As a litigator and accredited mediator in the SME space for over 25 years, I’ve witnessed what truly differentiates a successful leader from one that is destined to fail is the “art of negotiation”.
Why is negotiation important?
The ability to negotiate should be a central skill, but it seems to be lost on most small business owners.
Negotiation is required from the pre-contract stage, contract stage, variation of contract to termination and dispute resolution. It also determines whether you get sales, maintain good relationships with your supply chain partners, have good employees, get finance and whether you end up in the Courts or not.
Debt or cash flow issues are a clear sign that a small business owner is a poor negotiator. Many mistake this for bad luck or blame market conditions for the lack of sales. These bosses will blame their sales staff for not bringing in more sales. Next, they blame the banks and government for not giving them enough financial support. Lawyers also receive a share of the blame for charging high fees, without any guarantee that the debts can be recovered.
Simply put, they start and end very contact with a mindset of either “ I am the Boss” or “I am being bossed around by someone higher”. By adopting this hierarchical and zero-sum mindset, the business owners have actually created their own Frankenstein.
Based on my experience of growing a small law firm to a mid-sized law firm (name change included) that is supported by a business team across Japan and now Australia, here are the traits required for you to become an excellent negotiator.
In the corporate world, “understanding relationships” is not the same as “guanxi” (关系).
Guanxi is a type of relationship based on Confucian philosophy. One of its central theories is to know one’s position or place in a business or social hierarchy.
This relationship makes it very difficult for small Asian companies to expand and work in an international market.
In a global setting, it is not possible to know a counterpart’s thorough background or social order. Therefore, the only practical way is to start any relationship by trying to understand the other person’s market segment and value proposition.
The idea is to seek alignment between their market segment and value proposition with your own company’s market segment and value proposition through negotiation.
Apply alignment seeking to every aspect of your business. For instance, a business must seek alignment with the needs of its customers. It must align with the needs of its staff, lenders and investors. If they have key partners in the supply chain, alignment is also crucial.
If A wants to go from point X to point Y, while B just wants to sell cars, there is no alignment in their partnership. Any contract they sign will not be legally binding as they have not established that consideration (thing given) is of value and is exchanged for the performance or promise of performance by the other party.
Communicate clearly and transparently
I’ve had countless business owners consult me about their staff stealing their clients and know-how to join competitors or start their own competitive businesses.
Often, they are eager to prescribe their own solutions, such as having better restraint of trade clauses in their contracts, tightening the NDAs and suing until they declare bankruptcy. However, this eagerness wanes the moment they hear the fees I quote for putting their plans in place.
There are simpler and cheaper ways to prevent this from ever becoming a full-blown tug-of-war:
– Have clear dispute resolution and negotiation protocols set in contracts or HR manuals.
– Create safe spaces for customers, staff, partners and people to vent their unhappiness.
– Change or vary any previous obligations that do not work. State clearly what are trade secrets in the company and what are not.
Keep your promises
Besides keeping to the letter of the contract, this involves keeping to the spirit of the contract.
A contract is ultimately a relationship. Like any other relationship, it needs to have context. This provides an insight to the minds of the contracting parties, which is known as the spirit of the contract.
I always encourage business negotiators or parties in mediation to talk and explain what is in their mind, including their intent and even emotional considerations. This helps an active listener to understand the motivations and deep interests of the other party, which in turn can help to facilitate the negotiation process.
“Business is an infinite game” – Simon Sinek
An infinite game is one where the players seek to keep the game going for as long as possible. There are no winners or losers. All of the players win if everyone keeps playing the game.
Business contracts negotiations should be based on this infinite game mindset. Our law firm and business team share a self interest to help our clients grow and make money. The better and stronger our clients become, the more business we get from them.
If you only seek to be a price predator, there will be eventually no more prey to eat. Predatory companies will ultimately become prey.
In conclusion, be brave and chose to take your business out of the “predator-prey” eco-system! Take the first step by contacting a Biz Friend today.