These are the key points to making a deal in business. After reading a report on Dealmaking from the Harvard Law School Program on Negotiation and doing some additional research, I wanted to share these insights with you and at the end provide you with access to the free 28-page report.
Understand Basic Contract Law
As a qualified mediator with the Minnesota Supreme Court that has both facilitated and mediated disputes in business between parties from under $1 million to up to nearly $1 billion, I know the importance of writing up the mediated agreement with the who, what, when, where, why and how. The parties sign the agreement. Then the attorneys need to be involved to clearly document the necessary legal elements given the uniform business code and state law. Every deal needs an offer, an acceptance and consideration.[i] Both parties should make sure they clearly understand the final contract before signing the contract.
During the Dealmaking Make Sure You Have the Decision Maker Present
In small business when significant negotiations are involved the participants are the business owners. When that happens clearly the decision maker is present. As organizations become larger and more complex it may become less clear whether the participants have final approval authority. This should be clearly articulated at the beginning of the negotiation and ideally the decision maker should be in attendance in a negotiation. Each party should be very clear on whether the other side has decision making authority before initiating the process. [ii]
Is Building a Relationship Important?
The report discusses this as if it starts when the parties meet at the bargaining table and initiate small talk. My recommendation would be to find out who the parties are and research them on social media and with your existing network. Learn all you can about them and their individual backgrounds and interests. Look for areas of mutual interest and interject these at the beginning, during breaks, meals and other opportunities to develop a relationship beyond the negotiation to really try to connect. Understand the context and culture of the participants and carry out relationship building as appropriate to make the other party most comfortable.
Setting the stage is fundamental. Understanding the emotions of the other party and developing an appropriate relationship is critical. Especially when dealing with difficult people. Relationship building can be the most significant element of deal making.[iii]
What Are Major Concerns in a Negotiation?
A negotiation may be one on one, have several rounds of bidding, several buyers, have inequalities related to the relevant facts, and process misunderstandings. It is important to understand the perspective of the negotiation to each of the parties. What are their interests? Questions need to be asked such as:
What is the buyer’s perspective?
What is the seller’s perspective?
How can value be created for both parties?
Who should be at the negotiation and why? Include only who absolutely is needed – downsize[iv]
Know Your and Hypothesize Their BATNA
BATNA is the Best Alternative To A Negotiated Agreement. In short, this is what you will do you do if the deal falls through. BATNA becomes especially important when dealing with difficult people. Consider the probabilities of BATNA given your and what you believe to be their interests. Think through BATNA on two levels. One is the organization and the other is the individual’s perspective. Keep in mind saving face and how the deal may be perceived.[v]
Consider Short Term vs. Long Term Implications
Every deal has a zone of possible agreement (ZOPA). This can involve issues associated with timing too. Often if the parties agree on other elements but not timing this can be addressed with a contingent contract. That is certain elements are contingent of certain other elements developing. It is possible to bet on the results over time. [vi]
The report also offers several other elements to consider. These are:
How to overcome information that is asymmetric
- Moral hazard problems – what if one party deliberately makes decisions that negatively impact the other party, yet stays within the terms of the contract.
- Beware of “kinks” – stipulations in the contract with specifically affixed standards for payment. For example, $100,000 for 95% completion and $0 for 94.999% completion. Is that really what was intended?
- Complexity costs – the lack of a termination clause may result in not having a clean break that may introduce other complexities. [vii]
Hopefully the selected items pulled from this report may encourage you to claim your free copy of the report on Dealmaking from the Harvard Law School Program on Negotiation. This report focuses on providing you with the successful deal making techniques used in business.
Contact me to speak to your group or consult with you. Check out my website, books and content. I am an international speaker. I speak on how to overcome conflict with collaboration by taking advantage of the collaboration effect TM enhancing relationships, resources and revenues. My service areas are related to helping clients resolve conflict: business to IRS, business to business and within businesses. I have written 11 books including The Servant Manager and Peaceful Resolutions. I may be contacted directly at firstname.lastname@example.org and at (651) 633-5311. [Michael Gregory, NSA, ASA, CVA; MBA]
[i] Harvard Law School Program on Negotiation, “Dealmaking, Secrets of Successful Dealmaking in Business Negotiations 9-17-2018 page 3
[ii] Ibid pages 4 and 5
[iii] Ibid pages 8 and 9
[iv] Ibid pages 11 and 12
[v] Ibid pages 17 to 21
[vi] Ibid page 24
[vii] Ibid pages 25 to 28