Whether you think of yourself as a negotiator or not, the reality is that we all negotiate. To some extent, we negotiate every day. We negotiate with our spouses. We negotiate with our kids (who tend to be wonderful negotiators). We negotiate with our neighbors and with our colleagues, bosses and employees. And, of course, negotiating is a vital skill during the M&A process. Most business people claim they’re at least good negotiators, and many believe they’re great. But are you as good as you could be?
Many people think talented negotiators were born with innate skills. And although there is an element of truth to that, it’s also true that good negotiating skills can be learned. Negotiating skills can be improved through experience, which can be very expensive in an M&A context, through reading academic research on negotiation techniques and by learning best practices from negotiation experts.
For this 5-part series focused on improving negotiating skills, we interviewed 63 corporate executives to find out their perceptions of what skills make for a good negotiator and whether those perceptions match up with available research. Keep in mind that the conclusions we reached are what we consider best practices, not dogma. Every negotiation is unique, and the tactics outlined here will not apply to every business situation. But these best practices make for a good foundation.
PART I — PREPARATION
Question: As the CEO of a startup being approached by a buyer, how much do you prepare for negotiations?
A. I like to wing it — 0%
B. I’ll research their business on the web and via contacts — 20%
C. I’ll do the above but I’ll also question my counterpart — 5%
D. I’ll do all of the above plus I’ll evaluate my issues and preferences — 24%
E. I’ll do all of the above plus I’ll discuss with my colleagues who know the counterpart well — 51%
Option E was the winner of the poll, implying that most people believe that more information is always better. However, if you go the extra length to ask people in your company about the counterpart, you could jeopardize the confidentiality of the potential transaction. If many employees know that negotiations are taking place it can damage morale and affect job performance.
From a research perspective, the correct answer is D: Fully prepare for negotiations, but not at the expense of compromising deal confidentiality. How do you do that? The questions that need to be answered include:
This type of preparation is critical, but is often not performed thoroughly. If you know as much as you can about their plans and intentions you’ll be better able to anticipate their motives and discern what’s important to them, thus enabling you to better position yourself in negotiations.
One of the common issues that gets negotiated for start-ups is how long the CEO or founder is required to stay with the acquired company. What will their role be? You should understand these issues before you take a position. Know the issues and what positions you want.
Of course, the primary focus of negotiations will be on valuation. Before negotiations begin, put focused thought into how valuable your company is to a potential buyer. Determine your aspiration price—the best price that is within reason. Then ask yourself what the minimum price is that you would be willing to take before seeking another alternative (raising a venture round, waiting a year or two and growing the business, etc.). In negotiations this is called your “BATNA,” your Best Alternative to a Negotiated Agreement. In addition, determine your “Must haves” as well as the issues you’re willing to bend on.
Now, do the same estimation for the buyer. How will they perceive valuation? What have they done in the past? In this scenario, what is their BATNA? Once you understand the buyer’s motives and aspirations, look for an overlap with yours. That’s the zone of potential agreement, and that’s where a deal can be struck.
Rigorously looking at both what you want and what the other side wants is critical preparation for negotiations. In general, if the negotiation will last an hour, you should spend eight to ten hours preparing for it.
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