John Greathouse is a General Partner at Rincon Venture Partners (infoChachkie.com). In this video he shares 4 insider tips to successful negotiations for entrepreneurs.
- Be prepared & informed about who you are negotiating with
- Have more knowledge than anyone else in the room
- Understand BATNA: best alternative to negotiate an agreement
- Be creative & flexible with the sticking points - mainly bid/ask spread
Well there’s four tips that I would like to share with entrepreneurs to be successful at negotiating. There’s many you can read lots of books on negotiating but this four I think if you only do this four, you’ll probably be in pretty good shape.
One is know who you’re going up against. If you watch a show like Pawn Stars, for instance, reality TV show. It’s obviously based on entertainment value more than it is educational value but you can learn a lot from that show of what not to do. For instance, these folks walk in with items that they have no idea what the value is and they’re negotiating against an expert and other league and they often don’t get a good price for their products.
I think insurance of an entrepreneur is negotiating against the venture capitalists. Venture capitalists do a lot of deals. You know, I know between myself and my partner, we probably funded 50 companies and probably done 100 different transactions. The average entrepreneur might do a dozen in their lifetime if they’re very active and they probably do half a dozen more likely. So understand that and, you know, get the right people in your team. Take your university team up to the varsity level by getting the right accountants. Get the right lawyers involved so that you can go toe to toe with these professional negotiators.
Knowledge is power always in a negotiation. Know more than the other side. Walk in knowing more about their position that they think they know and your chances of getting a mutually advantageous outcome will go up tremendously. Again, most negotiations aren’t about winning or losing. It’s about truly finding the outcome that makes the most sense with the other party and makes the most sense for you and you’re going to be in a better position to do that if you have more knowledge about your adversary.
Always know what your best alternative is. I mean, you read this in every book but it’s in every book for a reason. Your best alternative to a negotiating agreement is extremely important to understand and if you’re not willing to walk away, you’re not going to get the best deal, period. Again, if you go back to, you know, the Pawn Stars TV show, they never walk away. The person is there to sell it. They want the money and they need the money for something and because of that, they don’t really have an alternative. Their alternative is to just take whatever they’re given. As entrepreneurs, we can’t afford to do that.
And lastly, be creative around sticking points. In most deals, it’s price. In most deals, it’s dollars and cents. That’s where people are going to disagree. I want to pay more, you want to pay less. How can we figure that out? The creative entrepreneur, the great negotiator figures out how can I close that bid as it spread? Because they’re usually is big as it spread. And sometimes it can be deal terms that are free or nearly free for you to give away but valuable to the other party. If you’ve done your research and you have that knowledge, you can go into that negotiation and start playing with the pieces on the chessboard that aren’t just price. But if you battle on price, price, price, you’re probably not going to end up with a great relationship after the negotiation is completed.
Again, going back to Pawn Stars, an example might be walking with, you know, a vintage guitar and you just can’t come to terms on the price. Maybe what you would say to the professional negotiator is, “Hey, look. It seems like we’re kind of far in price. Why do I consign this guitar with you and then we’ll split whatever I get for it,” that way you’re comfortable and you’re getting a fair price and if the Pawn Star guy is a fair gentleman, then he’ll probably accept that because it is a fair alternative.