Monday, January 24, 2011

But Do They Trust You?

Tyler Gitou stood at the front of the conference room pointing to a list of the client’s executives.

“Does this list accurately reflect all of the people within the client that you work with daily?” he asked.

Verdi and Virginia, the two executives sitting at the conference table, nodded.

“Yes, and most of the time we are working with Carol, the chief procurement officer,” said Verdi. “She negotiates most of the deals for the client. We have tried to be more collaborative and less positional with her, but so far it has not worked.”

“How good is your relationship with Carol?” Tyler asked.

Virginia answered first. “It’s very good. We do a lot of work for their company and have been a materials supplier for about 10 years,” she said. “Carol always calls me when there is a bid open for more work.”

“That’s good,” Tyler said. “But the fact that you have had a lot of business transactions with a client does not define the relationship. It simply means they have found your services satisfactory. Separate the transactions from the relationship. How would you describe the relationship?”

“Very positive,” said Verdi. “We talk a lot about our families and how things are going. I feel we’re on the same page with her.”

“Being able to have a friendly conversation is always a good thing,” Tyler said. “But I can have those types of conversations with the guy at the coffee shop. Let me put it a different way: do you trust her?”

“Trust?” Virginia asked. “Well, I don’t know if I’d use that strong a word. She has integrity but she has to look out for her company’s interests first.”

“Fair enough.” Tyler said. “Does she trust you?”

Virginia and Verdi paused. “I think she does…” Verdi started.

“What have you done to earn her trust?” Tyler asked.

Another pause. “What do you mean?” Virginia asked.

“A Deal Whisperer builds a collaborative relationship with another party by first building a foundation of trust.” Tyler said. “Collaboration requires the parties to open up and provide transparency into their businesses so the other party can see what options might improve the value of the deal. Without trust, the parties will never get to the level of candid and open discussion required to maximize the value of a deal.”

“So how do we build trust?” Verdi asked.

“Develop a trust action plan,” Tyler said. “Bring your team together and coach them on behavior that focuses on mutual success, not just success for you. When you make commitments, keep them. When you make mistakes, acknowledge them. Build a track record that demonstrates you are striving to be a trusted business partner, not just another supplier. The higher the level of trust you have with those with whom you negotiate, the higher the level of collaboration and return you will both get from the deal.”

Friday, January 14, 2011

It's Not Fair!

Verdi’s face was bright red as he walked into Tyler Gitou’s office.

Tyler suppressed a smile and calmly said, “You look a little upset.”

“Ahhh,” Verdi exhaled loudly. “I am so frustrated by the other party’s demands! I don’t know how to respond.”

“Demands?” Tyler said. “Sounds like you’re in a very positional negotiation environment. What’s going on?”

“Well, we have worked for the last three weeks on the specs for some materials the client needs. They are a high-quality manufacturer of consumer goods and they take great care in choosing suppliers.”

“That's a good business practice,” Tyler said.

“They are good business people and have been very successful. But now that we are close to signing the deal, they have suddenly raised issues around delivery. They are requiring that for every day we are late on delivery we pay a penalty of 25% of the value of the purchase order. That means a one-day delay could wipe out all the profits for the deal. And the challenge is the client controls some parts of the supply chain so we can’t manage all the risk. The delay may not be our fault but we pay the penalty! It feels like what they’re asking for is not… fair!”

“That’s the sign of a legitimacy problem,” Tyler said. “When your instincts say, ‘something in what they’ve asked for is not fair’ it means you are struggling to understand what makes the request legitimate.”

“What do you mean by ‘legitimate’?” Verdi asked.

“Legitimate as in where else has this been done before? Who else has agreed to this term?” Tyler said. “Is this an industry practice? Have we done it with this client on other deals? Are we getting something of equal value in exchange? Ask the client to help you understand the legitimacy of the request. Try something like, ‘I understand your interest in making sure we deliver on time. But I am struggling with a model that has us bearing so much of the risk. Our practice, and what I’ve seen in the industry, is to accept risk where we have control.’”

Verdi laughed. “I was thinking of something like, ‘Are you guys nuts?’. Yours is definitely a better response!”

“A Deal Whisperer knows that the other party is always entitled to ask for anything. The challenge is in saying ‘no’ in a way that maintains a constructive atmosphere and builds collaboration. Just as you need to first understand why they believe this is legitimate, you then need to share your point of view as to why it’s not. Don’t be afraid to explain how unbalanced risk will hurt your business and the outcome of the deal. To maximize the potential value of a deal, both parties should understand what the path to mutual success looks like and be ready to help the other down that path.”

Monday, January 3, 2011

Waiting for "No"

“We had our meeting with the client,” Verdi said to Tyler Gitou. “As you suggested, I provided him the two options.”

“Let me make sure I understand the situation,” said Tyler. “You offered to deliver the equipment for $1 million with a certain level of quality. The client then asked for a $100,000 reduction in price or else he would go to your competitor.”

Verdi nodded. “That’s right. We spoke and you suggested I offer him two options: either paying $1 million for the equipment with the higher quality components, or paying $900,000 for lower quality components.”

“Good,” said Tyler. “Now let’s think about how he might respond.”

“He will either accept one of the two options,” said Verdi, “or he may come back and say he wants both higher quality components and a lower price. If that happens, what do I do? We can’t provide the better quality for the lower price. It’s a bad deal for us. I can’t agree to it.”

"What will he do if you can’t reach agreement?” Tyler asked. “What’s his BATNA?”

“His what?”

“His best alternative to a negotiated agreement, or BATNA. What will he do if he can’t reach a deal with you and he walks away? Will he do a deal with someone else? Not do a deal at all? We need to think of all of his potential alternatives and decide which alternative is best for him. That’s his BATNA.”

“He could delay doing a deal,” Verdi said. “Or he could go to my competitor for the lesser price.”

“Is he likely to do either of those things?” Tyler asked. “Is your competitor’s offering as good as yours? Or will his old equipment provide the quality he needs?”

Verdi thought for a moment. “No and no,” he said. “The competitor’s product is not even close to ours in terms of quality and reliability. And he has to do a deal to upgrade the equipment because he has regulatory compliance issues to address.”

“What I am hearing, then, is that your client really has no alternative which will better meet his interests than your product, and that the deal you have put on the table is your best and final offer. Is that correct?”

Verdi nodded. “That’s sounds right,” Verdi said. “So what do I say if he requests the same quality at the lower price?”

“Verdi, the answer is right there in front of you!” Tyler laughed. “You’re just afraid to say it.”

Verdi swallowed hard. “I say, ‘no’.”

“Exactly,” Tyler said. “You have to say ‘no’ because you just told me you won’t say ‘yes’! But you’re afraid to say ‘no’ because you perceive that is the end of the deal. It’s not. A Deal Whisperer knows that ‘no’ is often the beginning of the deal. What you don’t see is that your client is waiting for you to say ‘no’. Like any good negotiator, he is going to keep asking you for changes until you say ‘no’. Why shouldn’t he keep asking as long as there is a chance you might say ‘yes’?”

“You’re right, of course. I was afraid of what he would do if I said ‘no’. Analyzing his BATNA with you makes me less concerned. But how do I actually say ‘no’?”

Tyler smiled. “Explain the situation. This is your best deal. You can reduce the price if you reduce the quality, otherwise your hands are tied. Let him know this is it. You don’t have to say ‘no’ so much as you need to let him know these are the final options.”

Verdi stood up. “OK, I’ll give him a call. Let’s hope the next time we meet it’s to say the deal is done!”

“I’m confident it will be,” Tyler said.