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How to Negotiate as an Entrepreneur
Being able to
negotiate is the secret to success in business. Entrepreneurs need to be able
to reach agreements with all kinds of different people: clients, employees,
suppliers, vendors, members of the local community, etc. No matter who the other
"negotiating party" is, the key to successful negotiations is valuing
both parties' needs, listening with an open mind, and staying focused on mutually
How to prepare
Beforehand, you'll want to find out everything you possibly can about the other party. Look at their LinkedIn profile and do a web search to get a sense of who they are, how their company is run, and what their key issues are. Research similar companies and deals to see what the market is like, and what your competition is up to as well. It's equally important to identify your own needs, costs, and break-even point, so you know when you're getting a good deal and when to walk away.
If this is the first time you're meeting the other party, be sure to educate yourself about any potential cultural differences. The best negotiators are firm while also being respectful. You don't want to accidentally derail negotiations because of an unintended insult!
At the negotiating table
Always keep the other party's "main motivators" in mind, and ask questions during your negotiations to test your assumptions. Clarify early on that the other party has the power to make a binding commitment. Be confident, but not arrogant. Studies show that whoever makes the first offer usually gets what they want, so be sure to be the party that "sets the bar"!
When it comes to your initial offer, be realistic, but always ask for more than you expect the other side to give you. This will allow you to later scale back your offer to a compromise you are both comfortable with. Make sure to include something you can "give away" without hurting your position — a bargaining chip, like getting a lower price for a later delivery date, for instance. Prioritize your goals and don't get fixated on a particular outcome; you can never predict exactly how the conversation will go, and you want to be sure you have considered all the possible alternatives ahead of time.
If it's a short-term relationship, you can negotiate a bit harder. If it's a long-term relationship, however, then maintaining that connection is more important than getting everything you want in one particular situation. Strive for an outcome that's win-win for both of you, then create a Letter of Intent or Term Sheet that outlines the terms and conditions of your business deal that can be used to prepare the final agreement.
Negotiation is an art that takes time to perfect. Young entrepreneurs, in particular, are more likely to make mistakes or sign deals that are not as beneficial as they could be. Don't be afraid to take the initiative and come back to the drawing table later on to renegotiate a better deal for yourself.
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