I’m sure some people have had success approaching negotiations this way. Typically, the better-prepared party wins in a negotiation. Three concrete strategies you can employ to help you reach the outcomes you’re targeting: know your bottom line, be your opponent, and plan your reaction matrix.
Let’s get started by explaining what I mean by each of these.
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Calculate Your Bottom Line
Everyone approaches a deal to try to achieve their maximum or minimum price. But the other step too many people overlook is establishing what the lowest acceptable price might be. For example, I am working with a software company CEO looking to sell his business. Optimally, he’s looking for someone to pay $225 million for the business. But what if the best offer he receives is $125 million? Is that enough to close the deal?
Answering the question of “how low will you go?” is a highly effective way to plan for when you might need to walk away from a negotiation, barring some miraculous terms. I have written before about the balance between price and terms. You need to know the point at which, if you get any offers below this point, you won’t sell. You might want to consider the essential terms and the price you desire. In the case of the CEO, he also needed to gain this clarity from his private equity board.
The opposite dynamic is also true if you buy the company. You need to understand the highest possible price you are willing to pay; if the price tag exceeds that threshold, you’ll walk away. Of course, terms can modify this decision. An all-cash deal and a deal with extended payment, even at the same price, aren’t the same.
Be Your Opponent
The second strategy you can use in a negotiation is to spend some time thinking like your opponent. Try being inside their heads for a bit to help better understand what they want from the talks. This is especially important if their desires are different than yours. I love this approach because if I can figure out the motivation for the other side, I can predict their moves.
For example, if you’re selling your fast-growth company to a larger corporation, the needs of the deal might vary considerably. As the founder, you’re hoping to sell the company, ensure your team is protected and that the company will continue to thrive. On the other hand, the Executive VP in charge of the deal from the buyer side is more worried about minimizing risk in the agreement and ensuring that it doesn’t blow up in his face, limiting their career. This insight means they might trade price for risk, a key opportunity in the negotiation.
If you think like the buyer, you can better understand how to negotiate and structure the deal to protect the downside and risk levels while maximizing your price.
Ideally, the better you understand the buyer (or seller), you might be able to identify areas that matter more to them than you–which can form the nucleus for striking a deal.
Build A Reaction Matrix
Once you understand your bottom line price and have spent time thinking about your opponent’s needs and motivations, it’s time to map out your game plan. I call this a “reaction matrix.” Not unlike how a grandmaster can map the first ten moves in a chess game in their mind, you can create a spreadsheet to map out the moves–and countermoves–you’ll run into in your negotiation.
While some people might think ahead to how someone might react to their first proposal–if I do this, then they’ll likely do this–the real magic happens when you go to the next level. And, even better, the level beyond that. In other words, you have thought ahead and mapped out your moves based on your opponent’s reactions three layers deep. That is a three-deep reaction matrix.
No one does this–which is why you can turn it into a significant advantage. When I’ve used this approach in a negotiation, I’ve almost giggled out loud when things play out exactly as I anticipated. I have spent many sleepless nights before a negotiation thinking through parameters, moves, and countermoves, so the game day was predictable. But the loss of sleep was priceless in creating the outcome.
What’s powerful is when you can give concessions to your opponent that they value–but mean far less to you. The better you understand your opponent, the more you can predict their behavior and offer them terms you know will get the deal done. Terms you are happy to provide.
Closing The Deal
When you combine these three steps, knowing your price, understanding your opponent, and creating a three-deep reaction matrix, you’ll be the best-prepared person in the room. You’ll take the next negotiation beyond a mere exercise in gut instinct and turn it into a tactical plan that gives you confidence and even certainty that you can close the deal you want.
