Let us never negotiate out of fear, but let us never fear to negotiate. —John F. Kennedy
Negotiation is both an art and a science. But the art works best when you understand certain principles of negotiation. Jack Nasher, a professor of organizational behavior and leadership at Munich Business School in Germany, is the author of six books, including a bestselling book on negotiation titled DEAL, and another book on how to tell truth from lies during the act of negotiation.
Jack Nasher, born in 1979, studied and taught at Oxford University and is currently the Professor for Leadership and Organisational Behavior at Munich Business School. Jack is an expert on reading and influencing human behavior, particularly as applied to negotiations. He gives seminars and lectures for executives, consultants, and lawyers all over the world. His books became runaway bestsellers in more than a dozen countries – from Austria to China. Jack is currently the most widely read business psychologist in continental Europe and has been featured in over 100 TV and radio stations all over the world.
Jack went to school in Germany, France and the United States. He majored in philosophy and psychology, was appointed Research Associate of Holyell Manor at Balliol College, Oxford University, and completed his law degree with first class honors at Frankfurt Law School. After obtaining a master’s degree in management at Oxford University’s Said Business School, Jack completed his doctorate at the Sir Karl Popper Institute for Scientific Theory in Vienna.
Stints followed at the M&A law firm SkaddenArps in Munich, at the European Parliament and at the European Court of Justice in Luxembourg and as an Assistant Attaché, representing Germany at the United Nations in New York. In this chapter, he explains how to negotiate from a point of power and how to get what you want, skills that can be particularly useful in the restaurant industry.
Nobody is born a good negotiator. Some people have natural talent but everyone can learn the techniques of negotiation. Even if you learn all of the techniques in negotiation, you still won’t always get what you want. But you increase the odds—the chances—of getting what you want. So if you get what you want, every fifth time you have 20 percent more wins in the course of your life. If you look at these negotiation techniques, you will find that some of them you may already be using.
But I guarantee you that you’re not using all of them. If you add just two or three techniques to your repertoire you will greatly improve the overall odds. While negotiating the price of something, it’s always a good idea to be the first to put a number on the table instead of listening to an offer from the person you’re negotiating with, unless of course you have no idea of the value of what you’re negotiating for.
There’s a phenomenon called “anchoring.” Usually, the result of a negotiation is very close to the first price put on the table. So you, rather than the other party, should be the first to anchor a price. There is a psychological principle behind anchoring: Whatever number is on people’s mind influences their decision. And this has been proven in many experiments. In one experiment, people were asked to write down the last two digits of their social security number. Later, they were asked how much they would pay for a certain bottle of French wine.
The people whose social security digits were on the low side—say, 10—said they would pay $8. And the people whose numbers were on the higher side—say, 20 or 30—said they would pay three times as much. When told about the results of the experiment, they laughed it off. But the phenomenon works. While putting a number on the table, you don’t necessarily have to say that’s what you want. In a salary negotiation, for example, you can mention that other people in your industry are making a certain amount. That way, you will have put a number in the mind of the employer. And the number should ideally be as high as you can make it—as long as you can justify it. On the flip side, if you’re buying something, you should quote as low a price as you can—backed up with a reason.
So the way it works is, quote your price (high or low) and then signal openness in a polite manner. I once went into a negotiation where the other side wanted $150 million. The price we gave was $6.5 million. We knew we could never get away with it, but we had a justification for that price. And we were open to negotiating. There are also cultural variations in negotiating.
Take the Chinese style of negotiation, which is fluid and liable to last-minute changes depending on the latest circumstances. But Chinese contracts, like Russian contracts, aren’t worth much because the legal systems in China, Russia and other Eastern countries don’t usually work very well. A judge of the High Court in New Delhi, India, for example, calculated that it would take 466 years to solve every case on his desk. So if you are in a country where the legal system doesn’t work effectively, it’s a good idea to avoid the courts. And that’s why a lot of Chinese and Russian businessmen have handshake deals. They go out for dinner with you ten times before talking business. They do that because they want to get to know you first. And you have to have recommendations and so on—because the contract isn’t worth much. In the Western world you can sue people if things don’t work out, but not in China and large parts of Asia.
Here, in America, we complain about slow courts. But they do work. So the further you go away from a working legal system, the less value a contract has. I was recently leading a negotiation for an oil platform in Alaska. I was representing the buyer of this platform and it was almost a billion-dollar deal. When I came into the negotiation I found that the other side hadn’t done anything. Now, most people always say that you should prepare for a negotiation. But what does it mean to prepare? The most important thing is you have to know your plan “B”—what do you do if the initial negotiation doesn’t work out. You have to come up with a real number—what’s the value, the alternative price. If you don’t have a specific number to that you don’t have any power in the negotiation.
So, if you don’t do anything else, at least find out your plan B—as specifically as possible. If you go on a job interview, find out what an alternative company in the same industry would pay. And always work up your list—don’t work down—which means, don’t start with your favorite option. Instead, start with your third-favorite option—or the second one. If you do that, you’ll be very strong because you’ll be sitting there with all the alternatives at the back of your mind and by the time you come to your favorite choice you’ll be very strong. For many people it makes sense to see the outcome of negotiation as a “win-win” situation in which the parties cooperate and everyone gets something. But most of my clients don’t care about win-win. They just want to win.
They don’t care about the other side—they don’t care if the other side loses. They have a valid point. Further, win-win style negotiation doesn’t necessarily mean that the other side has to compromise. If the other party wants something that is very cheap to me—something I can easily concede, then getting a desirable outcome shouldn’t be a problem. For example, let’s say I want to buy a car and the car dealer wants me to pay $30,000 for it. Usually I would negotiate—starting at, say, $25,000 and we would go back and forth. But the question really is what can the other party give me that is of high value to me but cheap to the other party—and vice-versa.
So, I could say to the car dealer that I’ll give him $30,000 but that I want winter tires (if I live in Europe, for instance), and I want a warranty etc.—things that other customers are routinely charged $10,000 for, but which costs only $3,000 for the dealer. You shouldn’t focus just on the price while negotiating. Look for other stuff you can get—things that are valuable to you. That is a win-win situation in which we really bake a larger pie and different interests are fulfilled. That’s a really good negotiation. But it doesn’t always work. Sometimes it’s win-lose, and that’s when it gets rough. And that’s when you should use what’s called “table tactics,” such as anchoring—putting an extremely high number on the table. Sometimes negotiations lead to a “take it or leave it” situation.
The other party will refuse to budge on their offer. When that happens, you should immediately re-frame the situation by pointing to other alternatives. Framing any particular situation is a very important skill you should learn if you want to be an expert negotiator. Don’t let yourself be cornered. That only gives the other party more power. Politicians, for example, don’t fall into the trap of answering questions with a “yes” or “no”—they usually pivot around the questions and just say what they want to say. Another strategy is to ignore a “take it or leave it” offer. You can pretend not to listen and talk about something else instead. Never respond to a threat. Once you do so, you raise the stakes and the other party can’t withdraw from their threat because they lose face. Perhaps the two most important words in negotiating are “if-then.” That means, “If you do this for me, then I’ll do this for you.”
That’s what lies at the heart of the principle of reciprocity. And the way it works is that when the other side makes a concession, you, too, should make a concession. Never give away something for free, even if it means nothing to you. If you do so, you risk devaluing yourself—“reactive devaluation” is the technical term for it—and the other side can take you for granted. People don’t appreciate what they don’t work for. And never voluntarily make too many concessions. If you do so, you may find that you have reached a point where you want something but have nothing to give for it in return.
My latest book is about how to tell when people are lying. The last time you lied, how did you feel? Chances are you felt fear and guilt, which are the most common emotions while lying. So if you look at somebody who’s telling you something, and you see fear in that person’s behavior or something that suggest guilt, chances are he is lying. I could tell you what behaviors caused by fear and guilt look like, but actually we’re very good at detecting these on an instinctive level. We’re very accurate in detecting these two emotions. When we lie the eyes open wide and the mouth goes back slightly toward the ears. The voice has a higher pitch and is trembling.
There is a tendency to stutter or repeat things. These are typical examples of fear—what’s known as micro-expressions. So if you look for signs of fear and there is no real reason to show fear other than lying, chances are that the person is lying. And guilt looks like sadness. It’s even easier to detect. A lie detector—the polygraph—is designed to notice changes in behavior. Usually a significant change (such as a faster heart rate, higher blood pressure, increased perspiration, quick change in breathing patterns) indicates that the person is lying. In a negotiation, when you see changes in behavior or body language, it could be something fishy or really important to the other person. In such cases, you should jump to another subject and then come back.
It’s called zig-zagging. By going back and forth between different subjects you can notice what the hot issues are for the other person. You can tell what’s important to him or where he’s probably lying. Relationships are important while negotiating. Ask yourself whom are you generous to—people you like or people you dislike? If you are nice to people, they’re usually nice to you. That’s the principle of reciprocity. Bad negotiators don’t give anything. They are not kind. Mediocre negotiators give a lot. They are very generous. They overwhelm the other person and expect something in return but they tend not to get it.
A good negotiator gives a little and waits for a response. When he gets something, only then does he give back. It’s what’s called “negotiator’s dilemma.” If nobody gives, both lose. But if both give, both win. You should always know your Plan B—your “BATNA,” . BATNA is a term coined by Roger Fisher and William Ury in their 1981 bestseller, Getting to Yes: Negotiating Without Giving In. It stands for “Best Alternative To a Negotiated Agreement.” But your goal should always be much higher than the BATNA. A lot of people go into negotiations and think, “Let’s see how I do.”
That’s not good. You should set very high goals. Any result you can justify somehow should not be your end goal. If you write your goals down, it’s even better because then you can commit to it. And the other important thing is to listen closely to the other party so that you know what they want and you can negotiate what you want. A lot of people think it’s not very important to know what the other side wants—that what they want is their only problem.
But if you don’t know what the other side wants you can’t frame what you want. A lot of times we think we know what the other party wants but we really don’t. That’s why it’s important to listen to what the other side wants. Suppose you want to sell a table. Let’s say $80 is the price is you want and you are offered $75. You relax and ask for $80 and you get it. But if your goal is $150, you wouldn’t relax. You would refuse to sell it for $80. You would have a lot of energy and motivation to negotiate for more. We teach this to our kids—you have to reach for the stars. And it’s true. If you reach for the stars, you get the moon. If you only reach for the moon, you often end up with getting nothing. After you identify your alternatives and set your goals, you should find ways to justify your goals.
You do this by looking for things that look fair—objective criteria. People tend to strive for fairness. In all cultures, people will refuse to strike deals that are good for them but seem unfair. So you have to justify whatever you want with seemingly fair criteria. Donald Trump is a good example. When he sells one of his properties in New York, he gets his analyst to write different scenarios: price per square feet; comparable properties sold in the past one year, over the past two years and over the past five years; return on investment. So he has different scenarios and different values. But he only picks the one that is best for him. He can pick out the various scenarios and use them to negotiate. When you buy a company you have various methods to evaluate a company. But you only pick the one that is best for you in a negotiation, based on seemingly objective criteria. There was an interesting study recently conducted, which showed that if you send somebody an email and you attach a PDF file, people tend to negotiate less with you.
That’s because it’s a PDF, as opposed to a Word document. It’s almost as good as printed. It’s always a good idea to get your team in line before negotiating. That way, everyone is on the same page and it prevents your team members from disclosing crucial information or arguing with each other in front of the other side. It also helps you if you don’t do well in your negotiation. And the flip side of that is to give your opponent reasons why the negotiation has been a good outcome for him so that he looks like a star.
That’s what’s called writing the opponent’s “victory speech” when you close the deal. You should always be in full control of your own emotions. Thomas Jefferson said, “When angry count to ten before you speak. If very angry, count to one hundred.” You should always observe yourself as if you’re standing on a balcony and looking down on the negotiation. In that sense, it helps to withdraw strong emotions out of direct realm of the negotiation. The more you care about the situation, the more you feel personally involved, and the worse off you’re likely to be. That’s because you’re the worst person to negotiate for your own interest.
I, for example, am much better at negotiating for my clients than I am for myself. There’s a story about a famous Japanese samurai who won every battle because he perfected fighting with two swords. When asked why he won every fight he replied that he was always victorious because he never took part in the fights—he was always up on a mountain looking down at him fighting. So he was never attached to what was going on. If you can practice that, you will always succeed in negotiating. You will be unaffected by all the techniques of your opponent—trying to insult you or make you angry. You’ll be able to laugh it off as one big game. While negotiating you should bring your notes and printouts of your favorite alternatives. The printouts could be data, too, which you can use as objective criteria to show the other party to strengthen your position. It’s also a good idea not to have a deadline for a deal—or at least not to disclose any deadline.
That puts you in a more advantageous position. Think about it: who is more powerful—the one who needs a deal by 5 p.m. today or the one who doesn’t care? So never disclose your deadline. It makes you less powerful. If you have a deadline, try to get rid of it somehow. And always try to find out the other party’s deadline. Usually they tell you. If they don’t, try to postpone your meetings and see what happens. If the other person gets nervous, you know he has a deadline. If he doesn’t care, he’s either bluffing or he doesn’t have a deadline. The closer you are to the other person’s deadline the more power you have. When the Chinese negotiate, they put off the most important negotiations toward the end.
They call it “the long wait.” They will put you up in a hotel in a remote area and tell you that they have stuff to do. They’ll make you wait one or two weeks. And then, just before you have to leave, the negotiations start. Now, you could negotiate with them or you could leave. But remember, the one who comes to the other person is in a weaker position. So it’s a good idea to make people come to you. You’re always in a stronger position if people visit you. It’s the difference between a bartender and a waiter. We don’t have much respect for a waiter because he comes to us. But we have to walk up to the bartender and catch his attention.
One more example: Let’s say a deal is 90% finalized. The other party says to you that they will be sending a contract in a couple of days. But a couple of days later the contract has yet to come. What should you do? Instead of calling them and asking them what happened to the contract, you should call and give them a deadline. Tell them that your boss told you that he wants the contract by such and such day. So now they have a deadline. You could also do what’s called the “exploding offer.” You say, If you can send the contract by Monday, we can still do the deal. If you send it by next week, we will unfortunately have to take out some favorable terms to you from the contract.
So, my top three Do’s are:
1) Find out your Plan B—your BATNA.
2) Number Two: Set a high goal—an extremely high goal but something that you can still justify.
3) Number Three: Find objective criteria to support whatever you are negotiating for. And write all these down and commit to them.
My top three Don’ts:
1) Never go into a negotiation without having a plan—without knowing what you want.
2) Number Two: Never be inattentive to what the other party wants.
3) Number Three: Don’t give away too many concessions for free.
“The world is not fair, but not necessarily to your disadvantage.”
During the interview with Jack Nasher we also spoke briefly about politics, power, and many other issues. Jack gave some valuable insight that would serve the reader well. Among the valuable insights during the interview:
1) About the investment in time. The more someone invests time in a negotiation, the more vested they are in the outcome. Always look at the negotiation like a game. Never give your deadline, and if you can, assume there is no deadline. This puts the power play on your side, and the other side will feel more pressure to concede. Of course, there are deadlines, so if the other side knows what your deadline is they will use time against you and leave very valuable items on the agenda to the last minute, leaving you in a heavily disadvantaged situation.
2) In many cultures, food is used as a sign of generosity, often as a tool and gesture of goodwill. While this is fine in a friendly or family setting, it is not proper within the context of an important business negotiation.
Always come having eaten well before, and politely refuse any food. Remember the automatic, emotional response we all have with reciprocity. If we accept food or gifts from the other party such as free hotel rooms, taxi, or airfare, we may give away concessions during the negotiation that are far more expensive for our party than these things. Tread wisely.
3) Be very careful about the notes you leave behind. Jack told us an interesting story where he left his briefcase unlocked and took a bathroom break during a tense, expensive negotiation. The woman he was negotiating with must have opened the contents of his briefcase and looked at all his notes. He realized this later because she knew his exact deadline and had negotiated with him much better than she would have had she not seen his notes. She was able to get extremely favorable terms, terms she would never have been able to get had she not known his strategy. She also saw all my details he had written for the negotiation, including what he wanted, his personal phrases and tactics that he uses, what he could and could not concede…etc. Even though she “cheated”, nobody cares because at the end of the day she won. So be very careful.
Always guard your notes, books, and briefcase like a brick of gold. If the other party gains access to it you will lose by default.
4) When it comes to negotiation, having the right knowledge equals power. Do your homework. Know what it is that the other party wants. Study comparable items in price to what it is that is being negotiated. Come ready and willing to work at it like it’s a game. Pace yourself and do not stress out.
5) Speak to everyone in your party before the negotiation. Know what it is that you can give as concessions and what you cant give away. Many negotiations fail because a person gives away something on behalf of the company or the board that later the owners are not willing to accept. In cases like this you will have worked very hard and wasted your time and have to start all over. I once negotiated an amendment to a lease and gave away a concession my party did not agree to. Because of this small concession, something I did not care about but my party did, I could not get an amendment I worked very hard for. I had wasted an entire 2 months of work, about $5,500 in legal fees, not to mention my sanity for the weeks preceding and after. It’s not worth it so know what you are able to give away well in advance and don’t give in to the pressure.
6) You have to pretend to be indifferent about the outcome of the negotiation. If you are the owner of the business and are negotiating for yourself, this will prove difficult. If the other party sees your courage, confidence, and power they will be more willing to capitulate. Remember, there is no way to truly be indifferent about any negotiation unless you have already discussed and mapped out a realistic “plan B” that Jack talked about with your entire team.
This “plan B” should always be in the back of your mind, and having determined what you want, if you do not get very close to it, you should always be willing to walk away. This will not only show the other side a position of power, but will ultimately give you a position of power in terms of real life decision making.
7) Know details about any negotiation the other side doesn’t want you to know. This will serve as your weapons during the negotiation. For example, taking Jack’s car negotiation scenario, most people don’t know that salespeople are under extreme stress to always sell in dealerships. They have quotas to meet, and their sales manager is always on their back to sell or lease 10 times more than the dealership across the street.
This stress for them is heaviest during the last 5 days of the month, when the numbers are adding up and they want to beat Joe Shmoe, the guy working the same dealership across the hall. So when you are negotiating to purchase or lease a vehicle, you can do all your research and shopping and sign the dotted line only during the end of the month, when the terms will be most favorable to you. I did this and negotiated for a new Mercedes at a dealership in Van Nuys I will not name. This dealership is the #1 dealership for Mercedes in Los Angeles. They sell or lease about 1200 vehicles each month, and the facility is a $300 million factory full of the most beautiful and luxurious cars on earth.
I came in because my wife’s car, a BMW, was giving her many mechanical problems. Finally, after it nearly caught on fire, we had enough and decided to get a Mercedes. I shopped and talked with the salesperson for hours. I came and went many times. I finally came in a week before the end of the month. I walked away getting a brand new car, the exact make and model and color I wanted, with about $20,000 off the sticker price. Granted this model was on its last year and the new model was going to have a whole new body, but still it was a remarkable deal. Everyone that heard about it was surprised I was able to negotiate this. It happened because I did my homework, forced the salesperson to invest many hours with us, and came in at just the right time.
8) Get a favorable additional term the last minute. I have gone through dozens and dozens of negotiations for everything from building million dollar restaurants, negotiating huge construction plans and permits with cities that are notoriously difficult to deal with such as the downtown offices of Los Angeles (notoriously anti-business with a take it or leave it attitude toward most businesses) to Burbank to Glendale and Anaheim. I have negotiated 8 leases, owned and leased multiple cars, and spent tens of thousands on renovations in two separate multi-million dollar homes.
Every single time, without exception, I have gotten something favorable to us the last minute before signing the dotted line. It’s a proud tradition now that I continue every time I negotiate for anything whether it building a new web site or simply reducing a hotel bill before I depart.
Always get a few extra concessions toward the end. Do this every time, and it will become a life-long habit that pays you dividends. Look back at all you got and see what you may have skipped out on. There will always be a few things you forgot. Having said this, good luck on your next negotiation and we’ll be seeing you at the negotiation table.