123’s of Negotiation
Most prefer to avoid confrontation and that preference has its virtues. At the same time, however, that general mindset can result in a tendency to cave during negotiations. It does not mean that one should be provocative and confrontational during negotiations as such a stance may have adverse results. However, holding your position, even when you believe you may not have the bargaining power, can yield surprising results.
Time after time, I see parties give in far too easily on a particular term or position when it’s not in their best interest. This often occurs after discussing the matter informally with the other side (i.e., no legal counsel present for either side) and accepting verbal assurances that in reality mean very little when the language of the contract will be controlling.
Bargaining power is established by many variables, including the size of the respective parties, norms of the industry to which the contract relates, the alternatives available if negations fail, and current market forces in terms of supply and demand for the goods or services being negotiated. One thing is clear though, you can obtain more bargaining power than you think by being willing to walk and find an alternative if the other party is unreasonable in demanding one-sided, onerous terms. I have been pleasantly surprised on occasion when a client holds their ground on certain positions and we ultimately obtain better terms than expected. The only downside is that you may actually have to walk and find another vendor, lender, or location to lease. Nevertheless, this may result in a better deal provided you are seeking terms that are generally reasonable.
Without getting into the specific nuances and art of negotiating, the primary factors for strengthening your position that should be in place before you even start negotiating are as follows:
(1) try to have alternative vendors, lenders, locations, etc. in case your first choice is unreasonable;
(2) engage legal counsel who is experienced in the industry and subject matter of the deal; and
(3) start with the mindset that you will walk if you cannot obtain reasonable terms.
Of course, this will not apply in situations where you don’t have an alternative and you must consummate the particular transaction. For the most part, however, you will gain substantial bargaining power when you are as willing to walk away from the table as you are to consummate the transaction.
For more information on any particular business transaction, please feel free to contact James M. Stanford (firstname.lastname@example.org).