Negotiation Tips for Entrepreneurs

Entrepreneurs have unique negotiating challenges because they have to negotiate several broad types of agreements: 1) agreements with workers, 2) agreements with vendors, 3) agreements with partners and investors, and 4) agreements with customers. Having a negotiation paradigm can be useful in approaching each negotiation to ensure that the resulting agreement is not only equitable, but also effective.  One such paradigm is the Negotiation Scale Strategy. Imagine a scale in which you are on one side and your negotiating counter-part is on the other side. While many negotiators seek to balance the scale in their favor by stacking their side with as many factors as possible, others may seek a more balanced approach. Knowledge about the factors is critical as you prepare for, and engage in the negotiation process.

There are eighth major negotiation factors entrepreneurs must consider and analyze if they want to maximize their chances of entering into an equitable and effective agreement. Entrepreneurs can evaluate these factors on a weighted average basis, emphasizing the factors that will tip the scale in their favor, if their goal is to get the best deal for them. If however, entrepreneurs evaluate these factors on a balanced basis, emphasizing equity between the parties, with each factor analyzed with consideration to both sides of the negotiation table, both sides will feel like they have been treated fairly, and any deal reached stand a better chance of being good for both sides, and sustainable.

Factor 1: The Real Party in Interest. With whom are you negotiating? For whom are you negotiating? While it is generally easy to identity and verify the interested parties. Sometimes the identity of the real party in interest is not as obvious.  For example, if you are negotiating with a customer another country, like China, how do you know you are dealing with the real party in interest? Is the real party in interest the owner, the manager, the broker, or other designee? Are you unwittingly negotiating with the Chinese government?  If you do not know the real party in interest, it will be difficult to reach an agreement; even if you reach an agreement, it may not be an effective agreement, as it may not be enforceable.

Factor 2: The Facts. What are the relevant facts? Some facts are obvious. It is easy to identify the products, prices, and general terms of a transaction. Other facts are not as obvious. For example, variations in products, prices, other general terms, and the underlying reasons for the variations (such as local custom, conflicts of laws, environmental factors) are facts that affect the negotiation process and outcome. Therefore, it is worth the effort to confirm you have all of the relevant facts.

Factor 3: Logical Reasons: What are the logical reasons for your demands? What are the logical reasons for their demands? Do not assume that they will understand and follow your logic. Do not assume that pointing out the flaws in their logic will be constructive. Your job here is to be able to demonstrate that you understand and respect their logical reasons, and to convey your logical reasons in an understandable way so that they understand them. Mutual understanding can lead to a reconciliation of the differences, an essential ingredient in the negotiation process.

Factor 4: Emotional Reasons: What are their primary emotional motivations and triggers?  How can you tap into and leverage their emotional motivations and triggers to influence them? What are your primary emotional motivations and triggers?  Should you disclose your emotional motivations and triggers, and, if so, why, how and when?  The goal is here to see if there is an underlying emotional interest for the real parties in interest and the negotiating parties, if different. What does this deal mean to the real party in interest?  Will it make them feel more powerful, more secure, more dominant in the marketplace? What does this deal mean for the negotiating party, if not the real party in interest? Will it make them feel more valuable to the real party in interest? Will it mean a chance at a promotion? Will it mean a bonus? Negotiation parties who understand the emotional reasons for what they and their counter-part want or need from the negotiation process, are more likely to reach a deal because they can affirmatively address these wants and needs, and integrate them into the process. Sometimes a simple acknowledgment, thank you, or showing of appreciation is enough to make the deal happen.


Factor 5: Empathy: Can you develop an understanding of what they are thinking, experiencing, want and need? Can you demonstrate your understanding to them in a way that demonstrates you appreciate their point of view?  Can you influence them to develop and demonstrate the same for you? The goal here is to encourage them to see things from your perspective, and also to demonstrate to them know that you understand their perspective.  This will lead to appreciation, emotional bonding and trust, which are fundamental to overcoming obstacles during the negotiation process, as they reduce friction between the parties, and encourage cooperation and collaboration.

Factor 6: Dominant Reason: What is their dominant reason for demanding X (with X being the financial, delivery, timeline, and other terms they are asking for or insisting on)?  What is the dominant reason, which will cause Them to walk away?  What is your dominant reason?  The goal here is to identify the boundaries during the negotiation process. How far can each side push before the negotiation process breaks down? Armed with this information, you can “test the waters” on terms and conditions without fear of killing the deal.

Factor 7: Creativity: Can you help each other create more value – more for you and more for them?  Is there a way to expand the pie?  Creativity is important for entrepreneurs for several reasons. For example, if the parties cooperate on identifying barriers in the supply chain process, they can collaborate on ways to overcome these barriers, by leveraging resources that may not be available to either side individually. For another example, if the paying party is short on cash, but has the ability to pay in-kind, thinking creatively the parties can offset the cash payments with in-kind payments, such as coupons, or transfer of other assets. 

Factor 8: Public Interest:  How can you both collaborate to help other interested parties?  During the negotiation process, negotiating parties often forget that the resulting deal will affect more than just the parties. Often times the negotiating parties overlook the impact on each companies’ workers, the workers’ families, and the communities in which the businesses operate.  By encouraging them to join with you to identify the impacted non-parties and deliberately consider what the deal means to these non-parties, the parties may be willing to accommodate each other to ensure that everyone impacted is fairly treated.

By considering and analyzing these eighth factors before the negotiation process, entrepreneurs can prepare themselves to be more effective during the process. Analyzing these factors before the negotiation process can also help entrepreneurs pre-frame their negotiation counter-parts to encourage and promote accommodation, cooperation and collaboration during the negotiation process, which will help finalize equitable and effective deals faster. The result can be to tip the scale in your favor, or maintain a balanced scale where everyone benefits.


If you have any questions contact Private Corporate Counsel at 407-647-7887 or email us at Private Corporate Counsel are business lawyers and business coaches who have years of experience, educating and training directly related to helping small and medium sized businesses.

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