them, you may then ask? Trading variables allow you to move, ie: be flexible, on your key issues while still getting something of value in return for your flexibility. In our house example, the agent may ask you to improve your deal by R100,000. If you are prepared to do this, ie: the price is still in your ball park, do not just give in! If you give in, all you are teaching the seller is that if they keep pushing, you may improve your offer again. If you are prepared to increase your offer then do so, attaching one of your negotiating variables to the move - say something like "if you are prepared to leave all the curtains in the house behind, I will increase my offer by R100,000" (assuming you want the curtains, of course!). If the seller is not willing to leave behind the curtains, dip into your list of variables and say "okay, if you leave the potted cycads behind". By now you are no doubt getting the picture! So, before you enter into any deal, you need to do proper planning. Start with the big picture and then move on to the ball park and then the negotiating variables. Let the fun begin! Kim Meredith
Kim Meredith is an internationally acclaimed lecturer, negotiator and dealmaker. Kim is Managing Director of Spectrum Solutions and The Dealmaker Programmes Company. Kim has been working with and consulting to international companies in negotiation strategy and dealmaking for nearly 15 years. Kim currently lectures and consults in the USA, Europe, Latin America and Africa.
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