Why do most negotiations fail? Because people fail to understand the other side’s intention, objectives, and goals.
If the parties to a negotiation took more time understanding that instead of firmly rooting into their positions and what they are each trying to get out of the negotiation, there will be more win-win situations.
Case in point:
An entrepreneur runs a startup fashion business, meaning producing products at tight margins with little to no marketing budget to spend.
A volunteer offers their services in exchange for ‘experience’ in the fashion industry.
Both sides are happily engaged in a working relationship that seems to be working quite well until the topic of compensation came up, initiated by the volunteer.
Here’s the unfolding of the events:
Initial conversation takes place and business owner agrees to look at their financials to see what they can afford;
Owner comes back with an offer of 10% of revenues, which is quite generous given more commission based revenue sharing models would be between 5-10%, especially given the area they are in, fashion, with razor tight margins and other overhead involved.
Volunteer counters with 15%;
Owner clarifies that 15% isn’t something the business can afford;
Volunteer halts negotiations.
There are a few things at play here:
Define the parameters of the volunteer role up front. It’s great to explain these situations in hindsight, but one thing the business owner could have done is to define the volunteer term ahead of time. For example, the unpaid volunteer term would be 3 months, in exchange for a recommendation letter and the experience. End of story, no strings attached.
Negotiate IN PERSON. I can’t stress how hard it is to negotiate, and further to that, negotiate over email, which takes away all the context and non-verbal cues that could have changed the outcome (for better or for worse).
Everyone wants to get paid, so let’s start there. What if the owner had started with an offer of 5%? Do you think the counter offer would have been 10% instead? Or would it still be at 15%? The concept of anchoring your initial offer well within your BATNA (best alternative to negotiated agreement) will help smooth out the negotiation path, as you have ‘wiggle room’ to move. If a counter offer of 11% would have been detrimental to your business, starting with your final offer of 10% may not be the best move. The two parties could also have discussed WHY 15% was a definitive counter from the volunteer. Did they desperately need that amount to make ends meet? Or did they choose that number because they were taught that they shouldn’t settle for the first offer they receive?
Negotiations are always easier said than done, but if someone puts an outrageous term on the table, let’s say an investor wants 50% of your startup business in order for them to invest, you are allowed to ask why. If they respond with “I want to prevent dilution of my shares”, there are other creative ways to address that instead of giving away a huge chunk of equity in the initial rounds of funding (here I defer to your lawyers who can give actual legal advice). If someone asks for something crazy, first collect your emotions and instinct to react, and then ask them, why is this something you can’t move on?
Often, the answers will surprise you and you can collectively find an alternate solution that works. So when you walk into your next negotiation, I hope you try out the three tips above!