Negotiating in peace time is difficult enough. It is not always easy to accept that wholesale agreement with your proposition simply cannot be reached.
But successful negotiation is not a zero-sum game. It is, instead, a resolution that is acceptable to both parties.
Recently, I attended a seminar with Niro Sivanathan, from London Business School, who shared wisdom on the skilful art of negotiating disputes in troubled times, acknowledging that negotiating a dispute is very different from negotiating a deal and requires an alternative approach.
COVID-19 has indeed signalled very troubled times for many sectors and Sivanathan’s observation —that negotiation is critical for all businesses at the moment — rang true for me.
Startups, along with all businesses, will inevitably find themselves in conversations with suppliers, landlords and investors as they seek to reduce costs as a way of increasing profit or minimising losses to investors. Negotiation is, of course, one way to increase runway when the future is so uncertain.
Losses loom large
Our view of successful negotiation is skewed by the simple fact that losses loom larger than gains. Many people approach negotiation with an inflexible “win at all costs” mindset and anything that is not a complete victory must therefore be a painful loss.
The ‘prospect theory’ explains how loss is amplified. In developing their theory Daniel Kahneman and Amos Tversky found that the pain caused by losing $1000 could only be compensated by the pleasure of earning $2000.
So, for those who are negotiating, this has two important applications. Firstly, when entering a negotiation, success or failure is not measured by how much one concedes to their opponent. And secondly, in the language of negotiation it’s important to frame the conversation with the opponent around how much they could lose if they don’t come to a negotiated agreement.
Emotions run high
It was John F. Kennedy who once said that negotiations are not possible with people who say “what’s mine is mine and what’s yours is negotiable”. This unhealthy and unhelpful starting point will inevitably invoke negative emotions.
The most difficult part of negotiation is stripping out emotion and dealing with the reality that both parties must lose a little for this to be successful.
Negative emotions have negative consequences for negotiations. It is important to understand your own, and also the other party’s, potential negative emotions and seek to overcome these.
Understanding all the alternatives
Niro Sivanathan also spoke of the importance of understanding your own and the other party’s BATNA, this is the best alternative to a negotiated agreement. This refers to the most advantageous alternative course of action that each party can take if an agreement cannot be reached. BATNAs for each party are always interlinked in a dispute.
A timely example is the negotiation of commercial rents with landlords. In this case a renting startup’s BATNA may be to give notice, leave the building and have its team work from home, whereas the landlord’s BATNA may be to evict the startup and find a new tenant.
Negotiating an alternative to both of these outcomes will arguably lead to a better result for the landlord who is likely to struggle to find a new tenant in the short term. It may be a more favourable outcome to offer a rent-free period with a view to returning to normal rates when the crisis passes.
This will enable the startup to keep its premises while the landlord has greater certainty that they’ll still have a paying tenant in the medium term.
The battle of power, rights and interests
According to Sivanathan there are three approaches to solving disputes: power, rights and interests. Power is a heavy-handed coercion approach that has little regard for the other party.
Focusing on rights is a black-and-white approach where winner takes all. The ‘interests’ approach is the most gentile and involves both parties focusing on the other person’s underlying needs, and aims for a negotiation that reconciles the differing interests in a way that addresses needs.
This latter approach is often the most productive, stripping out negative emotions and adding empathy and understanding. It also leads to a higher level of satisfaction than the other approaches and makes for a better relationship moving forward.
For a startup that is in the right, an effective approach might be to acknowledge the right before segueing into interests as this will show generosity and willingness.
Take the example of a startup that is negotiating with an existing customer who is trying to break an agreement. The startup’s interests may be to ensure the customer keeps using the product (so the startup can demonstrate user engagement and product market fit), to generate revenue from the customer, and to use the customer as future reference.
The customer’s interests may be to reduce costs, focus on core business activities and to allow its employees to effectively work from home. Instead of focusing on rights and power, such as the contract or invoice terms, the startup’s negotiation will be most effective if it can find a way to achieve as many of the customer’s interests as possible.
Prepare for peace
Preparation for a negotiation yields better results for all parties. And it appears that so much of this preparation is about understanding the other party’s situation, pre-empting negative emotions, understanding their potential losses and knowing their interests.
We are all doing business in unprecedented times and a willingness to find an acceptable solution for all parties will lead to loyalty and goodwill well past the fallout of COVID-19.
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