Remember when cars didn’t have electronic fuel gauges?
There was just a thin little needle that swung from Full to Empty. And it was up to you to figure out how far you could go before you ended up on the side of the road.
Growing up as a teenager from a lower class immigrant family, fuel was like gold. So I quickly developed an intuition for just how much I could push my luck with that fuel gauge before I ran out of gas and had to call home for help.
Little did I know that years later, that very skill would serve me well in high stakes corporate negotiations with millions of dollars on the table.
WHAT HAPPENS WHEN NEGOTIATIONS RUN OUT OF GAS
Unlike a car, when your negotiation runs out of gas you can’t simply get out and keep walking in the same direction.
If you reach an impasse (a real impasse, not something being used for leverage or positioning) and neither side is willing to concede on the point, you’re done.
Any further discussion on that point shows that it was never really a deal-breaker…or worse, the side that’s willing to concede doesn’t understand the implications for them in the deal.
We’ve talked in the past about how negotiators should translate the requirements of the party they’re representing in negotiations.
But it’s equally, if not more important to understand the breaking point — both for the party you’re representing and the folks on the other side of the table.
SIMPLE QUESTIONS TO FIND THE BREAKING POINT (ON BOTH SIDES)
Luckily, the breaking point usually boils down to one or more of the following:
- What’s the number? In any transaction that requires the purchase of goods and services, there are 2 sets of numbers: the buyer’s number and the seller’s number. It’s easy to figure out your number — but you need to know their number as well.
- What are the non-negotiable legal terms? I’ve often been told by my counterparts in a negotiation that the standard legal terms in their contract are non-negotiable. I’ve even used that line a few times as well. It’s almost never true.
- What’s the drop dead date? Sometimes it’s a hard deadline with real implications if passed. Other times, it’s completely arbitrary. Your job is to know the difference.
Knowing the real breaking point in a negotiation can be the difference between caving under pressure and staying firm on what you know you can get.
Here’s how to figure it out…
#1 – WHAT’S THE NUMBER?
Most negotiators will spend some time up front making sure they understand their party’s not-to-exceed number. But the really good negotiators will try to figure out the other side’s number as well.
Figuring out your side’s number shouldn’t be too difficult. Anyone going into a negotiation should know the most they’re willing to pay for something or the least they’re willing to sell for.
As for your counterpart’s number, you may never find out what that specific deal-breaker number is (and they may not have one) but there are a few ways to find out what range you should be in.
For buyers, their number is usually tied to a budget. Have you ever gone into a dealership to buy a car? One of the first questions the salesperson will ask is, “what’s your budget?”
It’s amazing how quickly an organization will disclose their budget to a supplier during negotiations, then try to justify an exorbitant purchase price because the supplier “was able to get the number to fit into our budget.”
Figuring out the sellers number is a little trickier, but it’s not impossible. It just take a little more research. Things like market rates, competitive bids and annual sales can help determine how low a supplier will go on price before they consider walking away.
#2 – WHAT ARE THE NON-NEGOTIABLE LEGAL TERMS?
The reality is that most standard legal terms are one sided in favour of the party that drafted them, which means they’re fair game in a negotiation.
The real trick is to figure out how much you can modify a legal provision in your favour before it becomes unacceptable for your counterpart.
Corporate lawyers, by their very nature, are risk averse. Their mandate is to protect the interests of the organization and mitigate as much risk as possible in a contract.
The problem is that the other side also has corporate lawyers trying to do the exact same thing for their organization. This is why we should keep the lawyers at the back table in our negotiations.
But that doesn’t mean we should dismiss legal terms as being over cautious, or accept them as gospel.
Instead, try to understand what specific risk is being mitigated by a particular clause, quantify the risk, and then negotiate the clause to a point where the risk is still being mitigated but not at the expense of the overall deal.
A good example of this is the Data Privacy clause. This is a hot button topic these days, so each side will push language that obligates the other side to implement military grade security protocols to ensure that there’s no breach of data.
Sometimes that’s called for, and if the other side pushes back, it could be a huge red flag.
However, most of the time this language is can overkill. . The designed for this negotiation is not only protect an organization from the obvious fallout of a data breach, but also as a catchall for anything else that could happen.
Understanding exactly what data will be exchanged, and under what circumstances, will enable negotiators to modify the clause so that it’s acceptable for both sides.
#3 – WHAT’S THE DROP DEAD DATE?
How many times have you heard that a contract has to be signed by the end of the week, month, quarter or year?
The problem is that most organizations don’t know what’s driving them to that date, so the business puts pressure on their negotiator to get a deal done at the risk of leaving real value on the table of negotiation.
Time is money… but in negotiations the relationship between time and money is subjective at best.
I’ve lost count of how many times my clients have told me that a deal needed to be done by a certain date, yet when asked had trouble explaining why.
In most cases, timelines in a negotiation are driven by the suppliers need to close a deal and book revenue before the of a quarter or fiscal year.
However, there may also be cases where a delay in the acquisition of goods or services could have an impact on a project or customers.
When you’re given the date of which to get a deal done, you should ask what will happen the day after if we miss the date.
If the answer is something along the lines of “the supplier won’t offer the same discount”, you know that you can push as close to that date as you want without creating any real risk for your client.
However, if there are real downstream impacts to missing the date then you should create your negotiating strategy accordingly.
GET THE BEST DEAL WITH THE LEAST RISK.
At the end of the day, your job as a negotiator is to get the best possible deal with the least amount of risk.
Understanding the breaking point for each side will help you structure your negotiation strategy achieve that goal.