People often have a very “Hollywood” view of business negotiations.
They imagine several men and women in suits entering a boardroom for a winner-take-all negotiation that lasts for hours. It’s a game of wits. A mental match between the two sides that determines the fate of a company.
Sometimes, a scene like this happens. But the reality is, there are plenty of steps you should take before those negotiations that are equally important — if not more so.
The most important action you can take in a negotiation is creating a sense of scarcity.
Some form of scarcity is always key because people relate it to value. Think about the offers you get in your “promotions” inbox.
Limited time only! Sale ends tomorrow! Supplies won’t last!
It’s all meant to create the sense that by waiting, or not following through, you’re missing out on a valuable opportunity. Fear of missing out (FOMO) is very powerful.
When people feel like they may be excluded from a situation, the value they place on it rises dramatically. And creating that sense of scarcity is invaluable to your cause when negotiating.
Here’s how it looks in action:
You have to exclude people.
To see how this works, here’s an example from the book Coopetition by Adam M. Brandenburger and Barry Nalebuff:
A professor gives each of the 26 students in his class a blue playing card. He then tells them he has in his possession 26 red playing cards. And the dean of the school will pay $100 to anyone who can turn in two cards — one red and one blue.
The only stipulation is that the students have to bargain with the professor individually. They can’t act collectively to gain an advantage. The idea here is that the outcome should always be the same: The professor and each student hold equal power, so they’ll always agree to split the money 50–50.
But what happens in a scenario where the professor only holds 23 red cards while each of the 26 students still receives a blue card?
In this case, both the professor and the students know that three people in the class will be excluded from receiving any money at all. If one student tries to use tough negotiating tactics, the professor can always move on to another student to get a better deal. If a student doesn’t agree to the professor’s terms, he or she risks being excluded.
Now, even an 80–20 split starts to look good to the students. That’s the power of exclusion.
The sense of scarcity creates value in most people’s minds.
When students in the study realized they may potentially end up with nothing, they became more willing to negotiate. Suddenly, leverage has shifted to the professor.
This concept applies to business negotiations as well.
In many negotiations, not much happens until one person becomes interested. Once one party gets involved, anyone else eyeing the deal risks losing out.
Imagine you’re looking to acquire a company, and there are no other serious competitors. In that case, you have plenty of leverage to dictate the terms. But the scarcity effect comes into play as soon as another company becomes interested in acquiring the company you’re after. Suddenly, you may have to compromise if you want to beat out the competition.
The potential loss of opportunity is what pushes people towards action. When people think you have other options, they become more willing to negotiate on your terms.
There are ways to introduce scarcity and drive action.
Many people think you have to constantly play hardball if you you want to get the best deal. But one of the best ways to create a sense of scarcity is simply by being credible and trustworthy.
If you constantly cry wolf — telling people you have interested parties when you really don’t — eventually your ability to drive action will dwindle. People simply won’t buy your spiel about scarcity anymore. It’s the same reason you ignore all those emails about “one-day only” sales. You’ve heard it all before, and you know that sale will come around again soon if you just wait.
You maintain credibility when your story sticks close to the real situation and you tell certain truths. You may not want to be completely transparent, but you can’t build credibility by deliberately misleading people.
Also keep in mind that consciously or unconsciously, people will pick up on the signals you’re giving them.
When you really do have alternatives, you act differently. Your responses become more neutral. You spend less time trying to convince people because you know you have other options. Even your body language may change along with your mindset.
And just as most people can pick up on desperation, they can also tell when they’re beginning to lose leverage. That sense they might be excluded from the deal — that their position isn’t as strong as they thought — is exactly what drives action.
In any negotiation, that should be the feeling you attempt to foster before you ever sit down face-to-face.