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B2B Marketing Bopcast Episode 3: Demystifying Negotiation

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Bop Design: So, good afternoon, everyone. Welcome to the B2B Marketing Bopcast hosted by Bop Design. It is March 27, 2014, and today I’m speaking with Jerry Dressel, founder of Pactus Logic, which is located here in San Diego. Jerry, could you tell us briefly about your company, Pactus Logic, and what you do?

Jerry Dressel: Sure, Pactis Logic came out of my consulting company, which is Dressel Advisory Group. We’ve been doing consulting in a number of different areas, but specifically we spent a lot of time in the area of negotiation. I teach negotiation through seminars and negotiate for people, and advise people on how to negotiate. Started doing so much of it that we just decided that it was time to create a firm that was specifically focused on negotiation training and negotiating for others. So we came up with Pactis Logic.

BD: So you said you mostly focus on group negotiation tactics, so what kind of groups are you usually working? Is it typically a sales team or can it be a wide variety of departments?

JD: Yeah, well it’s the training and it does apply to sales. We do a lot with a number of different companies. I have a national contract with a major construction company and we’ve taught about 2,000 or 3,000 of their people on how to negotiate over the last 10 – 12 years so it’s been a long period of time that I’ve been working with them. We’d work with other companies in a variety of areas—most of the training is group size—but we do work specifically with negotiating on specific transactions and/or advising people on how to do a transaction.

BD: Okay. So in your training sessions I know you point out there are two types of a business negotiation; one is transactional and one is balance-concerns. Could you elaborate a bit more on each?

JD: Sure. Transactions are pretty much exactly how that sounds. It’s a one-time negotiation where you’re not likely to come back to the negotiating table at any time. Those would be one-off negotiations and they are approached slightly different than a balance concern. Examples of transactions are buying a car, buying a house, buying a big machine one time that doesn’t need further maintenance or something like that. One the other hand, balance-concerns are a negotiation where you’re going to go on with an ongoing relationship. You’re going to see that vendor, that customer. There’s going to be other things needed for a large transaction over the future so you need to maintain a relationship. A lot of relationship building goes on in the whole area of balance concerns.

BD: That’s really, I think, important to a lot of B2B firms that their relationship, often with a vendor, is what keeps the sale going and how important that is for the growth of the business to continue a vendor relationship. Would you say that he bulk of your business comes from teaching one kind of business negotiation over another or do you think you provide a mixture of both with your training?

JD: Well, we provide a mixture of both, but the vast majority of It is the fact that people are in balance-concerns almost all of the time. They’re going to deal with these people year in and year out. They may deal with them this year and they may see them 5 years down the road or 10 years down the road depending on how big their industry is or how wide the reach is. So it’s pretty broad from a standpoint of when you might see that person in a balance concern again and it’s important never to burn that bridge. You know, you’re likely to only buy a car one time, okay? From the same dealer, okay? You may go back but it’s not likely in 3, 4, 5 years you’re going to run across the exact same person. You may but it’s unlikely. On the other hand, if you’re in the industry of construction, 5 years from now you may run across the same subcontractor, the same contractor, the same vendor of supplies, something like that.

BD: Okay. So, the main point of this webinar that we wanted to talk about, which I think is a really interesting portion of your training that you provide, is that there are many misconceptions to a common negotiation. There are a lot of self-help books out there about negotiation tips and what’s the most effective, but some of them don’t perhaps really apply anymore with a common business relationship. First, what’s interesting is that you point out that a win-win negotiation approach is not necessarily the best outcome. Could you explain a little bit more about that?

JD: Yeah. The problem with win-win is I think that attitude and what it puts you in the place of is, first of all, not everybody can be or should be a winner in every negotiation. It all sounds nice, and it does sound wonderful, but it’s usually not likely to happen. One side is going for the best price that they can either sell it for or they can get it for. There may be other factors that are more important than price in the whole situation. But people, when we talk about people going towards win-win, the first thing they start to think of is “What do I give up? What should I concede?” And that’s not the right attitude to have if you go in without a plan, not knowing what you can give up but all of the sudden start to give it up immediately just to make the other side happy as opposed to what’s right, you’re actually hurting yourself in the long run. And you’re probably actually hurting your relationship with the other party due to a lack of respect, again in that long run.

BD: That’s a really interesting point because I think everyone associates a win-win negotiation with the most positive outcome, but it seems like most of the time if somebody’s not prepared for that approach then they really come out of the negotiation process with each party resenting one another and maybe harming the business relationship.

JD: Either that or the other party thinks they’ve really got one over on the other one.

BD: True.

JD: And that hurts the relationship.

BD: Right. Another interesting misconception that you say isn’t really an effective negotiation tactic—whether it’s for the price of an item or your salary raise or something—is don’t make the first offer. So many books and training instructors will say that you should never make the first offer in a negotiation. Why do you say that’s not necessarily a good piece of advice and what do you recommend as a substitute?

JD: Well first of all, just as you heard, you hear this time and time and time again. “Don’t make the first offer, it puts you at a disadvantage.” Well if two people have read the same book, or two people have the same attitude, you look at two people going back and forth and they almost are saying to each other, “I read in a book you’re not supposed to make the first offer,” and the other party is saying, “Well I read the same book and I’m not going to make the first offer because I’ll be at a disadvantage.” So you end up in a dance for a long period of time. You’re almost going deadlock because somebody doesn’t want to make the first offer and you haven’t even started the negotiation. It’s okay to make the first offer as long as you’ve done your background and your research.

There’s no substitution in negotiation for preparation. Bottom line is if you’re prepared, there’s a couple times when you want to make the first offer. You want to set the bar for the other side, you want to see where they feel about the proposal, you’re trying to test the waters. But if you’re informed, why not make the first offer? Again, it’s just a practical approach and if you set it up correctly, know what you’re talking about, which you should do before you walk in any negotiation, then there’s no problem in making the first offer. The other side of it is if you’re concerned that the other party is going to propose a preposterous offer, something that’s totally ridiculous, you don’t even want them to start with that because that’s going to step back the negotiation, cause possible deadlock. So, rather than them setting a ridiculous bar, or preposterous bar, why don’t you set the bar at a more rational basis?

BD: That’s a really good point. Sort of building off of “don’t make the first offer,” if you were to make the first offer and you find yourself in this counter-offer situation where you’re trying to negotiate, what do you see as some common mistakes that people make in the counter-offer process?

JD: Well, people that know how to negotiate and have been doing it for a long time look for a variety of things that go on in offers and counter-offers. They know how long negotiations should take. They know what pressure you’ll subside to. There’s all sorts of different things that will happen that will put you under pressure. They’re going to look for rates and patterns; they’re going to look for if you always make a concession once they propose a concession no matter how much, do you give a concession back. The bottom line is you’ve got to 100% make sure that you don’t have a rate or a pattern to your negotiation. If we’re negotiating on a $2,000 contract and you propose a price, and then I give you a counter-offer, and then you give me $100 off, and then I give you $5 more, and then you give me another $100 off, I’ll keep offering you $5, $10, $15, while you’re coming down at $100. So it’s easy to pick up those patterns and they either happen in a percentage or they happen in a dollar range. So people pick will up on that and that’s the first problem.

The second thing is you don’t always have to make a concession back. Just because you concede to something, that may be interesting but there’s no reason for me to offer another concession coming back the other way. I could give you reason why I wouldn’t give you a concession, okay? So don’t fall into that pattern where just because they supplied you with a concession that you have to come back and give them a concession.

BD: So could you explain a little bit more, I guess the realities of those counter-offer concessions and mistakes? I would love to hear an example.

JD: Well, just as an example, I recently did a lease negotiation for one of my clients and it’s somewhat complex but, it’s a longer story than probably we have time for, but it involved them taking over 5,000 square feet of space they didn’t have in a warehouse, but the 5,000 square foot was additional office space. Rather than go and approach the client, excuse me the landlord’s representative, with a counter offer to take over the space, I basically asked him to make an offer. We talked about several things in the whole situation and there was a lot of mitigating circumstances that had to do this with the costs that they were going to incur and everything else. I went to my client and asked them what they had budgeted for that increase in space and they gave me a rate of $2,500 a month. As it turns out I did not want to propose that to the landlord’s representative and they came back with a counter-offer that was “We’ll give you the space for free.” So that’s a pretty effective way to negotiate rather than set the bar and give him something that I didn’t know he was valuing at but I knew what we had saved. Because I had prepared for it I knew he would save money on the back end. The bottom was line was that we got a much better rate than we could have possibly imagine in over a seven year life of the lease. That’s a substantial savings.

BD: That example, and I’m sure many other counter offer experiences, it seems that it’s a high pressure situation because you’re trying to tiptoe around a business relationship and make sure you’re not insulting anybody’s evaluation, what are some recommendations by you of how to handle that pressure appropriately and how to communicate appropriately?

JD: Well, pressure just comes from emotion and basically we all suffer through emotional process in a negotiation. People make concessions, and every time they make a decision that’s emotionally based. We try and talk about negotiating through a fact-based platform versus an emotional-based platform but sooner or later emotions are going to come in. Emotions come in because you’re faced with different things. It could be the pressure of a deadline. It could be the pressure of other people fulfilling a need. It could be the pressure that’s supplied by leverage.

The problem is if you don’t know how to handle it, or if you don’t have experience, or somebody hasn’t told you how to deal with this, then when you face it you’re likely to make a mistake. You know, a perfect example is that you establish a deadline or you have a deadline established for you and you get close to the deadline and we both know what the deadline is. I will, 100% as an experienced negotiator, if I’m trying to figure out if you’re experienced or not, I will push you against the deadline with the hope of having you make a major concession at the end. And most people fall for that, to be honest with you, because they’re not trained in the area. A trained negotiator would just say, “Well guess what? That deadline is fake,” and we’ll just move the deadline. But, you know, most people just don’t know how to handle it, so when you’re able to get in a situation like that and you just force people up against the wall, they will crumble because they’re making an emotional decision; the emotion of not making the deadline.

BD: You mentioned leverage just now and I’d like for you to elaborate a bit more on misconception of leverage during the negotiation process.

JD: Well, leverage is a key thing in any negotiation. The first thing you have to know is what leverage do you have, and then you have to do your research background and figure out what leverage the other side has. Without knowing that, when you’re confronted with leverage in a negotiation, your first problem is if you don’t know what leverage you have you don’t even know what to utilize to combat the other side. The other situation is if you don’t know your leverage or haven’t done your research to find out what leverage the other party has, when you’re confronted with it you’re going to become more emotional and you’re more likely to make a major concession that you didn’t want to make. So, the key is to do the background.

There’s certain other kinds of leverage that everybody has in almost every industry and it’s called normative leverage. Normative leverage a lot of people use in negotiations, and typical normative leverage is you’ll hear something like, “Well that’s the way we do it in San Diego,” “That’s the way we do things in Chicago,” “That’s the way we do things in this industry,” “That’s the way we do things at this company.” And that’s all interesting but it really holds no basis. But again if you do your research up front and know what normative leverage you have and know what normative leverage the other side has, the easier it is it counter and the easier it is to determine whether it’s really leverage or not leverage.

BD: So it that preparation is key for a negotiation so that you can properly come into a negotiation with an offer in mind, optional counter-offers in mind. It seems like understanding your audience so you know what to leverage and understanding when somebody is putting unrealistic expectations on the negotiation overall. What are some suggestions that you have for people in your training to properly prepare for a negotiation?

JD: Well we could spend days on that, but proper preparation is pretty broad. But the specifics are: number one is you have to know yourself and your own position. You have to know what’s on your side; what parameters that you have and you can deal with. And that’s actually pretty easy to do, although not everybody does it. You’ve got to do the work upfront from that side, and that’s where you should start. On the other side, in knowing what’s going on, you start big and you go small. And what I mean by that is you’ve got to know what’s going on in the marketplace, and is business good for the party you’re negotiating with? Is it tough for the other party that you’re negotiating with? Is it a captive audience? Are they the only one around? Etcetera, etcetera.

Then you move down to what about the company? What’s the overall company’s attitude? You have to determine and gather as much data as you can about that company. Are they big? Are they small? Are they publicly traded? Are they not publicly traded? Is it a public entity? What is their attitude? What’s their website say? What’s their organization chart look like? Who are the decision makers? So you’re going big from that standpoint from market to the company, then you’ve got to find out about the person you’re negotiating with. What’s kind of funny is … I do research before every negotiation I deal with and I’m always surprised at how many people have no idea who I am because they didn’t even Google me, and yet I’m always looking up and seeing who they are, what they’ve done, what organizations they’re with, what they stand in the company. I’ve gone to the company’s website to see what it says about values for them. There’s all sorts of different research that you can do that doesn’t require a lot of effort, but most people just don’t even approach it that way. They just want to go in a vacuum. “I’ve got this transaction to deal with, this is what happened around this transaction, I’m going to go attack the transaction.” And they don’t even start by knowing the other party.

BD: That’s an interesting point because it relates to a question I wanted to ask regarding sort of background research on an individual that you’re entering a negotiation with. Do you find that certain demographics or certain business executives struggle with negotiations more than others? For example younger professionals versus more seasoned CEOs or CE level suite executives?

JD: I don’t think you can say there’s one demographic. I think there’s a number of people who think they’re good negotiators but are not. I think there are a number of people that have tried negotiation tactics and they’ve done it with difficult personalities and they think it works and it doesn’t necessarily work. I think that some people think that they can be entirely quiet in a negotiation and they can get their strategy done that way, and I think there’s people that talk to much. So it kind of crosses the board and it’s not whether they’re young or old. It really has to do with, number one, are they prepared, and, number two, do they have a plan? And that’s actually the crucial thing is you have to have a plan when you negotiate.

BD: How much time do you usually suggest somebody to prepare for a negotiation?

JD: It depends on your background and your experience, but generally speaking if you think it’s a transaction that can be accomplished and you don’t have great knowledge of it … if you think it’s going to be a 1 hour negotiation it should take about 3 hours of preparation time.

BD: That’s a lot of time to suggest. I think many people may be surprised that for 1 hour negotiation you should spend 3 times the amount to prepare. How do you suggest they prepare exactly? Is it just at their desk, doing their research? What are some steps that you provide for your training sessions?

JD: Well the thing that we tell people to do is, we have a process and we put together a checklist. The checklist has basically 3 to 4 areas depending on how complex the negotiation that you have to deal with. If you go through the checklist and you get the other party to agree to discuss what’s in the checklist it naturally happens in the process of preparation. Because the key thing is: for preparation you have to ask the proper questions and the questions have to be structured properly. And what I mean by that specifically is the questions have to be open-ended questions. They cannot be close-ended questions. You’ve got to get the other party to talk. The more the other party talks the more knowledge you gain. The more knowledge you gain the more power you have. The more power you have the more likely you’ll be able to put in, in words, your position and then you can then win. It won’t be a win-win, it will be a win for you.

So the outline that we use is: the first is we want to discover what all the problems are. What are the problems on your side? What are the problems on my side? And we want to look at that and we want to determine at least a list of questions that bring out the problems. We want for the other side to articulate what the problems are, so we would go to the other side and just say specifically to them: “Caroline, tell me what your problems are. What are the issues that you want to discuss in this negotiation? Is it price, is it delivery time, is it quality? Tell us what your problems are. I want you to come prepared to discuss those.” So that’s the first factor that you have to get. If you don’t get problems on the board then you’re really headed towards no resolution, or resolution by luck would be the other way to say that.

The second thing that you have to bring up is what we call baggage. Baggage is simply what is an issue but not a problem that you see is out there. So for instance I may be negotiating with somebody that had a relationship with the company that I’m representing but it was 10 years ago and it was not a good experience. So that might be baggage on the other party’s side. They may come with a feeling that “you know what, I’ve dealt with this company. I dealt with your company 10 years ago and the guy I dealt was lying. He was a cheater. He was just a jerk in total, so I’m already coming in with a negative attitude about that.” I may not discover that in my research, but if I discover it during the negotiation because the other party decides to talk about baggage, that is not going to be a hindrance to the resolution of the negotiation. It will help. So I want to discuss my baggage and I want to discuss their baggage, okay?

And again, what that should focus on and how we’re going to discover it is a discussion that’s led by questions, again open-ended questions not close-ended questions. So we have to know, basically, what’s going on with that. In addition to these two areas, we not only want to have a list of questions that we’re going to ask, we want to have a list of questions that we expect to be asked. I do an exercise in the seminar that’s kind of interesting. We put people through a transaction and they can negotiate the transaction, and then at the end of the exercise they go onto another exercise where they work as a team and they have to put 20 questions together that they would ask the other side about the transaction, and they have to put the list of questions of 20 that they expected to be asked about that. The exercise is meant to focus on, number one, you have to ask the question properly. I’m not going to avoid the question that, again, it has to be an open-ended question. But if you know what questions you’re going to be asked, then the bottom line is you’re better prepared and again you gain more knowledge. So by knowing that, it’s kind of funny, is over the years in the last 50 seminars I bet the hit rate is 70% of the questions that they thought they were going to be asked were asked. It’s an interesting exercise because people won’t believe the stats if you told them up front. But just think what that means if you know, because the other side’s not doing that. Nobody on the other side’s doing that. Once you have that advantage, again, you’re in a better position to get your goals met during a negotiation.

BD: I love that idea of setting up questions that you think the other party is going to ask because I also think that also just improves the business relationship a lot more, again going back to that balance-concern relationship and how it’s long-term and understanding what questions are important to them and what they’re going to be asking. I think just gives you an overall better picture of the company that you’re dealing with. So I think it makes the negotiation process that one time easier, but future negotiations at least you’re going into it with a better understanding of the company.

JD: Most people get scared when I say you should spend 3 hours of time for what would be 1 hour of negotiation. They go, “that’s a lot of time.” Well, again, that time changes based on your familiarity with the other side, how experienced you are … and that actually decreases the more experience you get. You’re never going to replace the background you have to do about the transaction that you’re talking about. Or you’re never going to decrease the time based on research about the company or that individual, although about the company will decrease if you’ve done multiple times with that company. You just need to refresh. But on the other hand if you are prepared and you know what questions you’re going to be asked and you know what questions to ask, instead of going back to the negotiating table … I can’t change one negotiation into zero negotiations. That’s never going to happen. But if you follow the process, you can change two negotiations into one a significant amount of time. I can change three-time negotiations into two-time negotiations a significant amount of time. And that itself saves time and energy emotion, and all sorts of different things, and a lot of money to be frank.

BD: Right, right. Great, but I’d like to thank you again, Jerry, for coming to our offices and discussing this really fascinating topic of debunking negotiation and the importance of preparation and time for a successful negotiation. So thanks again for coming.

JD: Not a problem, I enjoyed it.

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