Monday, November 30, 2015

Does Donald Trump Look Under the Table?

Several times in my career I have been asked to help resolve a particularly difficult situation because the team said they needed “a tough negotiator.”

The notion of the “tough" negotiator has a cache to business folks, fostered by the likes of William Shatner on Priceline commercials, performing karate moves to get the deal he wants. My response has always been to say, “If you’re looking for a tough negotiator, you called the wrong guy. I am a disciplined and collaborative negotiator. I’m not tough.”

Frankly, I don’t know what it means to be a “tough” negotiator. I imagine what people equate with “toughness” is an undisciplined, stubborn, positional negotiator. One who thinks “win-win” means they win twice, and the other side loses twice. One who lacks the creativity and confidence to dig deeper and find hidden opportunity for collaboration in an engagement that would create more value. I have encountered that style at large manufacturing and retail companies that treat all vendors like they are selling commodities. All that matters is price. That shortsightedness is costing them dearly in the marketplace because it limits a service provider’s ability to bring innovation that might provide the client a competitive edge.

The latest poster child for “tough” negotiators is Donald Trump, who fancies himself as a master deal-maker. Mr. Trump has obviously had success. What we don’t know is how much more success he could have had using a different negotiation style. From his outward appearances, Mr. Trump seems to favor a bullying kind of style, one that drives the other party to concessions so he gets what he wants. He proudly stated that he would build a wall between the U.S. and Mexico and get Mexico to pay for it because he’s that good as a negotiator. If I were the president of Mexico, I would prepare my team for that discussion with one key caveat: we will never agree to pay for the wall.  I don’t know what Mr. Trump’s style is once he gets in the room. Perhaps this is an act he puts on and is highly collaborative at the negotiation table, sort of a one-man “good cop/bad cop.”

The potential problem with Mr. Trump’s style is it does not engender trust in the discussions, leading to lost value in the deal. People often talk of not leaving money “on the table.” I prefer to say “don’t leave money under the table.” It’s easy to see the money on the table. It takes a special deal team to bring trust to a relationship so that both parties work together to find the hidden value in the deal. That requires appreciation for the other party’s interests; creativity in generating options and legitimacy in the asks of either side.

“Tough” negotiators don’t care about the other party’s interests. “Tough” negotiators have only one set of options; their own. And with a “tough” negotiator, legitimacy or fairness in demands is always a test of the other party’s BATNA.

So while it might seem impressive to hear of “tough" negotiators who “break” the other side in a negotiation, ask yourself: where does such behavior leave the relationship? Has is maximized the value the parties could have built together? And next time, will the other side look forward to an opportunity to do business again? Or will they use it as a chance to “get even” based on their previous experience?

Thursday, October 29, 2015

This Kid Just Keeps Failing

The other day I met with a young man named Tom who is graduating from college next May. He is interested in a sales career in the technology industry and has some job interviews next month. Tom asked if I would provide some help in preparing for those interviews.

Tom spent last summer selling technology services to small business owners. Every sales call was a cold call: walk in, strike up a conversation and see if he could sell them on the value of his offering. Turns out he’s pretty good at it. He closed over 30 deals in the 8 weeks he worked there and was one of the top performing salespeople in his office.

I started peppering him with questions he should expect such as “Why are you interested in our company?" and “Where do you see yourself in 5 years?”. I switched to the “weakness/strength” and “challenge and recovery” questions.

I said, “Tell me about a time you failed and what you did about it.”

Without hesitation, he replied, “I failed 39 times a day.”

“Oh?” I said, waiting for an explanation.

“In the eight weeks I was selling over the summer, I usually got turned down about 39 times before I finally got someone to say ‘yes,’” he explained. “At first, it was pretty draining because the experience was so negative.”

“So what did you do?” I asked.

“I turned each ‘no’ into a positive experience. I decided to start each day with 39 ‘nos’ to count down because it’s rare for me to have more than that before I get a ‘yes.’  So each time a potential customer said ‘no’ it meant I was one step nearer to getting that ‘yes.’ That made me look forward to every new business I walked in to pitch. Each failure was getting me closer to my goal.”

Perseverance is not an idea or principle we talk much about these days. Perseverance requires focus, commitment and a positive attitude which, in our world of instant everything and immediate results, just takes too long. But those who truly aspire to greatness in their chosen fields know that there’s a lot of failing to get through before achieving success.

Tuesday, September 29, 2015

Don't Get Caught Naked

A colleague once asked me how much negotiation contingency I have in my deals.

I asked, “What is negotiation contingency?”

“It’s the money set aside for making concessions,” he said. “For example, if a client said they wanted a lower price, how much do you budget for price reductions?”

“Oh,” I replied. “Zero.”

Needless to say, he was quite surprised. “You mean to tell me that you never make a concession on price?”

“No,” I said. “I never make a concession on anything. What I make is an exchange; an exchange of value.”

Many sales people make the mistake of thinking offering discounts or cutting the price is the fastest path to signature. They will rationalize it, saying they are “investing in the relationship.”

But what’s the return on that “investment”? In other words, if a sales person gives a discount on price, they better have gotten something in return. Otherwise, that’s not an investment. That’s giving money away and it’s called being a sucker.

Giving free money to anyone is not good business.  Reducing price without getting something in return is called a “naked concession” and it’s rarely a good thing to be caught naked in any context! Naked concessions signal to the client a lack of respect for one’s own business. They also create a lack of trust, and we need trust to build lasting relationships. How is a client to trust us if we say, “This is our best price” and then reduce the price because “they needed this concession to seal the deal.” Obviously, we were misleading them about our “best price” because we gave them a better one when pressure was applied!

In deal-making, you have to get when you give. Trade value. Work with your team and develop a list of options for the client which will allow you to reduce cost and therefore lower the price. For example, can the client perform a task instead of us to reduce cost? Can we reduce scope? Can we reduce risk? Can we extend time? If we don’t show the client the value we put on our products and services, then the client has little reason to value or respect our products and services.

Monday, August 10, 2015

"Light Fuse. Move Away." Rules For Improving Client Relationships

I was looking at a pack of firecrackers a few weeks ago and noticed the very clear and simple instructions on the back: Light Fuse. Move Away.
Those instructions are so fundamental it seems ridiculous to put them on the wrapper. In light of the injuries suffered recently by some professional athletes, however, maybe the idea of moving away from a lit pack of explosives is not obvious to everyone.
And this is not just true for firecrackers. Other products have similar “you’ve got to be kidding me”-type instructions on them to help people who may be deficient in common sense. For example:
  • Iron: “Do not iron clothes on body”
  • Frozen dinner: “Defrost”
  • Bottle of rum: “Open bottle before drinking”
The same problem exists among professionals who are trying to generate new clients or grow the relationships they already have: we often lose sight of the obvious.
So if you want to keep your existing clients, generate more clients/referrals or build better client relationships, here are three fundamental “Care Instructions” to follow:
  1. Keep your word: If you make a commitment, whether to return a phone call, set up a meeting or successfully deliver a $50M ERP integration, deliver on your commitment. Nothing erodes trust faster than not doing what you said you would do.
  2. Be transparent: Don’t be afraid of sharing with the client how your business operates and how client decisions impact your success. If the client doesn’t care about your success it speaks volumes about the quality of your relationship and you have a lot of work to do to improve it.
  3. Show appreciation: It never ceases to amaze me how often a vendor will complain about a long-time client: “They’re so demanding! They’re so difficult!” Yeah, but they keep you in business! If we don’t treat every client like a new client, they’ll soon be an old client. The competition is always ready to take your client away.
And this last bit of advice on the tag of a mattress: “Do not attempt to swallow.”

Friday, July 17, 2015

A Million-Dollar Coffee Cup

Recently I was buying a car and I was reminded of the story of the million-dollar coffee cup.
I first heard about the cup over 20 years ago when I worked for a large technology products and services company (I won’t mention the name but its initials are “IBM”). At that time, IBM was competing in the mainframe space against a company called Amdahl, which has since been acquired by Fujitsu.
The story was that Amdahl sales reps would try to displace IBM mainframes by undercutting IBM’s price. Because switching mainframes was the technical equivalent of a heart transplant, unseating the incumbent on price was usually a wasted effort.
The Amdahl sales reps would thank the client for their time and, before departing, offer them an Amdahl coffee cup.
“It’s worth a million dollars,” the sales rep would say.
“Why is that?” asked the client.
“Because as soon as the IBM sales rep sees the Amdahl coffee cup on your desk, he’ll know I was here and he’ll drop his price by $1 million if you ask him to.”
The coffee cup is a great example of the power of having an alternative; somewhere else to go to fulfill your interests. Imagine you are buying a car and, like in many cities, the car dealerships are all lined up in a row on a main commercial street. While you are negotiating for a Ford, the Chevy dealership next door and the Chrysler dealership across the street represent alternatives to closing the deal on the Ford. If you can’t get what you want at the Ford table, you can go next door and sit at the Chevy table. If the Chevy sales team doesn’t put enough on the table to keep you there, you can leave that table and sit at the Chrysler table and see what they’ll offer.
The table that represents the best alternative to the table you’re sitting at is your BATNA (best alternative to a negotiated agreement). When you can’t get the deal you want, you go to that BATNA.
In reality, the less expensive Amdahl mainframe was not really a good BATNA to the IBM mainframe because of the switching costs and effort. But that coffee cup provided a perception of a BATNA by having the Amdahl logo in sight. And that perception was enough to provide some economic leverage on pricing.
Remembering the coffee cup story came in handy for me when I negotiated recently for a new car. I went into a dealership, sat down at the salesman’s desk and said, “I am buying X Model car this weekend.” I casually rested on his desk the brochure for the Y Model car from the dealership next door.
It wasn’t worth a million dollars, but having that brochure created a perception of BATNA that made negotiating on price a lot easier.

Friday, June 19, 2015

One Word to Becoming a Better Negotiator

You are about to sign a deal after weeks of intense negotiations. The client, before picking up the pen, says to you, “I just got a call from the CEO and he said he wants another 10 percent off the price before I sign.” What do you say?

More importantly, how do you feel? This moment, that was to represent the culmination of months of work, is suddenly spoiled by an 11th hour demand for a concession. Doesn’t this somehow feel… unfair?

We have all encountered that moment in our professional and personal lives when someone asks for something and we feel like they are taking advantage of us. Most people go through a rapid cycle of emotions: anger and frustration, then analysis and rationalization, so that they talk themselves into saying “yes” to the demand “for the relationship,” “for the good of the deal” or “to keep the peace in the family.”

This is a negotiation ailment called “accommodation” and even senior business executives fall victim to it. But there is one word that can provide the cure: Legitimacy. Among the seven elements in a negotiation, Legitimacy is perhaps the most powerful because it serves as the baseline for whether a deal is good for both parties. Legitimacy is what triggers our “fairness antennae” and makes us pause in our response.

The way to use Legitimacy in our negotiations is simple and, once done a few times, becomes quite empowering. When the other party, whether it’s a CEO or your mother, says “this is what I want,” pause and cycle through your emotions. This time, instead of saying, “Well, OK if that will make you happy,” challenge the Legitimacy of the request. Say something like, “I hear what you’re asking for and please help me understand why that’s fair.”

Introducing the notion of “fairness” into the exchange has a powerful emotional impact on people. The notion of “fairness” is built into us from childhood; to play fair and to treat other people fairly. So when you challenge the Legitimacy of a request by asking someone to justify its fairness, it sends the other party into an emotional cycle of trying to balance the behavior in making the request against the moral compass of “fairness.”

What you now have is an opportunity to work out a solution that both of you will find acceptable. You will feel empowered that you healed yourself of your accommodating behavior and have begun a journey to being a truly disciplined negotiator.

Wednesday, March 4, 2015

Whadja Get?

“Mr. Gitou, how much do you usually budget for negotiation contingency?”
Tyler Gitou looked up from his computer screen, a quizzical look on his face. “I’m sorry, Verdi,” he said. “I don’t understand the question.”
“Well, when you negotiate a deal, how do you decide how much money to set aside to give to the client as a concession?”
“Oh, I see.” Tyler said. “Zero.”
“Zero?” Verdi said. “You mean to tell me that because you’re the Deal Whisperer you never make a concession on price?”
Tyler laughed. “No, Verdi. I never make a concession on anything. What I make is an exchange.”
“An exchange of what?”
“An exchange of value. Let me give you an example. Last month I was working on a managed services deal for a large pharmaceutical client. They said their primary goal in doing the deal was to reduce their procurement costs by 30 percent. Our proposal reduced those costs by 32 percent, more than any of our competitors. They wanted to sign the deal with us, but they said our price was 10 percent too high. What would you say in response to that?”
“It depends. What did they say will happen if I don’t cut the price?” Verdi asked.
“They said they will give the deal to one of our competitors.”
“OK,” Verdi  said. “I wouldn’t cut the price by the whole 10 percent. Maybe I’d offer them five percent.”
“OK,” Tyler said. “And I would ask you, ‘Whadja get?’”
“Whadja… what does that mean?”
“It means ‘what did you get in return?’”
“I got the deal signed,” Verdi said. “Wasn’t that what I was supposed to do?”
“Sure it was,” Tyler said. “But why did you give the client free money on your way to signing?”
“I… well I had to…” Verdi sighed. “OK, I give up. What did you do?”
“I offered them options,” Tyler said. “I told them I could reduce the price by five percent to get closer to the competitor’s price if they would extend the deal by an additional two years. With an extra two years of revenue, I was able to make some cost reductions and pass the savings on to the client. It also means an extra two years that I keep my competition out of that part of the client’s business.”
“Wow, that’s like a win-win with another win!” Verdi said.
Tyler laughed. “It was a good outcome but the most important part of it was demonstrating to the client that my price was real by asking for an exchange of value. If I had just offered a five percent reduction, the client would have lost trust in our company and thought I was just padding my price.”
“An exchange of value. I like that,” Verdi said.
“Good,” Tyler said. “Remember, Verdi, a Deal Whisperer must always negotiate with respect for his own business. If we don’t show the client the value we put on our services, then the client has little reason to value or respect our services.”

Monday, January 5, 2015

Don't Do It!

“Mr. Gitou, you’re never going to guess who just called,” said Verdi.

Tyler Gitou smiled at Verdi. “You know, Verdi, I can’t ever figure out whether that phrase means I am supposed to guess, or I shouldn’t bother to guess because of the forecasted futility.”

“What?” asked Verdi, looking perplexed.

“Nevermind,” said Tyler. “Who called?”

“That was Sam Gamigan, the head of procurement for National Distributors. I’ve been trying to break into that account for three years.”

“I remember. What did he want?”

“He said they are putting all of the logistics operations up for bid again,” said Verdi. “Sam says they are unhappy with the services from Calax Systems managing their hardware and software so they want a new business partner.”

“Wow,” Tyler said. “That’s a surprise. And a big deal too. Didn’t Calax win that RFP two years ago for about $50 million over five years?”

“Yes,” Verdi said. “We came in second for that bid and now’s our chance to come back and win the work!”

“Hang on, Verdi. Before you start calculating your commission for the deal, let me ask a few questions.”

“Sure,” said Verdi, taking a seat in Tyler’s office.

“First of all, why did Sam say they are putting it up for bid?” Tyler asked.

“I told you. He said they’re unhappy with Calax,” Verdi said.

“What specifically are they unhappy about? Did you ask?”

“I did,” Verdi replied. “And he said he couldn’t get specific.”

“OK. Who is running the bid process?” Tyler asked.

“Sam is. I made some calls to Margaret Fringe, the head of operations, and she knew nothing about it.”

“Gotcha. And lastly, if Calax is in year two of a five-year deal, don’t you think there is a hefty early termination fee for National Distributors if they want to get out of the deal early?”

Verdi thought a moment. “There must be. We had a big fee in our bid because we had to back-load the deal to provide savings up front.”

“That’s what I recalled.” Tyler said. “My advice to you, Verdi? Don’t do it.”

“What? Don’t do what?”

“Don’t bid on the work. Sam is not offering you a legitimate opportunity to win this work. He is offering you and the other service providers a chance to submit competitive pricing so he can re-negotiate the deal with Calax.”

“No,” Verdi said. “Why would he do that? Do you know how much time and money that is going to take? He wouldn’t run an RFP process just to get pricing.”

“Why wouldn’t he? As a good businessman, he knows that if he can get a ten percent reduction in the last three years of the deal he can save the company up to $3 million. You just said Margaret doesn’t know about this and she’s the head of operations. If someone was unhappy with the service, wouldn’t it be her? And he hasn’t hired an advisor to run the bid, has he?”

“No he hasn’t,” Verdi said. “And he doesn’t have a big department to handle responses from five service providers.”

“So it will cost him almost nothing to modify the old RFP, reissue it to five bidders and get back the pricing to use against Calax. We’ve not heard about any problems with Calax’s performance and he’s making vague statements that they are unhappy. There is no way they are going to pay Calax a termination fee to go through the contracting process and transition all that software to a new vendor. Sam is playing a game with you.”

“But Mr. Gitou, it’s a really big deal! Almost $50 million!” Verdi pleaded.

“No it’s not. It’s an opportunity to waste resources submitting a bid for something we will never win. This is a commitment issue, Verdi. Sam has no intention of unseating Calax and he's giving you all the signals of that. A rushed bid. No involvement by the stake-holders. And an incumbent who is so entrenched that changing to a new provider would completely disrupt the business. Calax is in there for the next three years.”

“But if I don’t bid, he won’t hire us.”

Tyler laughed. “He’s not hiring if you do bid! Verdi listen to yourself. Here’s my suggestion. How much would it cost us to respond to this RFP?”

“Probably about $30,000.”

“OK,” Tyler said. “Call Sam back. Tell him you’re sending over our standard rate card as our response. Also, tell him our company is making a donation for what a full response would have cost us to the Canine Rescue Shelter. I know National Distributor is a big sponsor. If he’s as smart as I think he is, he’ll respect you for seeing through his charade and turning it into an opportunity to help others.”

“You don’t think he’ll be mad we didn’t play his game?”

“I don’t care, Verdi,” Tyler said. “I’ll be mad if we do play his game. I’m a shareholder in this company and I don’t want to see our money wasted on what is obviously a pricing negotiation with an incumbent. Trust me, Verdi. Don’t do it.”