Editor’s note: This article was first published in August 2016. The company sizes and deal figures it cites are as of 2016.
You negotiate every day, even if you don’t know it. You negotiate with your friends, in a job interview, with your boss, even when you go on a date with a girl or a guy. You see it as a date, but it isn’t a date: it’s a negotiation in which both sides are selling themselves. Sometimes one side doesn’t want to “buy” you. Other times you don’t like the “product” in front of you, or perhaps it isn’t selling itself properly.
Why don’t you have the life you want? Quite possibly because you never learned, or have forgotten, that in this life you get what you negotiate.
Although this applies to job interviews, salary negotiations and dating, this time we focus on negotiation in the business world. Still, it works the same way everywhere else.
The worst things you can do in a negotiation
1. Sitting down at the table without filling in the variables
Before we sit down to negotiate the price of anything, we need to be clear about what we want to sell. To give an example…
Instagram was bought by Facebook for a total of 1 billion dollars. When it was bought, Instagram had 11 employees and no revenue; in other words, it was all losses. Seen that way, Instagram was a terrible investment by Facebook, since it was a business with very poor profitability.
Nobody knows how the negotiation for Facebook’s purchase of Instagram was carried out, but we can assume that the negotiator sold Facebook a way to make money from its 1 billion users thanks to Instagram, and so have its own image-based social network.
If Instagram’s negotiator shows Facebook that it can get an extra 0.50 or 1 euro a year out of each Facebook user, as well as bringing in the millions of users Instagram had, the purchase will have paid off.
So sometimes we shouldn’t sell the product itself, but the opportunity that acquiring it represents for the buyer’s current product. But we need to be able to fill in those variables before the other side does. That way, if we initially want to sell a company for 3 million, we may find the formula to sell it for 10 million and make it look like a bargain, thanks to the business opportunity we have sold the other side.
(See: 4 truths about the art of negotiation)
2. If your list of terms is short, you lose
If you are selling a company and you focus only on the final price, you will lose the negotiation. If the other side has a much longer list of terms than you, it will have the upper hand. Why?
As great negotiators say, having a longer list means that when you negotiate with the other side you can afford to turn down the one-euro coins and focus on the 50-euro notes.
Imagine you are negotiating something and you have only one request. If they say no, you have lost. If, on the other hand, you have 50 requests and they say no to 40 of them, it means they have said yes to the other 10. Just make sure those 10 requests are the ones you cared about most and the most profitable for the deal you were doing.
3. If you don’t get enough rest, you won’t have a competitive edge in the negotiation
Some of the best negotiators in the world, among them the famous investor Carl Icahn, are said to schedule the time of their meetings strategically.
According to Dan Ariely, author of The Upside of Irrationality, our mental capacity peaks from about 2 hours after we wake up until about 4 hours after waking.
From then on, our willpower and mental capacity begin to decline. That is why Icahn tends to schedule his most important meetings for six in the evening. He gets up from his nap at four, so everyone at the table is worn out after a full day’s work while he is fresh again.
Because of this small detail, Icahn has a reputation as a good negotiator.
4. If you think only short term, you could lose. If you are a visionary, you win
Altucher says that Applied Semantics didn’t want to sell to Google in 2001, because they had raised some money from investors and thought they could make the company profitable. But that didn’t happen, and after the dot-com bubble burst, the experts were saying the search engine business was dead.
In the end, Google bought Applied Semantics in exchange for 1% of Google’s shares, before Google’s stock market listing.
Applied Semantics became the core of Google AdSense, which today accounts for 99% of the revenue of Google, one of the largest companies on the planet.
Could the founders of Applied Semantics be upset that they didn’t keep trying to build the business Google has today? Could they regret not asking Google for more money?
The truth is that Applied Semantics probably wouldn’t have pulled it off the way Google has, and in any case, 1% of 300,000 million is much better than 100% of zero.
Don’t be envious because someone else is raking it in with the company you sold them. They probably had ideas or some kind of mindset you lacked; there was a reason they wanted to buy and you wanted to sell. Enjoy the profit you made on the sale.
5. Diversify your persistence: if you pin your hopes on a single outcome, you may lose
Sometimes walking away from a negotiation is the healthiest move in it. Persistence is fine, but persisting in the same place can become tiresome and end up being a waste of time.
In this technological era, many entrepreneurs have tried to sell their companies to tech giants such as Google or Facebook. They were drawn by those billion-dollar acquisitions, and they had read stories of entrepreneurs who kept pushing a big company until it bought them for 200 or 500 million.
If you contact 10 tech companies to buy your business and you keep insisting, perhaps the question is not whether you should keep insisting, but which other 100 companies you should call to offer them your business.
Many small acquisitions have gone unnoticed: entrepreneurs who didn’t just keep pushing Google or Facebook, but also knocked on the doors of AOL, Reuters, Forbes and others, and managed to sell their small projects for somewhat smaller sums (1 million, 10 million), but acceptable money all the same.
See also: 10 tips and strategies for negotiating successfully
Featured image: OFFICIAL LEWEB PHOTOS, CC BY 2.0, via Flickr.
