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If you’re getting a business off the ground, you need to harness the power of negotiation. At some point, you’ll run into a financial roadblock—whether it’s a deal you don’t trust or a supplier cost that you know is too high. Once you master negotiation tactics, you’ll be able to navigate these waters and start your business on your own terms.
The ability to negotiate well is one of the most powerful tools you can have in your arsenal as an entrepreneur. If you can frame your deal the right way, you can negotiate almost anything.
Negotiation is especially important when you’re starting your business. Being able to negotiate things like lease terms, contractor fees, and employee salaries will give you the ability to set up your business exactly the way you want it.
But negotiation requires knowledge and practice. You want to be cool and confident when you enter a negotiation. If you’re nervous or shaky, it’ll show. You’ll underperform and get taken advantage of. You don’t want this.
Negotiation isn’t something to be afraid of. It’s normal to be afraid of missing out on a great opportunity or causing a connection to turn sour, but the opposite is actually more likely. Learning how to negotiate effectively will help you to open new doors, make stronger connections, and position yourself for success.
The first step is to learn some stellar negotiation tactics.
The Power of Negotiation Tactics
Think of the last time you negotiated with someone. Were you nervous? Did you leave money on the table? Unless you’ve worked to improve your negotiating skills, it probably didn’t go exactly the way you wanted it to.
That’s where understanding comes in. You see, negotiation is an art. It’s not haggling with someone until you meet in the middle. It’s developing an understanding of what the other party wants and responding to that want. (More on that later.)
Chris Voss understands the power of negotiating tactics better than most folks. He’s a former FBI hostage negotiator and the author of Never Split the Difference: Negotiating As If Your Life Depended On It, in which he discusses some of the most successful negotiation tactics he used throughout his career. These tactics are less about “wheeling and dealing” and more about getting to know the person you’re negotiating with.
As humans, we want to feel understood and respected. These tactics appeal to those desires, and that’s exactly why they’re so effective. Used right, they’ll help you take full control of negotiations.
Here are some of the most effective strategies you can use next time you negotiate.
Be ready for curveballs
First, a note on how to think about negotiation tactics:
Before you build your negotiating muscles, you need to cultivate the right mindset—a growth mindset. You want to go into a negotiation with confidence, but you never want to assume you know how the conversation will go. Many times, something unexpected will happen that throws you off. It’s how you respond to these curveballs that counts.
Learning how to negotiate effectively is all about using different tactics to respond to your negotiating partner. These techniques allow you to remain collected even in the face of surprises, but there’s no definitive negotiation flowchart. You’ll have to decide when—and how—to best use these tactics.
With that in mind, let’s look at some of these tactics.
Mirror your negotiating partner
Picture this: You’re eating lunch with a friend, and you notice that both of you are stretching your arms at the same time. It seems like nothing, but this is actually a prime example of mirroring.
As the name suggests, mirroring is when you behave similarly to someone else. It happens every day to just about everybody, and it usually happens on a subconscious level. However, you can deliberately mirror someone in a negotiation to win them over.
A skilled negotiator like Voss will mirror someone’s words to strengthen the connection they feel with him throughout the negotiation. When you mirror someone, he or she will subconsciously discount you as a threat. Instead, they’ll see you as similar to them. We naturally like people who are like us. When you mirror, your negotiating partner will feel more at ease around you and be more open to your suggestions.
So how can you mirror? One of the simplest and most effective methods is to simply repeat the last 1-3 words that your negotiating partner has said. This can cause your partner to elaborate what he or she said, and it can also give you some time to stop and think about what you’re going to say next.
Don’t mirror too much, though. And once you mirror, Voss recommends, give it a few seconds to sink in. Give the other party a chance to talk before you continue.
Frame the discussion
When you go into a negotiation, you have an idea of what you want to get out of it. Of course, so does the person you’re negotiating with. In other words: both of you have imagined the negotiation in your own minds, and it’s unlikely that you expect the same outcome.
That’s why you need to frame the discussion in your terms. You can do this by using what’s known as the anchoring effect. This is when you anchor your negotiating partner’s expectations before the conversation even begins.
Specifically, you have to put your partner in loss aversion mode. When there’s something at stake, people go into overdrive to protect themselves from losing. In short, we don’t like losing (and we especially don’t like losing to someone else).
When anchoring, you need to set low expectations. This will ensure that your offer is seen in a more positive light, and it will also encourage people to agree to your offers so that they don’t lose out.
By highlighting what your negotiating partner has to lose, you’ll engage their loss aversion. This will make them more receptive to your offer. It forces them to rethink the entire negotiation. Instead of simply thinking “this person has an offer for me,” they’ll think “this person can help prevent me from losing X or Y.”
Label your negotiating partner’s fears and empathize with them
When you’re negotiating with someone, it’s easy to recognize their worries, doubts, and fears. But you can’t just recognize them and not do anything—you need to use that information to your advantage.
Here it’s helpful to use another simple tactic called labeling. Labeling is when you vocalize the other person’s feelings. This means paying close attention to the emotions the other person is showing through their actions or words. Then, you repeat those emotions back in a neutral way.
Negotiators like Voss recommend starting a label with “it seems like…” or “it sounds like…” to avoid sounding too aggressive. When you repeat someone’s emotions, he or she will likely go into more detail, which in turn gives you more information to work with.
It sounds counterintuitive to repeat back your negotiating partner’s nervousness. What if it makes them even more nervous? In practice, though, labeling can help ease worries or doubts. When you name a worry out loud, it isn’t as scary.
After you label, don’t speak for at least a few seconds. Like mirroring, labeling requires a little bit of silence to be most effective. This will give the other person time to think and respond to your label.
Labeling works wonders in negotiations. It can help you diffuse tension and find common ground. But remember: this is just one of many strategies you can leverage. Use it only when the situation calls for it, like when you want more information about something your negotiating partner said.
How to Negotiate Effectively for Your Business
Now that we’ve gone over some negotiating tactics, it’s time to focus on applying them to different situations.
While you can negotiate almost anything, there are a few important areas you should focus on. Winning negotiations in these areas can give you a huge advantage and optimize your business’s chance of success.
How to Negotiate a Commercial Lease Agreement
A commercial lease agreement is a vital part of your business. It will determine how your business operates in many ways, so you’ll want to find the best lease for your needs.
However, no lease is perfect, so negotiating is necessary. Even though a real estate lease seems like an iron-clad contract, there’s more wiggle room than you might think. It’s all about using the right tactics to make the lease work for you.
First, carefully read through the lease to develop a thorough understanding of its terms. (As tempting as it may be to skim, don’t!)
Make sure to consider a few important parts:
Length of the lease. Most small businesses find that commercial leases that last one to two years are best. You should also look for the option to renew the lease once it’s up. These sorts of short-term leases afford the most flexibility, and they’re great if you think you might want to switch or upgrade locations at some point.
Per month rent. This seems obvious, but make sure you research rent prices for similar spaces around town. If you find a similar space with lower rent, you can use that as a talking point during your negotiation.
Know your responsibilities. Comb through the lease to find out what the tenant is responsible for. Sometimes, these responsibility clauses can hide fees, so make sure you know how many costs you’ll be taking on and what the landlord pays for.
Understand the kind of lease you’re dealing with. There are a few main types of commercial leases. Once you identify which one you’re dealing with, you can gain valuable information for your negotiations.
In a gross lease, or full-service lease, the rent includes everything, meaning the landlord pays for almost everything. The tenant is only responsible for property tax and insurance.
A net lease isn’t as inclusive—instead, the landlord charges a base rent for the commercial space, and the tenant is also responsible for additional expenses on top of that base rent.
Finally, there’s the modified gross lease. This type of lease agreement is a sort of halfway point between gross and net leases. The tenant pays one flat amount each month that covers monthly rent and any additional expenses.
Of course, this is just a quick rundown of those terms, so make sure that you do your research and get to know each type of lease before signing anything.
Once you know the lease front and back, you’re ready to talk to the leasing agent or landlord. Remember—you want to create a win-win situation where both parties leave happy.
A couple of tips on how to negotiate a commercial lease:
Find out what the landlord wants. Use mirroring and labeling strategically to find out more information about the landlord’s needs. Have they been burned by problem tenants before? Are they struggling to rent out the space? Sniff out this info then use it wisely.
Don’t be afraid to ask for modifications to the lease. If a change would benefit you, say so. Explain why it would be beneficial, and use framing and labeling to help the landlord understand.
How to Negotiate with Suppliers
Finding the right supplier is crucial if you plan on running a high-quality business. You need a reliable, communicative supplier who won’t cut corners.
But you also shouldn’t settle for less—or more, in this case. Everybody is going to want as much from you as they can get. The good news is that suppliers, just like landlords and business owners, can be negotiated with.
Here are some more details on how to negotiate with suppliers:
Leverage their loss aversion. Suppliers are competitive. They want your business, sure, but they also don’t want you to go to their competitor. See? It’s loss aversion in action. You can leverage this for successful negotiating. Setting low expectations (the anchoring effect) is key here. It’s all about the framing.
Promote your business’s value. Think of the ways your business can help the supplier succeed. If your business can help a supplier tap into a new market, that’s huge for them.
Don’t be afraid of numbers. Great negotiators don’t shy away from numbers; instead, they use super specific figures (like $15,553) to make it seem like they’ve put countless hours of calculating into their preparation. When you hit a supplier with a weirdly specific number like that instead of ballparking, they’ll pay closer attention to you. Note: to use this strategy, you should actually do the calculations prior to negotiating.
How to Negotiate Lower Contractor Costs
If your business is like most SMBs, you depend on contractors quite a bit. Negotiating with contractors will help you cut costs across the board, and it can even help you build and maintain great contractor relationships.
Leverage their loss aversion. Just like suppliers, contractors don’t want to lose their business to another company. Make them aware that you’re looking around and considering their competitors. (If you decide to name drop, make sure you’re dropping the names of contractors who do similar work.) This will give you more bargaining power and make your counter offer shine.
Offer to buy the materials. Don’t worry—you’re not stepping on any toes with this offer. If you buy the project materials yourself, you can ensure the lowest material cost and save money on the project as a whole. Many contractors will welcome this since it’s less work for them. You can just head to the Home Depot down the street and purchase what you need.
Let the contractor name a number first, and use ranges if necessary. Another tip from Voss: let your negotiating partner throw out a number first. This way, you can avoid going too low or too high. If the figure isn’t to your liking, counter with a range. So if you want to spend $2,500 and your contractor establishes a labor cost of $5,000, you could anchor by using a range: “I’ve seen other contractors charge anywhere between $1,500 and $2,500 for this.” This makes $2,500 seem like the high offer.
Figure out how to help them save money. Sometimes, working with a contractor is all you need to do. Find out where they’re spending, and try to help them cut back. Can you pay in cash? Can you pay the subcontractors directly? Find ways to save money that both you and your contractor are comfortable with.
How to Negotiate Equity with Co-founders
Negotiating equity with co-founders can be one of the more nerve-racking situations you’ll encounter as an entrepreneur. You’ll probably be tempted to split the equity up equally with a quick handshake, but that’s not always the right move. When you’re negotiating equity, keep a few things in mind:
Consider using the Slicing Pie model. The Slicing Pie model is a popular equity split approach that’s simple and intuitive. The basic idea is that “a person's percent share of the equity should always be equal to that person's share of the at-risk contributions.” In other words, if you bet on the future of the company more than your co-founder, you should take a bigger share of the equity. These “bets” can take the form of cash and non-cash investments (like time).
Run through this equity checklist. Harvard Business School professor Noam Wasserman devised an awesome equity checklist that you can use to make sure everyone’s on the same page.
Take extra caution with family members. If you’re co-founding with a relative, you might assume that everything will go smoothly. But as Wasserman points out, you’ll probably be surprised by how your relative behaves as a co-founder. Avoid making the wrong assumptions so that you can divide equity fairly.
How to Negotiate Salaries With New Employees
Your best candidate has just politely refused your salary offer. What do you do? It’s uncomfortable—but if you’re prepare for this situation, you can respond without missing a beat.
There’s an important middle ground here: you want to stay within the salary range you can afford, but you do not want to haggle. Using fair market value is a good starting point, but not all candidates will immediately agree to your first offer. Here’s how to make salary negotiation simpler.
Don’t get hung up on the big numbers. If you’re offering $40,000 and your candidate is firm at $42,000, they’re only asking for a dollar an hour more. Similarly, the difference between $40,000 and $50,000 may seem like a lot, but it’s only around $800 a month. Putting this into perspective will keep you from losing a good employee over a couple extra dollars an hour.
Don’t lowball. We’ve discussed situations in which setting low expectations works, but this isn’t one of those situations. If you lowball, it could leave your top candidate with a bad impression of the company. Work with fair market value, listen to your candidate’s wishes, and consider their counter offers.
Mirror to create rapport. When you’re talking with someone who might end up working for you, you want to create a positive rapport. By mirroring, you’ll establish a connection with your candidate.
Add Negotiation to Your Toolbox Today
Negotiation is a critical skill for any entrepreneur or business owner. And when you’re starting out, you’re going to need all the help you can get.
Building up your negotiating skills will take practice. Don’t be afraid to ask a friend or colleague to help you practice. You’ll want to master these tactics as well as you can before taking them out for a spin.
And remember: negotiating isn’t about getting your way, it’s about making both parties happy without either having to make giant compromises. It sounds too good to be true, but it’s entirely possible with the right tools on your belt.
So go forward and hone your negotiation skills! You’ll be glad you did.