29th May 2008

Three keys to master deal-making

A friend of mine confronted me the other day with a challenge.

“Harry, you’ve written books on negotiation, sales, marketing and presentation. If you had to boil all the advice into one quick phrase what would it be?”

“KFC”, I replied.

“What do you mean KFC? I didn’t ask for nutrition advice.”

I explained, “KFC. The K stands for Know what you want. The F stands for Find out what you’re getting. The C stands for Change what you do until you get what you want.”

All great persuaders, sellers, negotiators, and marketers practice KFC. They know that knowing what you want is the first critical step in persuasion. The second step is to pay attention to the feedback. Feedback is not called the breakfast of champions for nothing.

If what you tried isn’t working you change what you are doing until you get what you set out to get in the first place.

So remember - KFC:

Know what you want

Find out what you’re getting

Change what you’re doing

Popularity: 100% [?]

posted in Big Deals, Deal Preparation, Master Negotiation | 2 Comments

22nd May 2008

How to become an expert negotiator

I have always been fascinated by how experts make decisions. Take chess. After a quick glance at a chess board, chess masters (who have 50,000 patterns stored in their memory) can play fast “blitz chess” with minimal loss of performance.

When we first learn a skill such as chess, we are novices, we learn by rules. Experts see things that are invisible to novices.

They notice:

  • Patterns
  • Anomalies
  • The big picture
  • Opportunities
  • Differences too small for novices to detect
  • Their own limitations

Experts, it seems, can rely on intuition because years of experience has given them the abilities to look for the “patterns” of whatever game they are playing.

As a result, when we teach negotiators, in our seminars we are always teaching to read the patterns.

We’ve found showing learners how to “read the patterns” dramatically accelerates negotiators learning and mastery.

Popularity: 62% [?]

posted in Deal Preparation, Master Negotiation, Perception | 0 Comments

15th May 2008

Power is often a state of mind: A tale from the Arctic wilderness

Brilliant negotiators know how to play a weak hand. They appreciate that power or the lack of all - is often a state of mind - a matter or perception.

Consider the problems an Eskimo trapper faces when he emerges from the Arctic darkness to trade his fox furs at the one and only trading post for hundreds of miles around. If ever a buyer enjoys a monopoly, it has to be the Arctic fur buyer. Yet the Eskimo knows just how to limit the power of the trader.

When a fur laden sledge carrying an Eskimo trapper, his wife, and family, emerges from the farthest wilderness on its six monthly trading mission, all the inhabitants of the village gather round to welcome them. The trapper and his wife enter the trader’s house for a big feast. All the villagers come in too, listening and looking on. Peter Freuchen, a Norwegian fur trader, describers what follows in his Book of the Eskimos.

We discuss the weather, the hunting in the summer, the dogs. The only matter we don’t talk about is foxes. Next day the same thing - eating, dancing, talking - and the next day and the next, until for my part I think that the hospitality has come to an end. Then I just casually ask the man whether he has caught any foxes this year.

“Me, foxes?” he answers. “Nothing doing. One is a poor hunter as far as that goes, but especially for foxes.”

“Well,” I say, “I’m sorry, because I’d like to have a few foxes just to send home to the white people’s country when the ship arrives next summer.”

“Oh!” the man yells out. The big, nice white man has made a mistake. “Oh, you don’t know how unable I am to catch foxes.”

“Well,” I remark, “I saw a couple of bags out on the load which is now on the meat racks, and I thought they contained fox skins.”

“Well,” the man says, “maybe there’s just a couple of skins in the bags, but we just use them to wipe the grease off our hands and other dirty things.”

“Good!” I say. “But just the same I might like to have some of them. What about looking at them tomorrow?”

Next day comes, and after breakfast I again have to encourage the customer to show his merchandise. Now comes the big moment of the year. They bring in a couple of sacks, each containing some fifty blue fox skins, and they have beforehand assured themselves the whole village is present to witness their triumph. As if they were being dragged to the gallows, they open the sacks and pour the contents out. Now it is my turn. I look at the skins, amazed, surprised and beaten.

“Well,” I say, “as usual, these are the best skins in the year. I knew they would come from you; and they certainly did. Here is something I will have to mourn about for years, because I am unable to get those foxes.”

The man raises his head, interested. “What did you say? Are they too poor for you to accept?”

“Oh no; not at all. Just the opposite. You will have to take every one of your skins back with you because I have nothing to pay with. The trading goods that came out this year were especially bad. We haven’t got enough of them and they certainly aren’t of a kind that can pay for such skins as yours.”

“Pay!” yells the man at the top of his voice. “You don’t think that I should show myself low enough to take any pay for these poor skins?” I will feel myself happy if you’ll accept them.”

Finally I put in a question. “I am unable to pay for the skins but anxious to show my gratitude through my poor gifts. What could you be thinking of wanting in case I should be presumptuous enough to compare my unworthy goods to your valuable furs?”

He starts in. “What do I want! What do I want! Oh, I am a man without wishes. I don’t know if I want anything.”

It is then up to me. “Don’t you want a gun?”

“A gun! A gun! Oh, a gun had been in my mind and in my dreams for a long, long time; but I, the man you listen to now, am a terrible hunter. Why should I have a gun?”

“Well, I will give you a gun. You need a knife too, and you need some tools. And what more?”

Now that the big time is here he doesn’t know what he wants. But I have the skins, so I invite the man, his wife and his children to go into the store and look the things over. They get the key and go down to the store. They go in, closing the door carefully behind them, and spend the rest of the day going through everything.

Meantime, I get a chance to look these skins over and figure out my prices, and finally, in the evening when the couple comes back, the man has his wishes. He never tells what he wants, but he relates of what knives he saw, both those with the white handles and those with the brown, and the small ones with the point.

He goes on: “And then I looked at the files. My what beautiful files. And I saw out there you have axes.”

He is interrupted by a sort of yelling or crying from the background. It is his wife, carefully instructed by him, who now breaks in complaining what a bold and fresh husband she has, keeping on asking like a beggar even when it has been proved to everybody that he has nothing to pay with. This, of course, only serves to cause me to protest that his skins are marvelous, unmatched so far, etc.

I turn to the wife. “What about you? Aren’t you going to trade? Don’t you want something?

She blushes and looks for a place to hide. “Me? Certainly not! What should I want? Am I one who deserves anything? Oh, no; I have no wants, no wishes at all.”

“But wasn’t there something that you would like?”

“I would like to have — oh, I happen to be without wishes; only those people who are worth something should have something.”

“Well, but I just want you to take something with you.”

After several more excuses, she tells what she might like to have. A few needles. And she wanted some scissors, and she wanted thread. Maybe for the children some undershirts would be good, and some for herself; also combs. And “I would like to have a mirror, even though I, of course, will never look at myself in it.”

The wife keeps on asking, and finally I have to stop her from asking for more. Meanwhile I have figured out how much they can have for each skin and write it down on a piece of paper, sending them out to my clerk, who now is in the store ready to deliver the goods. Now the clerk has his troubles out there while they are making their choice between the different cups, the different kettles, the guns and whatnot.

And now comes the end of the trading, where they show their smartness and prove what fine businesspeople they are.

The man will come running in. “Oh, I’m so sorry; when I told you what my needs were I forgot to ask for tobacco. I’d like to have some tobacco.”

“All right.” I allow him the tobacco.

A few minutes after he will be back with his purchases.

“Well,” he will say, “I saw a knife out there I would like to have instead of this one, though it will ruin my sleep to part with this one, too.”

I let him have the knife.

The wife will be there. “There was also some red cloth.”

Then the man comes again. “I have the whole time been thinking of a saw, but the tongue refuses to pronounce the word.”

I let him have the saw. And they keep on. The only way to stop them is to have lunch ready. And the deal is closed.

Next day departure takes place. The dogs are harnessed up and attached to the sledge. But sure enough, he comes in at the last moment: “Oh, I forgot matches! Why didn’t I mention a saw file! If I had only asked for a little more goods! Enough for a harpoon shaft.”

The smartest man is the man who remembers most. He gets a reputation amongst his countrymen. Of course the perfectly straight-minded man doesn’t know about this and doesn’t allow for it, but the seasoned trader keeps back four or five fox skins to make up for the forgettings and additional wishes.

When everything is loaded on and woman and children place on top of the sledge, the man gives a signal to the dogs to rise up and be alert. Then I come out with a package in my hand, giving the wife some tea and sugar, or whatever else I know she would like. Of course these things have been allowed for too.”

The Eskimo showed all the skill of a master negotiator. From the start he involved the whole village in the negotiation. The villagers witnessed many of the proceedings. As a result the fur trader was always under public pressure to behave fairly and reasonably.

By playing the role of the reluctant seller the Eskimo forced the trader to publicly state how marvelous the furs were and how much he wanted them.

The Eskimo used time well. Throughout he displayed great patience; there was never any hint of desperation to sell.

Before they got down to the actual trading, the Eskimo and his family spent a whole day in the store sorting out their priorities. The actual trading was carefully orchestrated with his wife chiming in at opportune times. Then after the trading had supposedly ceased they were not averse to extracting a few last minute extras.

In short, the Eskimo understood the different ways power can be used, and exploited each of these to the fullest.

Popularity: 60% [?]

posted in Deal Stories, Master Negotiation, Perception | 0 Comments

8th May 2008

How to guard against deception in negotiating big deals

“He has eyes to see and ears to hear may convince himself that no mortal can keep a secret. If his lips are silent, he chatters with his fingertips; betrayal oozes out of him at every pore.” -Sigmund Freud

The best was to curtail deception is to reduce the odds of it ever occurring in the first place.

Given lying in negotiation is endemic, how do you uncover lies and counter deceptive moves without compromising your credibility? Here are some practical tips:

  • Guard against deception. The best way to curtail deception is to reduce the odds of it ever occurring in the first place.
  • Ask direct questions. Research shows negotiators are much less likely to lie when faced with a direct question.
  • Turn all your information gaps and assumptions into questions. Then test for consistency by asking multiple variations of the same question.
  • Research the other party’s reputation. You need to protect yourself against negotiators who are prepared to lie and manipulate to gain an advantage.
  • Keep a written record of all verbal claims and assurances. Negotiators are less likely to lie when written records are kept.
  • Verify material information wherever possible. Negotiators are much more honest when they know you are prepared to check out any claims or representations.
  • Ask for written representations and warranties. Don’t just take their word at face value. Ask them to write it down and warrant that it is true in a legally binding agreement.

Popularity: 68% [?]

posted in Big Deals, Deception, Master Negotiation, Perception | 0 Comments

1st May 2008

Are you dealing with delusion when you negotiate?

In my book, The StreetSmart Negotiator (Amazom, 2005) I list a number of psychological persuasion traps deal makers fall into. Like it or not, negotiators are not always rational, Dr. Spok like characters.

Minds play tricks on the very best of negotiators. In mergers and acquisitions, the time when negotiators are most vulnerable to mind traps is during the price setting stage - when we are conducting the preliminary due diligence.

Overconfident negotiators often overlook evidence that points to deal problems. They fall victim to what behavioural psychologists call confirmation bias.The very time you need to guard against overconfidence and confirmation bias is during the preliminary due diligence. It is here that you formulate your letter of intent which includes your price range, which you hope will propel the deal forward.

Since deal makers rarely recover from an initial offer that’s too high its a mistake you have to guard against or you’ll make the same fatal mistake as Career Education Corporation (CEC).

In Deal without Delusions (HBR Dec 2007) McKinsey authors Dan Lovallo, Patrick Viguerie, Robert Uhlaner and John Horn highlight the case of CEC paying $245 million - 14 times its annual operating earning for Whitman Education Group in 2003 (the historical multiple in this industry is six to eight times earnings).

CEC executives rationalized the sector was in a phase where high prices were the norm. They weren’t. Prices have fallen back to their historical levels.

Overconfidence coupled with confirmation bias is a fatal mix when acquiring companies. So beware!

Popularity: 58% [?]

posted in Deal Preparation, Negotiation Mistakes, Perception | 0 Comments