6. Get successful negotiation
Before we dive deeper into some of the issues,
I’d like to take the time to talk about negotiation.
I’m sure you understand this is one of the basic business skills.
In fact, most business is about negotiating issues.
From the day you start thinking about your own company to the day you sell it,
you’ll be involved in one negotiation after another.
You might call it other words “raising capital,”
“setting up the phone system,”
but they does it mean you’re negotiating every step of the way,
and you’ll have to pay the price if you don’t understand the process?
Why? Because then you won’t be flexible.
You will be overly focused on your own needs,
and will not listen to your partner’s opinions.
As a result, you miss out on better deals.
I can tell you a pretty typical example,
it came about when we had some unexpected delays while building a warehouse.
Obviously, the warehouse wouldn’t be able to finish in time
to store all the boxes we just received.
We had to immediately find another storage space,
which wasn’t easy because it wasn’t available everywhere.
We needed a special type of warehouse,
with high ceilings,
within a few blocks of my facility;
and we can ship it right in.
I know the number of premises
that meet the first two criteria can only be counted on the fingers of one hand.
As a result, I might be in a pretty bad position when negotiating.
Anyone who meets the above three conditions will be able to pressure me.
If I was only thinking about finding space,
I would have left it to a real estate agent.
But I’m interested in getting the best deal possible,
so I can’t do that.
If I want space and a good deal, I have to negotiate.
Negotiating begins with a phone call to the broker.
It’s a rule of thumb:
you start negotiating on your first interaction with a second party.
I told the broker my requirements
and that I was willing to pay the regular rate, about $5 per square foot.
He said that such premises are not many in my area.
I said, “Okay, I’ll look in other areas as well.
I’d love to get space around here,
but if the prices and conditions are outrageous.
I’ll go elsewhere.”
What I say is almost a hoax.
Going away is the last thing I want to do.
Of course I’ll have to see if prices and conditions are outrageous,
and I’ll also keep an eye out for good deals in other parts of the city.
But I don’t want the real estate agent to know exactly how important it is
to me to find space in my area.
In a bargaining situation,
you must keep others guessing about your needs and priorities,
or you won’t get what you need.
If you let them know your needs,
you will have to accept a less favorable deal.
The broker called me back in a few days.
He said he found a place that met my requirements.
Then why didn’t I visit?
And I did. It’s so perfect.
“It looks good,” I told the broker. “What price?”
“Owner wants $6 and a half per square foot and a five-year lease.”
“That’s funny,” I said. “I wouldn’t pay more than $4.75.”
Again, I feel so frustrated,
I will only have to pay this price if I have no other choice.
Although I desperately needed this space,
I now have another factor to consider.
Our second warehouse will be ready in a few months.
If I sign a 5-year lease, I run the risk of having too much free space.
So why am I focusing on money instead of those terms?
It’s really a matter of strategy.
That’s another rule of mine: negotiate the second priority first,
you should understand that at the end of the process,
you will inevitably have to give the other party more
of what they want in return terms of the agreement.
So, your initial concession on the first bargaining point will give you more bargaining power
as you put your number one priority on the negotiating table.
Over the next few weeks, we bargained for the price of the premises
and the broker acted as an intermediary.
In the end, the landlord agreed to reduce the rate to $5.8 per square foot,
and the broker told me the owner could not reduce it any further,
as he also had two other people willing to rent at the same rate.
I said, “Okay, so another problem arises.
Maybe he and I should talk to each other directly.”
A face to face meeting with the head is always an important rule
of thumb negotiation process,
and most people will ruin the meeting
by focusing all their efforts on getting what they want.
Bargaining is give and take.
To get what you want, you must first figure out what your partner wants.
There is only one way to do this by listening.
I try to make sure I’m listening by following two more rules of negotiation.
First: do not have prejudice.
I mean don’t make any assumptions about what your partner is thinking.
Right or wrong, your assumptions will cloud your mind
and prevent you from hearing what your partner has to say.
Rule number two: always assume that everyone in the room is smarter than you.
If you have the idea that you are wiser than others,
you will not pay attention to them anymore.
So I always carry a pad of paper with me when I go to negotiations.
On the fourth or fifth page of the pad,
I wrote the word idiot three times.
Whenever I find myself thinking I’m smart,
I open the page, tell myself how stupid I am,
and then keep listening.
But the landowner did not negotiate according to my rules.
He did not negotiate.
He walked in and immediately talked about his price.
He said he would not consider any price lower than $5.8 per square foot.
He has two other tenants who have agreed to pay $5.8 and more,
he wants a five-year lease.
I focused on listening to what he had to say.
Rates are not negotiable anymore,
but we can discuss 5 year lease.
That’s all the information I need. I said,
“Honestly, I think the $5.80 price tag is too high,
but let’s stop talking about it for a moment.
Let’s talk about rental terms.
I cannot accept a 5 year lease.
There is so much uncertainty in my business right now.”
I explained to him my situation.
“Okay, but I still want $5.8,” he said.
I said, “Okay, if that’s what you want then I think I can handle it,
as long as you can give me a chance to liquidate the contract.”
Finally, he agreed to let me liquidate the lease after seven months,
and I agreed to pay him $5.8 per square foot.
It was a fair deal and we both got what we wanted most.
But of course the landowner could get more out of it
if he put the issue in the meeting in a different way.
You can come to the negotiation listening and let me speak first.
You might start by saying: “Nice to meet you, Mr. Brodsky.
I know you spoke to our real estate agent,
he explained to you the terms of the lease.
So are you ready to sign?”
I would say I find the price too high.
Then you can say you can’t charge me less than two other customers.
Then I’ll cover the five-year lease.
At this point, he might interrupt the discussion and say,
“Do we have to look at every line of this contract?
First, he wanted to talk about price.
Then he wanted to talk about terms.
Next, he will want to discuss the air conditioning system.
Either we sign the contract or we don’t!”
He can put me on the defensive.
He can challenge me.
I can still cancel the contract,
but I will have to pay for that.
Instead, he gave me what he was supposed to get for free,
and in fact I walked out of the deal with a short-term lease
for the same price as long-term tenants pay.
I suppose it is in the interest of the landowner that he has a happy customer.
But later on, we completed the five-year lease and signed a few more.
Fifteen years later, we’re still renting that space,
and we’re even renting space that’s twice the size of the original.
So it turned out to be a good deal for all of us.
I often hear that in any negotiation, the one who starts first will always be the loser.
I’m trying to win a client I’d love to have.
I made the proposal, and sent it to the client,
however he passed it on to his finance person.
He should have sent me back a bid.
I called him twice, and he still has no information on the matter.
I know he thinks we can provide his company with savings that he can pass on to his customers.
He planned to send a client information about this savings during an upcoming meeting.
Should I call him before the meeting
or should I wait until he takes his next action?
If I follow the rule of not speaking first,
my negotiations will be silent.
I think you shouldn’t worry about failing to negotiate much,
but think about winning customers if not now, then later.
What we should be concerned about is
why the person you contacted did not call you back?
Maybe some people feel shy and don’t want to give bad news to others.
You should make them comfortable,
or you’ll never find out what the real problem is.
If I were you, I would wait until the deadline passed,
then leave him a voicemail:
“I know that our date was yesterday,
and I just want you to understand that we are
still interested working with him in the future,
even if the answer to this deal is no.
So please give me a call.”
I do not mean to imply that successful negotiation depends entirely on a matter of strategy.
But the problem is how can you choose the right strategy?
Experience is a contributing factor to choosing the right strategy,
and so is instinct,
but I believe that the most important are the habits of mind
that I mentioned in the opening, especially the habits of mind.
Get used to questioning what you see,
assessing what’s underneath,
and figuring out what’s really going on.
That habit helped me get the best deal of my career.
As you know, my companies are located on the Brooklyn bank of the East River,
across from busy Manhattan.
Our first warehouse occupied most of the land on the waterfront.
Along that land is 178 thousand square meters of untapped waterfront land.
For many years I wanted to buy the land next door (52 thousand square meters)
and build a new warehouse on it,
but it was not for sale.
Then all of a sudden, during the recession of 1999,
all those 178 thousand square feet were sold just
as I was getting ready to sign a contract for another space a few kilometers away.
Immediately, I put the deal on hold and began to consider the possibility
of buying the land next door.
At first glance, it doesn’t seem like I stand a chance.
Although the land was quite cheap by Manhattan standards,
it was still beyond my financial means.
Moreover, there will certainly be a lot of competition with me.
I know many people would be interested in the opportunity
to purchase waterfront land for commercial development
as well as being right downtown and with panoramic views of the Manhattan skyline.
If there is a price war,
I will definitely lose.
But, like I said, that’s just the surface.
Is there a chance of a price war? I think not.
Most people assume that money is always the key factor in a deal.
But actually, there are many other factors,
and some of them may be more important than money.
Only the seller can tell you for sure what is the deciding factor.
Obviously, sellers will often be hesitant to disclose information,
the same reasons I don’t want the warehouse owner to know my preferences.
It’s better to let your partner speculate.
Furthermore, in this case,
the seller of the land is a bank with headquarters in the Netherlands
and offices in Iowa, so a real estate agent will take care of the deal.
I know the most important factor
for a real estate agent is to sell the land for as high a price as possible,
but what is the most important factor for the bank.
Perhaps the answer that is often taken for granted lots of money is not the right answer.
Fortunately, I have two employees, Ben and Sam,
who are very experienced in these matters.
(See chapter 15) Ben found out the identity of the banker responsible for the land,
and told him of our concern.
“Others are equally interested,” said the banker.
“So get in line.”
“But our offer was sincere,” said Ben.
“I have many sincere offers from companies larger than yours,”
replied the banker.
“Financial security of where are you?
I’m tired of not being able to terminate this deal.”
It turned out that the bank had mortgaged the land
from a guy who defaulted in the late 1980s.
The bank’s lawyers tried to foreclose on the land,
but the buyer thwarted them for many years with arguments with legal tricks.
Finally after owning the land, the bank signs a contract
to sell it to a real estate development company based on certain conditions.
When the conditions are not met, the transaction fails.
“I will not do this again,” said the banker.
Although the banker did not state the price he was asking for,
it was clear that price was not his top priority.
The bank signed a contract to sell the land at a very high price and also failed.
I thought about what the bank manager had said.
I think what he really wants is a solid and fast deal,
preferably by December 31,
when his owners will calculate the total sales for the year and see if he how well done.
I guess we could acquire the land for 20% less than the market price
if we could communicate good faith that would accommodate
what I consider the bank manager’s greatest concern.
When I use the word “communicate”, I do not mean the word “speak”.
The bank manager will not believe empty words.
We will need to demonstrate sound financial standing
as well as a deposit of at least 10% of our bid.
In addition, to demonstrate our commitment,
we will be required to pay a large non-refundable deposit.
Sam and I contacted an investment firm we knew in Washington, D.C., Allied Capital.
What we need is a letter of guarantee for the entire auction amount.
I recommend investors to join as partners.
Together we will buy the land;
I will keep the land next to my facility to build a new warehouse;
the remaining 126 thousand square meters will be sold
and investors will keep the proceeds.
I will have the land I want, and they will have a substantial profit.
Investors agree with my opinion on two conditions:
I must pay a non-refundable deposit myself,
and must find a participant as a partner committed to buy the remaining plots.
Finding that partner was easier than I thought.
I called a friend who owned a business in the neighborhood.
His property has just been redeployed as residential land,
and that makes it very valuable.
“Yes, certainly,” he said,
“I will buy some of your plots right away.
I’ll sell my land anyway,
and I’d love to stay here.”
So we have found all the elements.
We can offer a deal and close the deal quickly.
As long as the request is still valid,
we do not give any further conditions.
Other bidders will no doubt put a lot of emphasis on research
and appraisal of the surroundings,
but I know research on the surroundings of this property has just been done.
I have a copy of that study.
As for the appraisal, I did it for my own land next door.
Then why do I need another copy?
In October, the partners and I submitted bids
and asked the bank for their conditions.
The next day, a buy-sell contract was sent to us,
with a deadline of 30 days.
We were instructed to sign and return the contract along with a 10% non-refundable deposit.
Those terms were unacceptable,
but this made them even more accurate in their speculation about the banker’s priorities.
But we also prepared many things.
We recommend a signing period of 60 days, instead of 30,
and emphasize that we want only a quarter of the 10% deposit to be non-refundable,
not the full amount.
After about a week of exchange,
the contract was signed.
Sixty days later, we own the land.
I’m sure the other auctioneers will be amazed.
One of them is a large agency, setting prices 20% higher than us,
and I think there are many others who set even higher prices.
Immediately, after we signed the contract,
people started coming to us to buy unsold lots
for double what we paid for the entire property.
Even the bank’s lawyers were surprised by our success.
He asked, “How can you come to this agreement?”
and we just smile back.
Once the agreement was signed,
we transferred 25% of the land to the friend we invited to join in the first place,
and built a warehouse on 25% of the area.
The rest we sell to Trust for Public Land
(an organization that protects land for gardening,
building parks for the community) to make it part of a national park.
In a perfect world, all negotiations would end up like the ones I mentioned
both sides walking away happy with their most important goals achieved.
But the world is not perfect,
and not all negotiations are friendly.
Consider my argument with one of my previous suppliers,
who provided long distance transportation for my delivery business.
We pay this supplier in 30 days,
but because of their billing process and banking terms,
it took more than 50 days for them to get the cash.
This business requires us to pay faster.
We told them it was not our fault that they had to wait so long to receive their money.
If they want to get their money faster,
they have to speed up the invoicing process
as well as change the transaction bank.
We argued back and forth for a while.
They then announced that they would hold our item
until we paid the $6,700 they deemed past due.
I feel extremely angry.
In fact, I’ve been working with these guys for a long time.
I am a good customer and have referred many clients to them.
But now, instead of negotiating to find a reasonable solution,
they hold our goods in trust and force me to choose
between paying or self-destructing our relationship with a customer.
It’s not fair.
When I tried to explain to the owner of that business,
he ignored me, did not answer my phone.
So I asked my staff how much we owed the supplier in total
and was told it was $13,000.
I said, “Okay, pay $6,700 and release the shipment.
Then don’t give them another penny.
Let them sue us, and we’ll never,
ever do business with those people again.”
Unfortunately, controversies like this happen all the time in business.
or a partner can all give you a few nasty blows,
and you get angry.
So what will you do then?
Of course, I’ll call a lawyer.
That’s exactly what I did for the first 20 years of my business.
I have no qualms about suing the person who wronged me,
the word “concession” is not in my dictionary.
I am willing to sue those who have caused me great harm,
whatever the cost.
It was the experience of overcoming the risk of bankruptcy
that awakened and changed these thoughts in me.
After I filed for creditor protection,
a series of trials were held to determine
if my bank would allow my company
to declare bankruptcy or not.
I was harassed by creditors, and the bank didn’t want to get involved.
My only hope lies in the bankruptcy code.
Under chapter 11 of the code,
I can ask the court to order that my terms with the bank remain valid,
to compel the bank to continue lending us money.
With about 600 employees under threat of losing their jobs,
I think I have a big lawsuit, to the point
where I don’t even think about trying to negotiate another deal with the bank.
I’m sure I will win.
But the judge had a different opinion.
At the end of the first morning of the debate,
she announced that she was leaning toward the decision in favor of the bank.
I was really shocked and panicked.
I’m going to have to close the company.
With that in mind, I went to the bank’s attorney and offered a deal.
They didn’t even want to hear my suggestions
and they said, “You heard the judge.”
There was another debate that afternoon
and the judge surprised us again.
“At this point, I am inclined to accept the plaintiff’s motion,”
she said as we prepared to adjourn the trial.
“We will continue the trial tomorrow morning.”
On the way out, the banker’s lawyer said that they had reconsidered
and were willing to talk to me,
but now I’m not in a hurry to mediate.
The next day, the same thing happened again.
Finally, I realized that the judge was sending us a message:
she wanted us to come to an agreement.
During the break, my attorney and I,
along with the banker’s attorney,
found an agreement that,
while not truly satisfying,
was generally acceptable.
Back in the courtroom,
we informed the judge of our agreement.
She looked at me and said, “Mr. Brodsky,
you understand now, don’t you?”
I said, “I understand what you’re doing,
but I don’t understand why you’re doing it.”
“Then let me explain,” she said.
“The best deal in the world is when people leave a little bit unhappy.
You won’t be able to have everything you want here,
Mr. Brodsky, nor will the bank.
I could tell you what to do, but no It’s better if you think it out yourself?”
I negotiated a franchise agreement with a company to manufacture toys
of my invention for 8 consecutive months.
The negotiation process was extremely slow.
I sent a proposal to;
The company asked for some changes to the proposal and I gave in.
Then the company asked for more changes and I gave in again.
At that moment, the person responsible for contacting me insisted on bringing the contract
to consult with an attorney,
and the lawyer tore it in half.
So we had to start from scratch again.
After a few months like that,
I received a fax asking me to make a series of changes.
I couldn’t believe this and started to realize
that my bargaining partner wasn’t serious.
Whenever we were about to sign,
he wanted to change a few more things.
So when should I give up and switch to another manufacturer?
You shouldn’t be surprised by what happened.
Good negotiators always try to get the best deal for the company
by getting as much benefit as possible within the scope of the other party.
Your problem is that you let the other side set the rules of the game.
You should emphasize from the outset the separation of business
and legal matters and not let a lawyer influence the business matter
after it has been decided.
I recommend telling the person in charge of your communication:
“I’m sorry, but so far,
I’ve done my best.
I still think your company is the best choice for my product,
but you give me no choice but to find another partner.
Maybe at some point I’ll find myself being unrealistic
and then maybe I’ll come back.”
If he says you can’t come back, that means he won’t sign the deal.
It seemed to me a new discovery probably because she told me at a time when I was ready to listen.
Either way, her words completely changed the way I handled conflict.
Before that, in September 1988,
I was involved in 40 lawsuits,
many of which were being prepared for trial.
Since then, I have not brought any more arguments to court.
Everything will be fine when you accept to walk away from each argument with a little dissatisfaction.
You must prevent emotions from influencing business decisions.
You must not become angry or intend to take revenge.
You have to find solutions, not create problems.
You have to think about the possible consequences of causing trouble,
not trying to get everything you want.
In the process of finding that solution,
you can save a lot of money.
It’s not just a court fee,
for both parties,
but it’s also the time you spend thinking about the case,
worrying not to mention the time to testify
and wait for the trial in court.
You will find that using attorneys to resolve conflicts never works.
This reminds me of an argument with my long-distance carrier.
The supplier says I owe them an extra $6,500.
I said that by withholding the shipment,
they had breached our contract and threatened my relationship with the customer,
where I shouldn’t have paid them anything.
But if they take each other to court,
it will each cost at least $10,000 in court costs.
Once the misunderstanding is resolved,
then even the winner will lose several thousand dollars.
Meanwhile, we would spend months frustrated
and distracted from what we were supposed to be doing,
building each other’s businesses.
At first, the owner of the shipping line did not understand this.
He hired a lawyer who threatened to take me to court.
I called my attorney and said that I wanted to make an offer to settle the case for $3,500,
and that the offer was only valid this one time.
I know I’m still very calm.
After all, I can always pay the full $6,500, with no additional costs.
Meanwhile, the shipping line lost a good customer and had to pay extra legal costs.
In the end, we settled at $3,500,
and we both walked away a little unhappy.
First: Listening is the most important part of any negotiation.
Make sure you hear what they really mean.
Second: Enter the negotiation without prejudice,
and always assume that the other side is smarter than you.
Third: Develop the habit of questioning what you see on the outside
and dig deeper into what’s really going on.
Fourth: In a head-to-head negotiation,
the best deal is one where both sides leave with a little bit of dissatisfaction.