Nearly every business school student or professional takes a negotiations course in their lifetime. But I can’t remember the first thing from my negotiation class today and indeed I “lost” in most of the in-class negotiation exercises. So when I was hired as VP of Infrastructure at SunGard I was apprehensive to get a job where my primary function was negotiating real estate and energy supply deals.
Thankfully I was fortunate to have a great teacher in David Gordon, SunGard’s 15+ year real estate broker. David taught me several principles, often saliently, about how to negotiate effectively. I remember these better than any class and I hope they can be of assistance to you as well.
- Good negotiators enjoy the negotiation.
In the past I always wanted the negotiation to finish quickly so “we can get on with the work.” But David recognized that negotiations are part of the process – they help both sides work through complex issues and hopefully arrive at a conclusion that both sides feel is fair. Hence he never rushed this part.
- Good negotiators are not afraid to ask for the deal.
This is a common principle in sales and is somewhat at odds with point #1. I have sometimes fallen into the trap of thinking “we had a great chat and covered a lot of ground so that’s progress.” But many times the discussions seemed endless. I repeatedly observed David be bold enough to ask for the deal, or drive to settle a particular issue after it had been debated enough. But David did so with a smile and his trademark “California cool” – so you never felt under pressure when he asked for the deal.
- Good negotiators develop options.
Both within the deal and outside of this specific deal (i.e. alternate deals), options can help both parties find common ground and value.
David quickly taught me to forget the common idea that in real estate the price/square-foot matters most. In our business of building datacenters, rights to expand/renew/sublease along with tenant allowances and infrastructure space mattered nearly as much. And because we filed public statements, GAAP accounting mattered more than Cash accounting, while the latter was more important to landlords. So with a bit of creativity we were often able to find arrangements that were ideal for both parties. In every case, David looked at the deal from multiple angles till he found a variant that could work for both parties.
- Good negotiators prepare heavily.
You don’t have to remember terms like BATNA (best alternative to a negotiated agreement) because by preparing you’ll intuitively know your walk point and your opponent’s.
What David did superbly was in addition to researching the usual financial standing of the landlord and other tenants, he researched the landlord's reputation and style before we ever started the negotiation. Like a baseball hitter studying video footage of a pitcher, David always knew how the landlord operated, their past history on every deal etc. I’ve learned over time that every industry is a tight community so your reputation is paramount; another reason why David always negotiated fair. I heard from more than one landlord that “most real estate agents are scum but David is a gentleman and a pleasure to work with.”
- Negotiation is a game.
You may want to just state “the deal” or your final terms but as any game theorist can tell you without knowing how the other party is going to negotiate you must be somewhat guarded. This is why you never open with your closing offer but rather give yourself some room to negotiate and conversely your opponent NEVER opens with their final terms. This is true of ALL negotiations. Ok, so here I have an example not from David but from my friend Rishi Chandra.
Rishi and I traveled to China along with a couple other friends from grad school. When we went to a market, for example to buy some clothing, Rishi would confidently respond to the shopkeeper’s stated price with an offer that was 1/10th the amount! One-tenth!!
The shopkeeper would literally fall to the floor, writhe in pain, scream “my children no eat, they go hungry, you very bad man” etc. Rishi would be un-phased. And after a few minutes of back and forth they would settle for about 1/8th the original price. I was blown away and learned a couple lessons here including, clothing has an absurd markup.
Finally, like so much of business, practice makes perfect. Think of every negotiation as an opportunity to learn and don’t shy away from it. Find some good mentors and observe. Debrief before and afterwards and keep notes. In the 40+ deals I worked with David I learned a ton (I admit he and his team did most of the hard work). Anyone can be a better negotiator with some practice.