Archive for the ‘Negotiation’ Category
April 13, 2008
My favorite type of book is the autobiography as it gives me a chance to learn from other’s experiences. This book is one of the better business autobiographies I have read. Boone Pickens Jr. is an entrepreneur who started out in the 1950s with $2500. Over the next 30 years, he built Mesa Petroleum, America’s largest independent oil company, worth close to $3 billion at the time this book was published.
The most interesting thing about Mr. Pickens is that in addition to being an entrepreneur who has built successful businesses, he is also a dealmaker who has attempted hostile takeovers of some of the world’s largest companies, including Gulf Oil, Phillips, and Unocal. In each of these cases, he was unable to gain control of the companies but walked away with significant amounts of money as the management and boards of these companies spent enormous amounts of money and influence to keep their largest shareholder from taking away their control of the companies. Here is an interesting excerpt from the book:
“I pointed out that the managements and directors of the two hundred Business Roundtable companies owned less than one one-tenth of 1 percent of the stock in their own firms. A recent study revealed that 387 of the S&P 500 companies had adopted anti-shareholder proposals. Some 170 companies had changed their bylaws to restrict their shareholders’ ability to make charter changes. Forty-three had instituted poison pills, and more than two hundred had classified boards.” –Boone by T. Boone Pickens, Jr (p.285)
I find it interesting that an executive team and board of directors can have more control over a company than the owners. It definitely makes me realize the importance of evaluating the management teams and boards of companies I invest in to make sure they have a significant ownership position to ensure their objectives are aligned with the rest of the shareholders.
If you’re interested in studying big businesses and understanding how they operate at the top level, I highly recommend this book. It will give you an education, entertain you, and give you a glimpse into the world of hostile takeovers.
Posted in Book Reviews, Investing, Negotiation | Tagged autobiography, book review, entrepreneur, hostile takeover, M&A, Mesa Petroleum, negotiate, negotiating, Negotiation | Leave a Comment »
April 11, 2008
I’m convinced that leverage is the most significant factor in determining the outcome of a negotiation. Mastering leverage is an art. The negotiator who understands leverage, can identify it accurately, and can use it to their advantage will often beat the more skilled and experienced negotiator.
Your goal as a negotiator is to know the reality of who has the leverage and then create the perception in the mind of your opponent that you have all the leverage. One way to do this is to explore the factors that determine leverage in a negotiation. I have identified 15 factors that play a role in determining who has the leverage advantage in a negotiation.
- Time: who has a greater incentive to complete the deal rapidly?
- Competition: competition can be one of the most effective ways to generate leverage in a negotiation.
- Marketability: who is more marketable as a customer, supplier, or partner?
- Opportunity: who has more to gain in the long-term if the deal is completed?
- Investment: who has more invested in completing the deal?
- Environment: home field advantage?
- Information: how much do you know about your opponent and how much do you control what they know about you?
- Need: who needs the deal more?
- Importance: how important is the deal to your opponent and their company?
- Pressure: how much pressure is your opponent getting from their management to complete the deal and how can you help to increase that pressure?
- Composure: who is more composed emotionally and who is controlling the agenda in the negotiation?
- Precedence: what negotiating precedence has been set in past negotiations with your opponent and what precedents are you setting for future negotiations?
- Emotions: how are fear, greed, and pride part of the negotiation?
- Limitation: what are the true limitations and perceived limitations for each term in the negotiation?
- Policy: what policies does your opponent have to operate within and how can you use policies to your advantage?
Determining who has the leverage in a negotiation (by considering each of these 15 factors) will put you in a better position to strategize ways to generate leverage and perception of leverage. To learn more about these 15 factors that determine leverage in a negotiation, check out my white paper on the topic:
Negotiating Leverage: 15 Factors that Determine Positional Advantage (pdf)
Posted in Negotiation | Tagged advantage, influence, leverage, LinkedIn, negotiate, negotiating, Negotiation, negotiation leverage | Leave a Comment »
April 7, 2008
Forming a solid negotiation team is critical to a successful negotiation. I often see negotiation teams that are too big and lacking in leadership, focus, and unity.
It is the project manager’s job to ensure that the negotiation team is setup for success. This starts with getting the right people on the team and the wrong people off the team. I recommend the following:
- Keep the decision-makers off the team. They should be in the background and unreachable by the opponent.
- Only include people who have a clear role. Keeping the team small will eliminate contradicting actions/statements and speed up the process.
- Ideal team includes a project manager, business lead, procurement lead, contracts lead, and legal counsel. If possible, have the project manager represent the business in place of the business lead.
A project manager’s primary job in the negotiation is to lead the negotiation team. This will include building the team, defining the priorities, planning the negotiation process, and managing execution of the plan.
A project manager should insist that negotiations do not begin until the negotiation team has a clear idea of what deal is acceptable, what deal will be targeted, and the strategy and tactics that will be used to achieve the target deal. By planning this process in advance of the negotiations, the project manager ensures that the negotiation team will have laser focus (clarity) in the negotiating room.
Project managers must understand their role in the negotiation and clearly define roles for the rest of the team. Ideally, a project manager is the objective facilitator who keeps the team at the table (aka good cop). The procurement lead is the negotiator who drives hard for the best possible deal terms (aka bad cop). The contracts lead is responsible for ensuring that the contract clearly articulates what both sides are agreeing to. The legal counsel’s job is to advise the team on risk and the law. Clearly defining and reviewing these roles prior to a negotiation will ensure team unity during the negotiation.
There are many other considerations in building a negotiation team for success but these tips will get you started down the right path. Please share your ideas on the composition of a successful negotiation team.
Posted in Negotiation | Tagged LinkedIn, negotiate, negotiating, Negotiation, negotiation team, team building | Leave a Comment »
November 14, 2007
It’s 6am and we’re checking out of our hotel in Xi’an China. My friend, who speaks Chinese, asks the hotel clerk how much it should cost to take a cab to the airport. She says 120CNY. So we walk outside and there’s a cab across the street. My friend asks how much to the airport. The cab driver says 100CNY. My friend responds with 80CNY. The cab driver responds with 90CNY. My friend responds with 85CNY. The cab driver pleads and my friend finally agrees to 90CNY. He feels good about 90CNY since he mentally set his target at 100CNY based on the hotel clerk’s assessment that it should cost 120CNY.
Was this a good deal? This depends on your frame of reference in setting your target. My friend set his frame of reference based on the hotel clerk’s recommendation. But here’s the thing, in China, everything is based on relationships. It’s very likely that the hotel has a relationship with the cab drivers they have in front of their hotel. If that is in fact the case, having the hotel clerk say 120CNY is a good price sets their customer up to think they negotiated a good deal when the cab driver starts at 100CNY and then goes a little lower.
Let’s say my friend knew a local who takes a cab to the airport frequently. A quick call to this friend could set the definition of a good deal at 75CNY. He might then counter the cab driver’s initial price of 100CNY with an offer of 50CNY and eventually settle in the range of 70-80CNY.
What was the difference between these two scenarios? Information. Whether you are negotiating million dollar business deals or negotiating cab fares, information will be a key determining factor on whether you are able to negotiate a competitive deal. Not only is information important, the source of that information is also critical. In this example, information from the hotel clerk is not as trustworthy as information from a friend.
Bottom Line: Do your homework before you begin negotiating so you have the correct frame of reference in setting your targets and knowing when you’ve achieved a competitive deal.
Posted in Negotiation, Travels | Tagged china, LinkedIn, negotiate, negotiating, Negotiation | Leave a Comment »
September 15, 2007
A lawyer’s job in a negotiation is to advise on risk and the law. Lawyers are not typically the decision-makers in a negotiation. The worst-case scenario for a lawyer is that they fail to uncover every possible risk that may become an issue in the future. For this reason, lawyers will often fight to the end to create the perfect contract with zero risk for their client/employer.
This is where I use the phrase “Fire the Lawyers”. I don’t mean this literally but there comes a time in every negotiation when you cross the threshold and have only small, inconsequential terms left to resolve. This is the time to take the negotiations out of the lawyer’s hands (”Fire the Lawyers”) and escalate the remaining terms to the decision-makers.
It’s an art to determine when you have reached this point in a negotiation. One sign is when the lawyers begin arguing over a single word. While a single word can change the term significantly, it is also an indicator that 95% of the contract is completed and you are now down to the small stuff. The decision-makers can often resolve these small issues quickly when it means completing the deal.
Next time you see your negotiation starting to drag on endlessly and shift to fighting over the small stuff, “Fire the Lawyers” and drive the contract to completion.
Posted in Negotiation | Tagged attorney, contract, lawyer, LinkedIn, negotiate, negotiating, Negotiation | Leave a Comment »
