Before entering into any business agreement, you’ll need to negotiate the terms. There are a multitude of negotiation books on the market. While some offer worthwhile advice, many offer dubious tips (i.e. making the other party wait an inordinately long time for a scheduled negotiation meeting, or seating the other side in a chair deliberately shorter than yours to subconsciously signal your superiority).
Below are seven overarching principles that govern just about any business negotiation a lawyer will deal with. Keeping these principles in mind will help you approach every negotiation prepared, confident, and ready to negotiate like a seasoned pro.
- Knowledge is power. The party with more information usually has more leverage. The more information you have, or can gain, about the other side’s business, the industry, and standard terms for the type of agreement you look to achieve, the better equipped you’ll be to achieve your client’s interests. For example, if you know the marketplace for the vendor’s services by reading trade periodicals and you’ve done deals like this before with various other similar vendors, you’re in a much better position to negotiate the best deal for your client.
- Frame the negotiation. You may be able to create an advantage by choosing the location, time, and order of the issues negotiated upon. For example, many lawyers believe that the attorney who creates the first draft of an agreement puts herself in the driver’s seat. Likewise, taking the lead in discussing the subject matter and guiding the issues negotiated can give you an advantage. No matter how you assert yourself in the negotiation, maintaining control helps you stay focused on achieving your client’s objectives and keeping the discussions on track.
- Keep your eyes on the prize. Prioritize your client’s “must-haves” before entering any negotiation. Key issues in almost every deal include the following (1) what are the payment terms? (2) what actions or inactions constitute a breach of the agreement? (3) how can each party get out of the contract and procedures must they follow to do so without triggering their own liability to the other side? Aside from those key questions, you need to know what your client’s top priorities are – usually the business and profit-generating aspects of the deal - and how their other priorities rank after that. This will help keep you focused on your client’s overall goals in the agreement and give you an idea of what conditions are less important. Knowing which issues are of interest, but not deal-breakers, to your client will give you bargaining chips you can use to trade concessions with the other side.
Knowing the relative importance of various terms to your client is key to keeping a deal alive. Negotiations can fall apart because some parties take an “all or nothing” approach. When you have prioritized what items are most important to your client and what items you have some wiggle-room on you can effectively “give-and-take” with the other party. This way, you are better able to stand firm on your client’s non-negotiable points while also having the flexibility to concede some of the less important issues. This paves a way to both parties viewing the outcome as a win-win and sets a positive tone for the upcoming business relationship.
- What’s market? It’s highly beneficial to know what standard market terms are for various terms in your agreements. For example, if you’re working on an employment agreement with a non-compete provision, is such a provision enforceable in your jurisdiction, and under what terms? It is important to know whether courts in your jurisdiction will enforce a state-wide restriction or whether they typically only enforce a five-mile radius from the workplace. Knowing what parameters are standard in the marketplace for the type of deal you are working on will give you insight into whether particular provisions are fair to your client or lopsided in favor of the other side. When you sense the other side is overreaching, you should emphasize the terms you are suggesting are more in line with the marketplace then the terms they suggested. Tell them your terms are standard in the industry and the onus is on them to convince you why an exception should be made in their favor. This discussion may open other opportunities for them to make concessions in your favor elsewhere in the agreement.
- Softening the other side’s hardline stance. If the other side takes a hard line, don’t get flustered. Make the negotiation more conversational and ask why they are unwilling to budge on certain terms you need them to be flexible on. Once they explain to you their motivations behind certain terms, it paves the way to understanding. You can engage them by saying, “I understand where you’re coming from, and see why that is important to you.” Give them the chance to be heard on their stance and let them know you understand where they’re coming from even though you may disagree with it. They may then be more willing to resolve the impasse by using carve-outs to remove the objectionable language while still giving your client what it wants. Discussion of each other’s interests and motivations allows understanding and shows you’re interested in making, not killing, the deal.
- Know when to walk away. Eventually, all attorneys will encounter opposing counsel who is unwilling to be flexible in their position and such intractability brings the negotiations to gridlock. In this type of situation, you need to be creative and remain mentally flexible in finding a solution. However, at some point, it’s wise for your client to cut her losses and move on to other options. One of the most important things to keep in mind in negotiations is your client’s walk-away point. If the other side is being unreasonable and will only do a deal with onerous terms for your client, you need to be confident that not doing the deal at all is an option for you. Sometimes, the best deal may be the deal you don’t do.
- Wear your business hat, as well as your lawyer hat. Many executives consider lawyers to be “deal-killers.” Negotiations don’t need to be adversarial. As attorneys, we’re trained to issue-spot and find all the potential risks and problems for our client. While those are crucial skills, it is dually important to convey to your client that you have your eyes on the big picture as well and are negotiating to facilitate a deal rather than to end it. Establishing a cooperative and collaborative tone with the other side can help set the stage for effective negotiations and ultimately realize your client’s goals in securing the deal.
The types of business negotiations you can have are as varied as the types of personalities on the other side of the proverbial table. Despite the unknowns prevalent in any negotiation situation, keeping the above seven principles in mind will allow you to center yourself and keep focused on getting the best results for your client.