Without realising it, we negotiate every day. The act can be non-verbal, such as signaling and merging into traffic on the highway, or as simple as a single sentence: “You want fries with that?”
You generally wouldn’t think of these situations as negotiating opportunities, but the former is a complex dialogue with other drivers about conceding their place, creating a gap, coordinating speeds, and integrating within the flow of vehicular traffic, and the latter is the opening round in a sales up-sell situation.
But professional deal negotiation is a different matter where the parties are acutely aware of the stakes and seek an outcome that can often lead to great financial gain or, if carried out improperly by one or more parties to the negotiation, significant loss.
Negotiating is a skill in itself, in some cases it’s a whole profession. Whether I’m negotiating a deal with a Fortune 500 company or a contract with a new employee, I follow these core principles.
Never negotiate for something you want.
Of course you’re negotiating for something you want (negotiating for something you don’t want, well, that’s just stupid. Or you’re really bored. Or you’re a lawyer.).
Desire impairs one’s ability to stay objective about acquiring “the thing”. For this reason we may fail to do proper due diligence or discern its real market value, and let impulse and want rule over reason and critical thinking. From the outset your attitude must be to negotiate, but not at any price.
Especially in emotionally charged situations (separation agreements, partnership dissolutions, and so on), it may be wise to let someone else do the actual negotiating for you. They are able to remain objective given the right parameters by you.
Decide what items are important to you and quantify them.
Contracts usually run into the tens of pages, and sometimes into the hundreds, but generally there are only 5-10 terms of importance. It’s these items you must focus on.
Let’s say you’re negotiating a term sheet for a venture capital investment in your startup. There is a lot of legal blah blah, or, as it’s more properly known, ‘legal blah blah’, in the investment papers. The parameters of real interest are valuation, liquidation preferences, board seats, employee stock options, follow-on rights, founder vesting, and a handful of others. Decide which terms are important to you, and what minimum or maximum value you would accept.