IT S ALL ABOUT KNOWLEDGE

IT’S ALL ABOUT KNOWLEDGE

The single most important element in any negotiation is knowledge, so it’s essential to have as much data—and accurate data—as possible. At the same time, I recognize that going through the estimation and validation steps can seem to be very time consuming. In fact, some of our clients tell us that they don’t have time to do them, and we understand that. My advice, then, is simply to spend as much time as you have. If you need to respond to a customer within 15 minutes, spend 15 minutes on these steps. If you have hours, days, or weeks to respond, as you might for a large and important negotiation, use that time. In other words, spend as much time on these steps as the negotiation warrants and time allows. Even a little time is better than none.

For example, I once received a lengthy request for proposal (RFP) from a major U.S. airline. After reading through it, I did a quick estimation (the first step of the process), then phoned the client to ask a few validation questions. Once I got my answers (the second step), I was about to hang up when the client abruptly asked me for my proposal, right then, on the phone. After I caught my breath, I asked if he’d hold on for five minutes. While he was holding, I used my preliminary estimations and validations to create value (the third step), presented my offers (the fourth step), and closed the deal on the phone. Although at this point it may seem impossible to you to blueprint a negotiation so quickly, the fact is that once you’ve done it a few times, it becomes second nature, so you actually can do it “on the fly.”

Taking the time to validate the Consequences of No Agreement (CNA) and Wish List Estimations serves several purposes. The most important of these is that it enables you to organize the negotiation both for yourself and for your customer so that you can proactively manage the process rather than react tactically—that is, emotionally—to it. In addition, because more often than not your customers won’t have taken the time to even make estimates, much less validate them, you’ll know more about their CNA and Wish List than they do, which puts you in the driver’s seat in the negotiation. And because that’s true even if you spend only 15 minutes thinking through their position, you can imagine how advantageous it can be if you devote more time to it.

Another benefit of validating your estimations is that it helps you to be objective and rational in conducting the negotiation. That’s because the more accurate data you have, the easier it is to maintain objectivity. And, of course, the more objective you are, the less likely you are to let your emotions get the better of you and the more successful your negotiations will be.

Finally, having that accurate data makes you better able to prepare value-creating offers that are likely to meet with positive responses from your customers. Remember, it’s ultimately trading those items that are valued more than they cost that enables you to create true business value. And the only way to get all those items on the table and trade them is by validating both sides’ CNA and Wish List Estimations. It’s these steps that enable you to go beyond a simple “win-win” solution and help you establish a solid, mutually beneficial, long-term relationship with your customers.

Just in case you have any doubts whether this works, here’s an example of how it worked for me. Many years ago I fell in love with a classic 1955 steel gray Chevy pickup truck that I saw parked on the side of the road with a “For Sale” sign on the windshield. The asking price was $13,500. Using the Strategic Negotiation Process to blueprint the negotiation, the first thing I did was estimate the CNA for my side. The two possibilities were that I would either buy a different truck or no truck at all, but I knew the most likely CNA was the first. Even so, when I analyzed the effects of that CNA, I realized that as much as I wanted to buy this particular truck, there were several others I could buy, most of which were priced at less than $13,500. At the same time, buying one of the others would have required me to travel out of state, which carried some risk itself. I might, for example, make the trip and then discover when I saw the truck that I didn’t like it, in which case I’d have to drive home without it, having wasted a lot of time and effort in the process.

Having done the CNA Estimation for my side, I then did the analysis for the seller. Although I knew that his CNA would be either to sell the truck to someone else or to keep it, it seemed more likely to me that he would sell it to someone else. So my next step was to determine the effects of that CNA on the seller. Basically, what I needed to know was what “someone else” would most likely be willing to pay for the truck. There were two ways to get this data: talking to others and doing a search of public records.

I began with the search, going to an online seller of automobiles, where I learned that about 300 1955 Chevy pickups were available for sale around the United States and that the average selling price for a completely rebuilt, “showroom quality” truck was $11,500. Then I went to talk to the automobile consignment shop that was selling this truck for its owner. (The owner, incidentally, was one of the cast members of the popular television show Taxi, who was selling an entire antique car collection—and was trying to do it quickly). My purpose in speaking to the broker was to get a sense of how both the seller and the broker saw or perceived their CNA.

While I was speaking to the broker and asking questions to validate my estimation, I learned two key pieces of information that would help me formulate an offer. The first was that the current owner had overpaid considerably for the truck—he’d bought it just a year earlier for $17,500. The second key piece of information was that he had turned down several offers for $12,500. Can you imagine: this same truck was trading for $11,500 nationally, they’d had offers that were $1,000 higher, and they’d turned them down! Why? Because they had misdiagnosed their CNA based on their earlier bad decision; that is, they thought—incorrectly— that they’d be able to sell the car to someone else for their asking price of $13,500. (You’ll remember that earlier we said that you should accept an offer as long as it’s better than your CNA. But this can be a problem when either you’ve not diagnosed your CNA at all or you’ve misdiagnosed it, as happened in this case.)

At this point I had both estimated the seller’s CNA and validated it through my Web search and my conversation with the broker. My goal was to buy the truck at its market value, which was $11,500. I knew, though, that having paid significantly more for the truck, the current owner was unlikely to be happy about selling it to me at that price. Nevertheless, as I’ve already mentioned, one of the benefits of doing the estimation and validation is that gathering accurate data—not perfect, but at least directionally accurate, data—can diffuse a potentially emotional situation like this one.

Given what I knew about the owner, I wasn’t at all surprised when the broker asked me if I was crazy when I finally made an offer of $11,500 for the truck, as he had already turned down an offer of $12,500. But when I showed him the printout from the Web showing what the same truck was selling for elsewhere, he had to agree that it was a fair price. Eventually, the owner did accept my offer, although only after the broker showed him the printout. After the negotiation, the broker told me that the information I’d provided was the key to making the deal.

The point of all this is that estimating the CNA and validating it, especially in a single-issue, zero-sum negotiation like this one, can make all the difference. Here was what appeared to be an almost impossible situation. The owner had made a bad decision to overpay for the truck, another potential buyer had made a bad decision by offering more than the truck’s market value, and, as a result, the owner had misdiagnosed his Consequences of No Agreement. But by my finding hard data and using it to educate the owner about his real CNA, the seller got a fair price for his truck and I got a fair deal on a classic.

Here’s what this deal looks like in terms of the Agreement Zone. As you can see, based on another buyer’s offer of $12,500 and the owner’s asking price of $13,500, the owner thought the Agreement Zone was somewhere between those two figures, so my offer of $11,500 wasn’t even in the zone. But by diagnosing the zone, finding out what the owner thought it was, and using the data to adjust his thinking, I was able to make the deal.

Seller’s Irrational Agreement Zone Based on Misdiagnosed CNA

To be honest, this process doesn’t always work in the end because you can’t always count on the other side’s reacting well to this kind of rational data analysis. However, the process is designed to increase the odds that deals work well and in your favor, and it does help more often than not—and certainly more often than the reactive approach that most people use.

Before I go on to show you how this step works, there’s one other point you should bear in mind. Although you will have already determined in the previous step what information you’re guessing at and what you don’t know, it’s advisable to review all that information before you go on to validate it. This time, though, be really hard on yourself. We are typically rewarded for showing others how well we know something, but at this stage you should be rewarded for “blowing holes” in your own earlier estimations. The harder you are on yourself, the better data you’ll have and the higher the probability that you’ll do well in the face-to-face phases of the negotiation. Again, the other side probably won’t spend much time analyzing what it doesn’t know, much less analyzing the deal from your perspective; but if used properly, this can be to your advantage.

To reiterate, the validation step essentially consists of three parts, the first of which is validating the CNA and Wish List Estimations by gathering information from others in your organization and from public sources. To make it as easy as possible to understand how this step works, I’m going to discuss the CNA Validation first and then the Wish List Validation.