Learning how to negotiate well is crucial for your success as an entrepreneur. It’s a skill -- like any other -- that can be improved with practice.
If a deal is too one-sided, it won’t work out in the long run. A fair deal should result in both parties feeling a little pain. After years of negotiating contracts for myself and on behalf of my students, this is what I’ve learned.
1. Have a good sense of humor. You’ll need it! Negotiating is often extremely stressful for both parties, and that’s why having a sense of humor goes a long way. Never lose your temper. Try not to get upset. You’ve heard it before, I’ll say it again. It’s not personal -- it’s business.
The reality is that if you seal the deal, you’re going to keep working with the people you’re negotiating with. So it doesn’t help to yell, write a nasty email or say something you don’t really mean in the heat of the moment. Some entrepreneurs bring in a third party to help them negotiate for that very reason. That’s a straightforward way to keep being the good guy. (I always do my own negotiating, but I’ve been doing it for years.)
Another strategy is to avoid making the final decision. You could say, “I have to bring this to my partner.” Or, “I have to bring this to my husband.” Doing so will also let you off the hook.
Do what you have to do to keep it together and in perspective, whether that means deep breathing, giving yourself the night off, going for a run, etc.
2. Remember that time is your friend. Don’t hurry. If the party you’re negotiating with pressures you to sign the deal quickly, that tends to be a bad sign. Both parties have to commit to spending time to craft a good deal.
Exercise patience. I don’t agree to anything on the phone or over email without giving myself at least 24 hours to think about it. You might need to consult someone to help you make a decision.
3. Study up. If you want to negotiate from a position of strength (and I sure as hell do), you should understand the other party’s strengths and weaknesses. If you have another fish on the hook, that’s even better.
4. Have a big picture attitude. What are your long-term goals? What are you really trying to get out of this? It can be easy to lose sight of the big picture. At the beginning of any negotiation, I make sure to tell the other party how excited I am to be working together, and that I think our partnership is a great fit for both of us. That helps set the right tone.
5. Start out with a term sheet. A term sheet lists four to five big picture items. If you cannot agree to these basic aspects of your relationship, why start negotiating a contract? It’s too expensive. You’ve just begun dating. Once you reach an agreement about those terms, you can begin talking about your contract.
6. Contracts can change. If they write the contract, it will be favorable towards them. That’s okay. They spent money doing that. But now you will have to make some changes. Remember, contracts can be ugly. Much of the language in them will be about what could go wrong! Don’t freak out. It’s a document in progress. The first draft you receive should be negotiated and changed.
7. Always have a few things that you can give up later. Negotiation is a give and take. You don’t want to be left having given up everything you really cared about.
8. Speak up. When I read something that is very stupid, I make a point of reading it out loud to the other party over the phone. Then we laugh. They quickly recognize how one-sided it is when it’s coming out of my mouth.
9. Don’t try to negotiate all of the trouble spots at one time. It’s overwhelming and tiring. I recommend starting with a few points of contention that can be addressed quickly and without having to negotiate much. You’re in good shape if they ask you to simply add in the language you want to see. After you set up a good rapport, start bringing up the big issues.
Negotiating a contract is a lot like eating an elephant: The only way to do it is a bite at a time. So pace yourself. Before you know it, you’ll be done.
Identify what you want to stand firm on, and don’t give in. You will have to make concessions and compromises. You won’t get everything that you want. By all means, hire an attorney to help you. I negotiate my own business terms, but I never sign a contract without having my attorneys look it over first.
And on that final note, hire an attorney whose specialty is appropriate for your contract. All attorneys are not created equal! Good luck.