When was the last time you negotiated like a boss? Buying a used car from the neighborhood dealership? No sweat. Asking for higher pay than you were offered? That’s not nervous laughter, that’s the sound of eager anticipation. Well, good for you! Honestly, we need people like you to show the rest of us that successful negotiation is possible. Because, for most of us, we don’t believe it is.
Instead, we believe negotiation is about standing your ground, asking for more and getting your way. To many, negotiations is about taking and strong negotiators are deemed as such because they take more. At the end of the day, we measure our success by how much we have versus how much they have.
This mentality is core to why we hate negotiating and why we suck at it. Let’s change that.
Shifting the paradigm for a second: imagine that you and your counterpart are sitting at a table – the negotiating table – and are arguing over a pizza order. Both of you are hungry and want to eat as much as possible. As a result, you will bicker over how to divide the pie, finding clever ways to give yourself more and the other less. In the end, no one is terribly satisfied with the outcome, with one or both parties unwilling to order pizza together again.
Sounds lovely right?
If it wasn’t clear to you, this is how we treat negotiations today: too much competing, not enough cooperating. So how do you fix this. Simple: get a bigger pie.
We’ll outline strategies for both later, but the main takeaway is this: Your slice will almost always be bigger if cut from a bigger pie. Oh, and from here on out, we’ll be using pies a lot to explain negotiating; hope you’re hungry.
“But their slice is still bigger than mine” you might say. In response, I’ll remind you that the whole point of negotiating is to achieve a result that is better than your alternative.
Negotiating contract pricing with a business partner? You’ll want a better price than what you can get elsewhere. How much your counterpart gains is irrelevant. In fact, improving their outcome is an objective benefit to you. In doing so, they’ll be much more accommodating the next time you order a pie together.
Keep this in mind:
Remember that very first step you took as a baby? Of course you don’t remember it! But your parents do. And they’ll tell you that it was a pretty bad step. You wobbled and tottered and lost your balance just by moving one foot in front of the other. But did you sit down and say “well, everyone else is just really darn good at stepping and I’ll need to find another way around in this life”? No. No you didn’t.
This is no different for negotiations. Like stepping, biking or driving, negotiation skills require appropriate tools and consistent practice. For tools, we’ll provide a framework that outlines key strategies for preparation, value creation and value claiming. For practice, learn by doing and view our library of Negotiations to play against others and sharpen your skills.
Moving forward, we’ll break down negotiating into component concepts. Read all of them in one fell swoop or one at a time – whatever you need to do to improve your negotiation skills. That used car salesman won’t know what hit him.
You wouldn’t run a marathon without training first right? Preparation is that training and it will dictate the strategies you will leverage to create and claim value.
Here’s where you outline short-term and long-term goals and assess your strengths and weaknesses relative to the other party.
Ask yourself “what exactly do I want”, “what am I not okay getting”, “what are my alternatives if I don’t get what I want” and “where do I have wiggle room”. Then ask yourself these questions for your counterpart. In doing so you generate the terrain of the negotiation and can then focus on navigation. It can be grueling, but it’s so totally worth it.
Each component below is mission critical. Come prepared knowing these well! For further reading, the Harvard Program on Negotiation provides a solid, succinct checklist to review before negotiating.
Your BATNA is your next best option or Plan B. You can think of it as what you will do outside of the negotiation if you can’t reach an agreement. The better your BATNA, the more you can leverage it to improve your outcome.
Remember that salary increase you wanted? Your BATNA would be what another firm would pay you. The used car you were buying? Your BATNA would be either what you could get at another dealership or having no car at all.
Your aspiration point should be optimistic but realistic and will represent your overall interests (see below). Use your aspiration point as a clear goal to shoot for and be creative in achieving it. Tools like PayScale, Zillow’s z-estimate, and the Kelly Blue Blook car worth calculator can help you zero in on your aspiration point.
Your reservation point is an important threshold. Anything lower and you should be willing to walk away from the negotiation. Often the reservation point is influenced by your BATNA and should be set clearly before negotiating.
Let’s say I’m an Account Executive and I want to discuss a salary increase during my next performance review. I make $50K/year but using PayScale, I see that on average the range for Account Executive salaries sits between $30K to $90K. I believe I am a high performing team member and heard that a coworker who recently left to work at a competing firm was making $80K/year. To me, $70K is an optimistic but realistic value (my aspiration point), however, I would not be comfortable taking anything less than a 10% increase or a total of $55K/year (my reservation point.)
Here’s an example of a range you will generate in preparation. Remember to set multiple APs and RPs if you are negotiating multiple issues.
If what you want isn’t quantifiable like changing your job to another office, or deciding on where to go for vacation your AP and RP will work as a prioritization system with your top choice as your AP and your last choice the RP.
Everyone can articulate what they want (your position). Understanding why you want what you want (your interest) is profoundly more important. A quick story taken from an MIT student project in 1996 articulates why interests should be put before positions.
Two prominent chefs are fighting over the last orange in the kitchen. With time running out, they decide to split the orange in half. Chef A takes her half and adds its juice to the sauce she’s preparing. There isn’t quite enough juice but it’ll do. Chef B takes his half and grates the peel into his orange cake mix. Again, there isn’t enough for the flavor he wants but there’s nothing he can do.
Both chefs mistakenly focused on each other’s position (that they wanted the orange), rather than expressing their interests. Had they done so, each could have had enough to achieve what they wanted to. It makes you wonder how many times you’ve mistakenly “split things down the middle”, right?
In a salary negotiation, you may want a higher salary (position.) But the reason you need a higher salary is to cover daycare fees for your newborn child (interest) or because of additional commuting costs. Expressing your interests may unlock other ways to achieve them. Your interests are what give you and your counterpart flexibility in negotiations because any number of positions can satisfy a given interest. It follows then that understanding your counterpart’s interests is a top priority in preparation.
Priorities reflect the relative importance of issues and interests. The potential for joint gains exists specifically because you and your counterpart will always have different interests and priorities.
Why priorities matter
We’re back at the negotiating table but discussing my entire employment package, not just salary. This includes vacation, bonuses, insurance, location and other benefits along with salary. To me, salary is the most important with vacation time a close second. My employer places a high value on controlling salaries and bonuses with insurance being less important.
Based on different priorities, bonuses and vacation time are places to grow the pie (we each value them differently.) I can give on bonuses to take more on vacation time.
Beyond the language barrier exists a variety of factors that influence negotiations cross-culturally including but not limited to: non-verbal cues, the nature of contracts, time and timelines, ceremonies before/during/after the negotiation, the importance of personal relationships, etc.
Do your homework about your counterpart’s culture and its distinct impact on your negotiation.
Objective criteria like salary figures from glassdoor, previous car sale prices from Kelly Blue Book, or prices for recently-sold homes in the neighborhood can all be useful to have on hand when negotiating. Be aware though that some criteria may be subjective based on how the data was collected, who did the collecting and what methods were used in analysis.
Remember when we first talked about pies and cleverly taking more for yourself and leaving less for your counterpart. This act has a name: distributive bargaining and it usually gets people into trouble.
Some also refer to it as the ‘fixed pie’ bias wherein we believe that the only way to get more is to take more. But we already know there’s a better way of doing this.
Avoiding this in single issue negotiations (like haggling on price in a local market or buying a used car) but you need to remind yourself that the pie is not fixed and that understanding interests and growing the pie is your top priority.
Integrative bargaining is the fancy name for growing the pie.
As opposed to distributive bargaining, integrative bargaining strategies build trust and strengthen relationships simply because they are mutually rewarding. In many cases (particularly in business concepts) you will negotiate with the same counterpart or entity multiple times. Being integrative ensures healthy, long-term partnerships.
Value is created in a variety of ways but they all come down to cooperation. Essential to cooperation are trust building, information sharing and appropriate tradeoffs. Remember, this is a 2-step dance creating more value means there’s more to claim throughout the negotiation.
Negotiations can be draining, so keep your emotions in check and be aware of any intercultural factors at play. You are genuinely at the table to optimize the outcome for all participants so it is important to avoid tit-for-tat strategies. Understanding your opponent’s interests over their positions will be tantamount to success.
We don’t want to sound alarmist but…this is really important: the initial offer sets the stage for the entire negotiation.
It determines the tone for how negotiators interact (value-creating vs. value claiming), the quality of the counter-offer and, ultimately, the outcome. It’s almost tragic how important the initial offer is, but, that’s the way the pizookie crumbles.
Avoid extreme or outrageous initial offers. Otherwise you’ll face a chilling effect, where your counterpart loses any motivation to negotiate with you. Your anchor will have a better chance of surviving if you’ve done your work understanding your counterpart’s positions, interests and priorities.
Be confident and leverage objective evidence to justify your initial offer. If there are multiple issues on the table (ex. Vacation, salary, insurance etc.), open with a multi-issue solution and articulate issues or interests you believe could help increase the pie.
The ZOPA is bound by the reservation points of you and your counterpart and represents the overlap of acceptable outcomes between the two of you. Anything outside of this range will result in one of you walking away. Your goal is to identify where the boundaries of the bargaining zone are to help you grow the pie.
Finding your ZOPA
Earlier I stated my aspiration and reservations points for salary, those being $70K and $55K respectively. As I discuss with my manager, she tells me that she’s open to discussion but $70K is much too high. Given that information, I can map out our ZOPA on salary.
Even if you don’t have this information, you could make educated guesses about the ZOPA during preparation. Keeping your offers in the ZOPA avoids any chilling effect and keeps both parties at the table.
Issues are the specific points you’re negotiating (ex. Salary, vacation etc.) By now, you’ve set your aspiration and resistance points and articulated what your underlying interests are. You have an educated but vague sense of your counterpart’s interests and priorities. Categorizing issues into specific types identifies which issues can help you grow the pie.
Concessions must be made from a clear, principled perspective. On-the-spot concessions without any obvious reason erodes your credibility. In particular, avoid making concessions immediately. Doing so signals desperation and makes your counterpart less willing to move on other issues without similar concessions. Similarly, try to avoid being the sole conceder.
If you do need to concede (and often times you will, so don’t think of this as a bad sign), proceed with multiple small concessions as they may conserve value vs. large concessions.
Remember that your slice will usually be bigger if cut from a larger pie. So make sure you create value before claiming it.
The challenge is that negotiation is a cycle of creating and claiming. The strategies below help you claim the most value while remaining true to the integrative spirit of creating/claiming throughout the negotiation.
When multiple issues are discussed, packaging them into multi-issue offers is conducive to achieving joint gains. Multi-issue offers forces you to concretely express your interests and their relative priorities. Lookout for similar signals within your counterpart’s multi-issue offers as well.
Negotiating an issue in isolation often lead to distributive bargaining strategies resulting in splitting the difference and leaving value on the table. Multi-issue offers protect against this bias.
You will come to the table with a defined set of issues like salary or vacation time. But recognize that there is always more to the negotiation and it is up to you to identify new issues that add value to the pie. For instance, while you may be interested in a flat out bonus you might consider structuring those bonuses to make them more appealing to your counterpart. Adding milestones or tiers for the bonus or a payback clause if you leave the company add value while you claim it.
It is often the case that you are unable to wrap-up every issue and loose end (time ran out, you need approval or time etc.) This is where post-settlement settlements play an important role. Think of them as negotiating bookmarks where both parties express good faith intentions to continue creating value beyond the initial negotiation.
For example, if negotiating on a home price a post-settlement settlement might include a deeper discussion about the furniture or remodeling. In a business setting it could entail a broader partnership including other departments etc.
You’re now ready to get out there and start practicing. If there is one thing that is worth repeating it is this: Your slice will almost always be bigger if cut from a bigger pie so focus on growing the pie.
We’ll be updating this post periodically with more resources and deeper discussions and examples on each point. Take 1 or 2 points at a time to practice and coming back for more.
Good luck with all those pies!
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