7 Types of Negotiations Every Entrepreneur Faces

We often think of the art of negotiation as the sole domain and expertise of lawyers and law makers. It is often accompanied by contracts, money transfers and large deals, which due to their sensitivity are managed by law firms. However, negotiation is a skill we all have to master in our day-to-day lives. Think of that time you negotiated your salary bump, your rent lease contract and even the location of your family vacation. These are all negotiations in which you could have used the skills and tools used by professional negotiators.

I recently graduated from the Executive Program on Negotiation from Harvard Law School. During this program I had a great chance to learn and practice negotiation skills from the top negotiators in the world.

Being an entrepreneur, I have never considered myself a professional Negotiator. However, I was constantly negotiating with investors, my team and others. Being a negotiator is a mindset. It is composed of being aware of the art of negotiation, having the tools and lots of practicing. Today, I consider myself a professional negotiator. I approach things from a different perspective based on the ideas and methodologies on which I was trained at the program. I view the life of an entrepreneur as a life of a great negotiator. I’d like to share with you here the different types of negotiations entrepreneurs face.

  1. Negotiating with yourself

Negotiating with yourself, is probably the most difficult and important type of negotiation you will encounter as an entrepreneur. Building a company or a non-profit beholds many tough decisions and challenges, in which your biggest critical counterpart is Yourself.

Preparations for negotiations include the important part of trying to get into your counterparts’ mind and understand them and their objectives. Since you know yourself best, preparation could get very tough because you know your counterpart’s objectives very well and they (you) know your objectives too.

My biggest challenge as a founder was negotiating with myself whether to shut down my startup and move on to the next venture, or not. Our company didn’t manage to raise enough capital to continue working full-time on our product so I urged my team to pursue another job to make a living. However, I was still negotiating with myself about the future of my idea and dream to build the compnay. Entrepreneurs often get emotional about their ideas and products, and making the decision to let go of their dreams is an extremely painful experience — sometimes impossible.

Sometimes, an effective tactics to deal with this type of negotiation is to involve another negotiator who may see things objectively. It could be a friend, a professional colleague — someone you trust. Another thing I recommend to do is taking a video of yourself making arguments for both sides of the table. This let’s you get a view of your negotiations from different point of view, hopefully more objective, that will help you making the right decision.

2. Negotiating with your co-founder/s

Your relationship with your co-founders is fundamental to the success of your startup company. Starting a company and developing a new product usually requires more than one entrepreneur. Having one or more co-founders brings diversity and innovative thinking to the compnay. It creates a psychological mechanism which helps confronting with the hurdles of building a company — each co-founder pushes the limits of the other. It is important that all co-founders feel good about their share and their role at the company. One of the most common reasons for startup failure is the clash between co-founders which translates to lack of productivity and motivation. When management does not get along, it is reflected to the rest of the company. A management with unhappy co-founders cannot direct the company in the right path of success.

Co-founders should negotiate constantly among themselves. They should negotiate about their terms, timelines, business decisions and vision. They should be transparent with each other and make sure they have common objectives for the sake of their company’s success. You will hear from many founders that splitting the equity equally is the best way to split equity shares, but this is just one piece of the puzzle. Co-founders should aspire for a win-win situation, the ideal state for them and the company — financially and professionally. Co-founders should know that almost all disputes can be solved internally without the need of a dispute lawyer, if only the co-founders listen to each other.

Your co-founders should understand that you will have many negotiations to go through in order to grow your business. You will be better off forming a coalition to negotiate with investors, customers and partners. A coalition according to Harvard Law School is “a group of parties whose interests are aligned , who share positions, might act together and coordinate strategy and tactics.” By resolving and negotiating between the founders first, you could build a winning coalition of co-founders.

3. Negotiating with your Family

Building a new company means spending a lot of working hours growing your business and experiencing many stressful moments. One of the main issues entrepreneurs deal with is uncertainty — personal and financial. The decision to start a startup affects not only you as an entrepreneur but also your family. Therefore, this decision, in my opinion, should be taken with your family. Your spouse and children would be affected by your decision to start your venture. Throughout your entrepreneurial journey, you will experience highs and lows, there will be times when you are on the top of the world, and times when the only thing you want to do is stay in bed, not talking to anyone.

Negotiating with your family about your entrepreneurship journey is not an easy task and involves emotions. If you invest personal money in your venture, you will have to think not only about your startup but rather about your family’s financial future. There are many cases of entrepreneurs taking high risks and causing their families to go bankrupt. Always remember that it is your family’s money you invest — so do it responsibly. Time is even more expensive than money, so they say. There will be times you will need to stay late with your team fixing a bug or doing a product launch, but you have to negotiate this with your family. Negotiating being an entrepreneur with you family will require you to think about their interests as well as yours. This is done by creating value. Try to create value for your family from being an entrepreneur. Understand how you can reach a win-win situation in which you spend enough time with your children and get things done with your startup.

Being an entrepreneur is a lifestyle and as important your startup or idea may be, your family is important tens times more. If this startup fails, there will be another one. But you’d like your family to support you in the first, second and fifth ventures.

4. Negotiating with your users/customers

One of the most important skills of an entrepreneur is the ability and agility to listen to your users. Every entrepreneur loves talking to users who appreciate his or her product, however, listening to critics by users is a very tough and emotional task. Furthermore, it is the users who criticize you from which you learn the most.

When designing your product, think about it as a negotiation with your users. Think about offers and features which will meet their needs and interests, but also about your interests as a business. You need to supply good offers for them. The best advice that I received from a VC once was ”never sell something you won’t buy”.

Think beyond the “table” of negotiations. If you are selling shoes like Zappos you should understand that in order to build good relationships your users and make them happy, selling shoes might not be the only path. You should negotiate the terms and services with your users that will make them buy shoes from you. In his book “Delivering Happiness: A Path to Profits, Passion and Purpose”, Tony Hsieh, co-founder and CEO of Zappos describes how the company was creative and thought out of the box by building great support and customer service. He gives an example in which the company helped a customer order Pizza when she couldn’t find anywhere to buy one — Pizza not shoes! This shows you how sometimes being active indirectly with your counterparts might help you lead to an agreement and reach your goals.

In order to know what will make your users happy and satisfied, you need to do what every great negotiator does — prepare. You need to research about who your potential customers are and why they would use your product. You will also have to understand the market and your competitors. You have to get to know your counterparts. What they like, their habits, their problems.

5. Negotiating with Investors

Negotiating with investors is probably the most common negotiation type people talk about when they are addressing negotiations with entrepreneurs. When you raise capital for your startup, you meet investors of all types: angel investors and venture capital investors. If you are a first time entrepreneur, you will be amazed by the very experienced investors you meet. You may give a pitch at a high class office with an amazing view. Don’t let this distract you. In a negotiation, both parties want to gain something out of the deal. Usually the investors bring capital, connections and hopefully guidance and experience. But don’t forget that investors need you just as much as you need them.

When you come to a meeting with an investor I have two important tips for you. First of all, prepare. Read about your investor, his/her personal life, hobbies but also about recent investments they made. Try to put yourself in their shoes and understand what they might be looking for. Another thing that I have done is reach out to entrepreneurs who the investors have invested in and ask them about their relationship with them. Second, listen to the investors. When entrepreneurs give their pitch, they are so focused on convincing and telling their story, that they may not be present at the meeting. Amy Cuddy, a Professor at Harvard Business School, writes in her fabulous book “Presence: Bringing Your Boldest Self to Your Biggest Challenges”. Investors want to see you engaged. They want to hear how you think, so listen actively and ask questions. Whether the meeting leads to writing you a cheque or not, the best advice that I could give you is to take this chance and learn from this meeting.

When an investor decides to write a cheque for your startup, this is the beginning of a long-term relationship. Some will argue that it is just like marriage and this is the reason why not every investor may fit you and your vision. When meeting with investors don’t just think about that specific meeting, but think what kind of relationship you wish to form with this investor. It might be that he or she won’t write the cheque for this round, but if you build a relationship with them, they might contribute later on in the game, or even in your next venture.

6. Negotiating with Service Providers

When building a product, you will need the assistance of many service providers. For example, when building an online service you need to store data and analyse it. For example, Amazon AWS and Google Cloud are both very good companies which you may consider to work with. Always remember that you can negotiate the terms with those companies.

As a young startup you may get credits to build your data storage and host files. If you build a relationship with the people in these companies and bring value to their community, you could negotiate for more credits but further than that you may negotiate other things like better support, joining conventions and meetings, and being featured on their events and websites.

In negotiations, always know your playground. Even if you are negotiating about money or credits, there is a large spectrum of things you could gain which are not necessarily money. Your service providers can help you in other ways, and you should be creative about finding those things. The professional term is ZOPA (Zone of Possible Agreements). It is the distance between what you want to gain, and what you counterpart wants to achieve. According to the Harvard Law School “ZOPA is much more than two numbers. It represents a cloud of issues that matter to both sides”.

7. Negotiating with your Team

The core of negotiation is about building trust. I also believe that trust is at the core of building a great team. When you recruit your team, you want to surround yourself with the best people out there. You want to lead your team with the same goals and objectives. In order to achieve this you must build trust.

But how do you build trust? First by listening to your team. Let them understand that their opinion counts. If you have chosen great people they will have great ideas, and you should trust them by working together executing those ideas. Second, give them feedback. Be honest with them. When they are doing something great, let them know, and if they need to improve show them how. Third, don’t be afraid and be open to receive feedback. Building trust is a two-way communication. If you aren’t open for feedback and learning from your team members, they would be reluctant getting feedback from you.

Like in all relationships, the number one reason for a breakup is lack of trust. No matter if it is a romantic relationship, between good friends or with your team, trust is essential for a healthy relationship to strive.

Managing a team is much like a set of infinite negotiations. If you have a great team, you are probably surrounded with talented and smart people who have opinions about everything. As a founder or a CEO of your company you should balance your team’s ideas with the objectives of your users, your board of directors and investors. You will have many situations in which you will negotiate how to design your vision to work in harmony with everyone’s objectives.

Conclusion

In conclusion, if you are an entrepreneur or a leader of a non-profit start think like a professional negotiator. Take a course, read online articles, case-studies about negotiations — and practice. I would also think of a great negotiator who could inspire you. You can check the Harvard Great Negotiator program in which once a year they choose a great negotiator and interview him. You do not have to be a lawyer to become a negotiator. Master the skills of negotiations to become a better leader, manager and entrepreneur — a better person. It will help you not only to get funded but also to create better products that people love.

More by Illai Jacob Gescheit

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