Why Are U.S. Business Owners Such Terrible Negotiators?
Jim says that there are probably a thousand theories for why ranging from population density to Puritan ethic. But, the important thing to realize is that North Americans recoil when it comes to negotiating... we just don't like to do it.
How We See Negotiating As Compared To The Japanese (World-Class Negotiators)
Most of us see negotiating as stressful, conflictual and as a battle. But, rather than seeing the other side as an opponent we should view them as a counterpart, and that we're not here to "crush" them.
The premise of negotiating is to create harmony and a "win-win" outcome. Jim describes this as Wa (和) (Japanese for harmony). In Japan, the goal should be a peaceful unity and conformity where members of a group prefer the continuation of a harmonious community over their personal interests.
This defines how the Japanese negotiate, and Jim's model is based on this premise. He says that the Japanese are such good negotiators that if someone is "about to give away the ranch", they won't let them do it. They know that whatever "deal" is agreed to must be "sold" up through the other side’s organization. So, they want it to be acceptable to "the boss."
The Japanese know that if the negotiation ends up one-sided, it won't be approved by the boss and that they're just wasting their time. This means that they will protect you from the consequences of your own folly. They're entirely attuned to the other side's need to come away with something they can be proud of. They're literally that good.
What's Important For Americans To Remember?
Negotiating is increasingly important to success in business. Why? Because margins are shrinking. But you must learn to negotiate. It's a skill and not something that we've been raised to do in our country. It's not intuitive – and if you negotiate based on what you're inclined to do, you'll fail.
Jim says that most Americans negotiate like John Wayne. "I want X, and I'll get X, partner!"
Weren't We Taught To Never Back Down On Our Price?
Jim says that there may be validity to this because if you simply give in on your price, there will never be an end to it. But there are often areas where concessions can be traded to get the deal you want.
One of the basic principles of negotiating is to trade rather than give. You can always say for example, "Okay, I can lower the price, but then I couldn’t provide the following deliverables..." At that point, it's not a price reduction it's a restructuring of the agreement.
And remember, concessions can be made on things that aren't price-related.
What Are The 6 Critical Negotiating Rules Jim Suggests We Follow?
Jim has 21 negotiating principles that you can read in his book (or listen to on Audible). But, don't dream of using all of these because you'll drive yourself and everyone else crazy and accomplish nothing.
You really need to focus 6 basic negotiating rules. Of these 6, 5 of them are totally counter-intuitive to Americans. Intellectually they're simple, but emotionally they're challenging.
Rule 1. Trade Stuff
Rather than saying "Okay" learn to say "Okay, if..." For example, "We can do X, but then we'd need Y in exchange." Or, "We can do X, but then we wouldn't be able to do Y." Every concession you make should provide you with something in return.
The Japanese consider a simple “no” to be rude and disrespectful. They much prefer to say “yes”. When they need to reject an offer, they sometimes use a "Japanese no" – which is simply a “Yes, if” statement, but with an “if” that’s so assertive the other side is unlikely to accept it. On the other hand, if they want to say "Yes", they simply make their "if" more reasonable. The key: there's always an "if".
What you would never do is say, "Okay, you can have this service for $10,000." Your counterpart says, "We need a better number." You say, "Okay, $8,000." Without asking for an “if”, you've just ruined your credibility and told the counterpart that your $10,000 number was bogus. Now they have you where they want you.
What you should say is "We can go from $10K to $8K, but we would need to make these other adjustments in our services." Now even if they don't agree, you've protected the credibility of your previous offer.
Rule 2. Start Assertively
Your initial proposal should be more assertive than what you're planning to get at the end of the negotiation. The other side is going to try to get concessions from you, and this allows you to make concessions without it coming out of your pocket.
Now your counterpart can go back to their boss and brag about the concessions they got, and you're none for the worse because you "baked them into" your initial offer.
If you negotiate like John Wayne and initially ask for what you actually want, you've presented your counterpart with only two options:
- To go back to the boss with the bad news that they didn't get any concessions. They’ll lose face. (Note: If your counterpart loses face, beware. The next time you deal with them it won't be pretty.)
Remember never to accept your counterpart's first offer in negotiation – no matter how good it is.
Rule 3. (This is the hardest one.) Create and Use The Envelope
Jim says that over the years, he's probably had 5,000 people tell him that the Envelope concept is what really "nailed it" for them. The Envelope is composed of three things:
- Your Opening
- Your Target
- Your Bottom Line
You need an envelope on each issue you're going to negotiate.
Your Opening is your assertive initial offer. Your Target is where you’d like the deal to end up. Your Bottom Line is the absolute minimum you can accept – short of which you must deadlock.
Here's how it goes:
You open with your assertive Opening, trading things as you go as you move toward your Target.
A good concession pattern takes you to about halfway from wherever you are to your Target position with each concession. So, if your Opening is 300 and your Target is 200 a good concession pattern would look like: 300...250...225...212... etc....
The first concession is the largest, and every one after that gets radically smaller. In reality, most corporate negotiations only have 3-4 concessions.
Remember, your target isn't your Bottom Line! If you have to go below your Target, go "kicking and screaming" and make them "drag you down" towards your Bottom Line. If you must get to your bottom line, it should only be as the negotiation is coming to an end.
Never make a larger concession than any you made before. Every concession should be smaller than the one that preceded it.
This kind of a concession pattern is totally against our nature. Instead what we are inclined to do is make tiny concessions at the outset and bigger ones at the end. If you do this, your counterpart will want you to keep negotiating forever!
Unfortunately, salespeople who are compensated on volume rather than profit tend to go directly to the Bottom Line. Negotiating can be uncomfortable, so people tend to rush through and wind up at their Bottom Line. You don't want these people negotiating for you. (This is why they need negotiation training.)
Rule 4: Krunch
This is simply a statement you make to get concessions from the other side. For example, Jackie (my wife) and I were having a gate repaired. The initial proposal was $1,000. I said to the repairman, "We need a better number. Sharpen your pencil." This is what's called a Krunch.
He replied, "Okay, we can do it for $800." I said, "We're still looking for a better number." [Another Krunch] He said, "Alright, $700." My answer: Done.”
Krunches don’t cost anything. In your personal, day-to-day negotiations, krunching may be the only thing you need to use.
Krunches range from very gentle and polite such as: "This number doesn't give me a warm feeling." "What are we really talking about here?" "Where do we go from here on this?"
Or, you can get a little more aggressive if appropriate: "Hey, we're not a bank!" "I was hoping to make a profit this year." "I was born at night, but not last night." etc. You can use these if you know the other side well and there's some humor involved in the exchange. Never use a more aggressive krunch than necessary.
Silence is a good krunch (but not more than a few seconds).
What happens when you're krunched by the other side? The only appropriate thing to say is some variation of the phrase, "Make me an offer."
When the client says, "Sharpen your pencil," you say, "What are you looking for?", "What will it take", or "What would make you happy?" Whatever their answer is, just say, "That's not going to work for us." You've just reversed positions. Now they're offering, and you're krunching!
Don't make this more complicated than it needs to be. A few krunches in a negotiation are all you need to use. Krunches are ethical, fun and very effective.
Rule 5: Never Settle Anything Individually
If you have multiple issues to negotiate, don't firmly lock down any of them until you get to the end of the negotiation. You don't know how the remaining issues will work out until the end and you may need to use them for leverage. Until the end, reach tentative agreements instead of firm ones.
For example, when the client says, "Okay, we're agreed on a price of X, right?" You say, "It looks okay, subject to the other issues of course. Let's park it for now and circle back to it later on." Then you settle everything at the end of the negotiation.
Once again, this is counterintuitive for Americans. We like to settle things in sequence. It makes us comfortable. Remember, good negotiating isn't comfortable, and it never will be. This takes practice. Don't "nail things to the table" as you move through your issues. You may need to go back and revisit them until the very last moment.
Rule 6: Nibble
A nibble is a tiny concession obtained right at the end of a negotiation, typically in exchange for closure. For example, "Give me an extra $500, and you've got yourself a deal." Ask for 1 or 2 percent of the value of the overall transaction. Over the course of the year, this can add up for you.
Nibbles are very effective because people tend to get sloppy at the end of a negotiation and drop their guard. They start making statements like "Oh, don't worry, we'll take care of that. We'll throw that in," etc.
And, if your counterpart is feeling like they didn't do so well, your nibbling (believe it or not) tends to suppress this. It says to them that you need this little thing to make the agreement marginally tolerable for you. The message it sends is that they did a good job.
How Does A Novice Negotiator (Your Sales Person) Keep From "Selling The Farm?"
Jim's advice: Prepare an Envelope (or more than one, if negotiating multiple issues) and follow it. This means that for each issue, you need to prepare your Opening, Target and Bottom Line.
Then use the Rule of Halves to get from the Opening to your Target. (Jim explains more in his book.). Without an Envelope to guide concession behavior, you're an amateur. It's essential for all good negotiators.
The Bottom Line
When the other party says, "This is my bottom line, " don't believe it. The only way you can really tell if someone has reached their bottom line is if they don't move anymore. Always assume that they have more to give.
On the other hand, never lie about your bottom line. If you call something your bottom line and then you concede further, you've lost all credibility. When you really do get to your bottom line what do you say then? "I really mean it this time!" The only time you would say you're at your bottom line is if you are really there – and this should only happen at the very end of the negotiation.
If your counterpart asks for your bottom line, you must finesse your answer. "We see this as a very competitive offer." Or, "If this doesn't work as the way we've proposed it, we may be able to repackage it in a way you might find more attractive." The implication of the word "repackage" is that for every additional concession I give you, I'll need an offsetting concession on your part.
Negotiation As A Culture
Make good negotiating part of the culture of your organization and make it something you expect for those who will be negotiating for you. How you can relay this to your negotiators: “This organization values a culture of competent negotiation, and we expect all of us who negotiate to do it well. We neither expect nor wish you to behave like 'used car salesmen', but we do require basic competence in this vital skill.” It won't be second nature, as we mentioned. Your people must be trained and retrained. Be sure to incentivize them when they do it well.
The good news is that once you learn how to negotiate, for the most part, you'll be negotiating against Americans! We trust you’ll be successful! Happy Negotiating!
Check out Jim's book, Negotiate To WIN. It's available in 13 languages and has sold over a million hardcover copies in English (published by Harper Collins).
Also, consider training for your sales and purchasing teams. Schedule your session here.