Smart Negotiating: How to Make Good Deals in the Real World Reprint Edition

A PREVIEW OF THE BASIC SKILLS

This chapter is like the overture to a Broadway show -- a sampling of the major themes you'll be hearing more about later on. These themes embrace what I consider to be the four basic skills of smart negotiating. Stated succinctly, they are

Leverage -- An appreciation of the leverage factors at work in each situation, plus the ability to apply leverage (when it's with you) and cope with it (when it's against you);

Information -- The knack of ferreting out and evaluating useful information regarding the other side, while protecting information about your side you would rather not reveal;

Credibility -- The ability to make those on the other side believe you mean what you say, as well as to assess whether or not they're bluffing;

Judgment -- The ability to strike the right balance between gaining advantages and reaching compromises, in the substance as well as in the style of your negotiating technique.

All these skills are interrelated in a negotiation, and the interplay among them is significant in itself. To observe this, let me recount the facts of a typical negotiation without commentary. Then we'll go back to review the elements of this negotiation that bear on the four basic skills. Keep your eyes and ears open to what's going on here, and before reading my critique try, to form your own opinion about the negotiating involved.

THE CASE OF THE OVERREACHING SUBTENANT

Ted is a tenant in a residential apartment building in Bigtown with a lease that has fourteen months to go, terminating December 31 of next year. Although his lease explicitly prohibits carrying on a trade or business from the premises, Ted has been using his apartment as an office to operate a consulting business under the name "Ted Talks." In early November of this year Ted's landlord, Leland, discovered what Ted has been doing and presented him with an ultimatum: either stop conducting business from the apartment or be evicted and held responsible for the balance of the lease term.

Ted has no choice. Caught in the act, unable to convince the landlord to overlook this breach, dependent on his consulting business, and lacking funds to afford a separate office, he must move out. Leland gives him until the end of this year. Fortunately Ted's lease permits him to sublet, and with two months to find a subtenant, he advertises the apartment for rent. The first week he has no takers. Then, in mid-November, Susan materializes. She's moving from another city into Bigtown to begin a new job on December 1. He shows her the space; she's definitely interested.

Ted's rent (New York City rates!) is $1,500 a month. The real estate market in Bigtown has been relatively static since he signed the lease, so he asks Susan to pay the same $1,500 per month under the sublease -- "no profit, no loss," as he puts it. When Susan asks him why he's moving, Ted doesn't mention his problem with Leland but alludes to having found "larger quarters" he likes better, trying to give the impression that he's under no time pressure to leave.

Susan, who would be willing to pay that much if she had to, decides to negotiate. She offers $1,200. Ted, who doesn't want to subsidize $300 of Susan's rent, holds out for the full $1,500. The issue is unresolved.

Susan then brings up three other items:

* She wants occupancy from December 1, when her job begins. Ted, not yet having found another place to live -- despite his remark about "larger quarters" -- would prefer to wait until the end of December, when he must move out.

* The paint in the vestibule of the apartment is peeling badly. Susan wants Ted to have it repainted at his expense (which he estimates to be about 8300). Ted thinks she should pay for it.

* Susan asks him to leave behind the television set, which is worth about $200. Ted wants to take it with him.

After some discussion Susan says that if Ted is willing to satisfy her on those three items, she'll raise her offer on the rent to $1,300. Ted rejects this proposal but remains interested in continuing the negotiations. They decide to think it over and resume discussions the next day, Susan pointedly remarking that she has another apartment to see later that afternoon.

As Susan is about to leave Ted's apartment, she notices an envelope on the desk addressed to "Ted Talks" at this address. Already suspicious about his vague reasons for leaving, she decides to take a long shot. "Do you run a business here?" she asks.

A lengthy pause. "Why do you ask?" Ted replies warily.

"Because I saw this envelope," Susan says, holding it up, "and I assume that the lease prohibits conducting business from the apartment."

Another pause. "Well," Ted says, recovering a bit, "You aren't going to operate a business here, are you?"

"No," she replies.

"Then you've got nothing to worry about."

Susan decides not to press the issue but now suspects the real reason for Ted's premature departure, which may mean he's under pressure to move out quickly. She also has a hunch, based on other exchanges between them, that no one else is currently bidding on Ted's space. So when she returns the next day to resume the negotiations, she decides to get tough. She goes up only $25 (to $1,325) on the rent and sticks on all three of the other issues -- even the TV, which she doesn't really need since she has one of her own.

"As far as I'm concerned," Susan says, "either you acquiesce on all of these issues or there's no deal. As a matter of fact, that other apartment I looked at yesterday is cheaper than this one." (This last statement is literally true but misleading. She didn't like the other apartment at all and hasn't yet found a decent alternative to Ted's place.)

Ted, provoked by Susan's sudden toughness, would like to say "Then there's no deal. Good-bye," and usher her out of the apartment. But he realizes that she may prove to be his only hope. So he bites his tongue and -- because he thinks her "final offer" is a bluff -- decides to make an accommodating counteroffer. His proposal is to split everything except the television, which he considers to be his. He offers $1,412.50 on the rental (halfway between their positions), a fifty-fifty division of the painting costs, and a December 15 occupancy date. He sits back, convinced that he has been eminently reasonable.

Susan, believing that Ted will go farther on each point -- even the TV, which isn't that expensive an item -- replies that this isn't good enough for her (although, in fact, it would be). "You know my position," she says.

Ted, annoyed that his compromise proposal has produced no progress, hardens his own stance. "That's the best I can do," he says -- even though it's not.

With neither Ted nor Susan willing to budge an inch, they're at a standstill. Do you think this deal will get done? At the very least, it won't be easy.

Now let's step back and examine what was going on here and, in particular, how it relates to the four basic negotiating skills involving leverage, information, credibility, and judgment.

ANALYZING THE LEVERAGE

Let's begin with leverage. Where does it appear in this scenario, and how do the parties handle it?

Obviously a principal negative leverage factor is necessity. When you're forced to do a deal, you can't afford to hold out for optimum terms. Here, necessity is working against Ted. The fact that he has to vacate the apartment puts more pressure on him to reach an agreement -- even on imperfect terms -- than if the subletting were voluntary. (And, by the way, Ted is right to try to dispel signs of this pressure by adopting a calculated air of nonchalance.)

A negotiator who's up against necessity should try to neutralize it by using other leverage factors to his advantage. The prime offset for a forced seller of property (or here, a lessor of space) is to generate competition for the deal. Unfortunately for Ted, however, he has no other takers for the apartment; and in my book, inventing one who doesn't exist would be improper. (This does not mean, however, he has to concede that the cupboard is bare.) And just to make things worse for Ted, Susan is actually trying to use competition against him, by alluding to that other apartment she has under consideration.

Desire is another possible offset to necessity. If the person acquiring the property (or, here, renting the space) wants it badly enough, that provides a strong motivation to make the deal. Susan likes Ted's apartment; but based on her hard-nosed (and thus risky) position, she appears able to live without it.

Then there's the leverage factor of time, which is definitely working against Ted here. If he had more time, he might be able to develop some competition for Susan. In this ease, however, it's partially offset by the pressure on Susan to find a place in Bigtown as soon as possible.

THE ROLE INFORMATION PLAYS

Let's turn now to the subject of information, which can play many roles in a negotiation -- as a means of helping a party understand the other party's interests and motivations, evaluate credibility, predict the direction things may go, and so on. But perhaps the most central role for information is to assist in the appreciation of leverage.

Witness the shift in mood that takes place after Susan spies the "Ted Talks" envelope -- information that reveals possible negative leverage affecting the, other side. Susan is alert in spotting the envelope and insightful in making the connection to pressure on Ted from the landlord. Then, once she has this clue, she attempts to establish the fact by questioning Ted directly. What other channels might she have pursued to pin this down? One possibility would be to shield her suspicions from Ted, obtain the landlord's name from him on some other pretext, and then contact Leland to see what she can find out.

After a slow start, Ted bobs and weaves fairly well, shifting the inquiry to whether the ban on business will interfere with her occupancy. But his first pregnant pause lets him down; he just isn't prepared for this line of questioning. As for Susan, after getting underway like Perry Mason, she doesn't follow up so well. She fails to keep Ted focused and responsive and never poses the key question of whether he's being forced to leave.

The information we glean in negotiations is often fragmentary and incomplete. As a result we're frequently forced to reason by inference and assumption and then to act on that basis. Susan draws a strong inference from incomplete information and decides to go with it, hardening her bargaining stance on the assumption that Ted has to move out and thus must make a deal. As it happens, her inference is correct; let's reserve judgment, however, on whether the action she takes is appropriate. If the inference had been incorrect, Susan would have overestimated her leverage -- the kind of illusion that can often prove a real impediment to reaching agreement.

STRIVING FOR CREDIBILITY

When you take a strong bargaining stance or convey information that appears to increase your leverage, your effectiveness depends on whether the other side believes you. Your strongest weapon in providing information is the truth. With it, you may still have trouble convincing your counterpart, but at least you've got a firm platform for support. When the facts you're brandishing aren't authentic, then -- in addition to the ethical question raised -- the task is much tougher. This is just what happens here. Susan isn't believable with her "other apartment" pitch; Ted never considers it to be real competition. Likewise, his "moving to a larger space" story lacks credence, even before Susan discovers the envelope.

The crucial credibility question, however, is the one raised by Susan's "final offer" posture. Ted doesn't believe her; he thinks she's bluffing and will eventually increase the amount of rent and reduce her other demands. So he takes the risky step of ignoring her stance and proposing his own compromise. It's risky because if Susan isn't bluffing, she might react by walking out -- never to be seen again, even if Ted were to change his mind.

Ted's assessment of Susan's willingness to accept less favorable terms is correct. What he fails to take into account, however, is her appraisal of the relative leverage. On this basis, she isn't prepared to move -- at least not yet -- because she's convinced that Ted will ultimately yield. But for reasons we'll come to in a moment, Ted doesn't find the firmness of her position credible.

Ted's "the best I can do" compromise proposal is calculated to send a message of fair dealing. But it carries little credibility in terms of being his final position, beyond the fact that he has made the effort and might be loath to make another. The awkwardness of his $1,412.50 figure on the rent, his readiness to split on other issues, even the speed with which he introduces his "solution" -- these factors suggest to Susan that there's a further point to which Ted is willing to retreat, if pushed.

These observations illustrate what a tricky business credibility is and how easy it is for the other side to misconstrue your words and deeds.

JUDGMENT AND THE PRINCIPLE OF BALANCE

But even if Susan believes she holds all the cards -- which she can't be sure of -- she takes too strong a position too early in the negotiations. She doesn't observe what I call the principle of balance. You can't win 'em all; the other side needs to score a few, too. You have to strike the proper balance between getting a leg up and working out a compromise. And to achieve a suitable equilibrium, you need judgment and perspective.

From Susan's point of view, the key issues are the amount of rent (the biggest dollar item by far) and the date she can move in (so as not to spend December in a hotel room with her possessions in storage). Painting the vestibule is nothing more than a small dollar issue, which she can arrange for as easily as Ted. As for the television, it's not only unnecessary but overreaching on her part. To make it a basic component of a nonnegotiable demand destroys Susan's credibility as to how final her "final offer" really is. Ted simply doesn't believe that she won't budge -- at least on the TV.

What's the result of all this? Well, after Ted's "the best I can do" compromise proposal, Susan is laced with either having to back off her "final offer" -- always a difficult proposition, considering the loss of face -- or possibly blowing the deal. How much better for her to have negotiated further to arrive at, say, a $1,375 rent, early occupancy, splitting the cost of the paint job (if completed before she moves in), and letting Ted keep his TV -- a compromise that I have no doubt he would have accepted. Now, they may never make it.

THE LT SAGA

If the Ted and Susan saga sounds contrived, just pick up the newspaper. This kind of negotiating is going on in real life, too. For example, on September 6, 1990, all the New York papers carried banner stories about Lawrence Taylor, the New York Giants' standout linebacker, who had finally signed his contract after a forty-four day holdout.

Taylor (or "LT," as he's known to the football cognoscenti), was slated to receive $1.2 million in 1990 (the last year of his expiring contract) and asked for a new four-year contract for $9 million. The Giants offered him $4.25 million over three years. After a good deal of haggling, Taylor came down to $5.5 million for the three years, and the Giants inched upward to $4.5 million. The deal was struck at $4.6 million over three years.

Those were the basic facts. But now look at some of the factors that, according to the participants and the press, resulted in the settlement occurring at that time -- and at a price much closer to management's position than to LT's.

The key factor everyone pointed to was that the season opener for the Giants was scheduled for the following Sunday against their big rival, the Philadelphia Eagles. This became the real pressure point in the negotiations, because LT just didn't want to miss that contest. It wasn't so much the $90,000 per game paycheck that was at stake, it was simply (as one scribe put it) "impossible for Taylor not to open the season." As LT himself said when he reported later that day to training camp: "Now is the time to play football. That's what I do best. I'm not a negotiator. I'm a football player and I'm here to work."

Taylor knows who he is. But the Giants' general manager, George Young, is a negotiator -- and he was counting on LT's "professionalism." In Young's words, "It was hard for me to comprehend his not wanting to play against the Eagles. He's a competitor." Or as a reporter put it, "His need to play is greater than his need to be paid full value."

In our lexicon, this was a case where the leverage factors of powerful desire and time pressure were working strongly against Taylor, and the Giants took full advantage of them. But there's more to the story. In the negotiations, Taylor's agent had apparently taken the position that if LT could be traded, other clubs around the league would be prepared to pay him more than the Giants were offering. So he asked the Giants for the opportunity to check this out. (In our terms, Taylor's agent was trying to drum up some competition as a countervailing leverage factor.) General Manager Young, who suspected that no one would offer more and didn't believe that Taylor would leave New York anyway, agreed to let LT's agent call around the league. When Young proved correct about the other teams, the specter of competition collapsed, reinforcing the Giants' view of Taylor's value and leaving him no alternative but to sit out the season without pay.

By the way, the one team that expressed real interest in Taylor was -- you guessed it -- the Philadelphia Eagles! Of course, they denied the rampant speculation in the press that this was just a stall to keep LT out of the opener. But their refusal to put an offer in writing, despite Taylor's agent's request, undermined their credibility.

Why was Young so sure that even if someone offered more, Taylor wouldn't leave New York? Young said that he always felt Taylor wanted to finish his career in New York, where he had started out. But according to one reporter, there may have been another important factor. Taylor had recently put a lot of money into a big sports bar and restaurant in the shadow of Giants Stadium. The success of this endeavor was directly dependent on his presence as a Giant. "That's why the bar was named after him," said the reporter, "and not his accountant." So the threat of LT leaving town to play for another club simply wasn't realistic.

This illustrates the central role that information plays. It affected the leverage by providing another, more tangible reason for LT's presumed desire to remain in New York. It also undermined the credibility of his willingness to go elsewhere, thus negating his efforts to kindle competitive fires.

But if Taylor didn't want to go anywhere else, the Giants, for their part, didn't want to face the season without LT. So although Taylor got a lot less than he asked, the Giants ended up paying somewhat more than they wanted to pay. I would like to think that the Giants -- even with so much leverage working for them -- recognized the principle of balance.

After the contract was signed, Taylor was able to wax philosophical about the whole thing: "I'm happy to be back. I can put aside my pride for a while. Nobody gets exactly what he wants. It's good money." And by the way, LT's pride wasn't put too far aside. This contract made him the highest-paid defensive player in the history, of pro football -- a point of real principle to Taylor all along and the kind of intangible factor that's often needed to cement a deal.

And yes, LT did get to play that Sunday. After only three days of practice he made seven tackles and three quarterback sacks, forced a fumble, and led the Super Bowl-bound Giants to a 27-20 victory over the Eagles!

Copyright © 1992 by James C. Freund