the goose

I have been steadily working my way through the Building a Business podcast from the Oxford University.  All the topics covered are pretty standard but there are a lot of insights available from the top people in their field.  The podcast on negotiation, given by Owen Derbishire,  has some real nuggets.  I’m going to try and summarize them here.  You can listen to the whole lecture here.

No deal is sometimes a good deal

Ever go shopping for the day and come back with absolutely nothing?  It is kind of a bummer.  All that effort and nothing to show for it.  We are naturally biased towards doing a deal.  Its worth remembering that when in any negotiating.  I have a natural tendency to do some deal rather than walk away – even if that deal might be bad.  You can see this in the Dragon’s Den, every episode where entrepreneurs give away large chunks of their business.  This tendency isn’t limited to small timers either.  The infamous 3g auctions of the early 00’s left supposedly smart phone companies over-paying massively for licenses which never made a return.  In short, don’t be afraid to walk away.

If you can: auction

The name of the game in an auction is to guess what a particular item is worth to you.  In our case, this most commonly means bidding on an adword keyword.  The price I pay for adwords is based on what others are paying (eg: if the guy ahead of me bids €1.99, I pay €1.98 per click).  Now, thinking about this for a moment, on average, in any group of people there will be those who guess correctly as to the value of the ad and those that do not – and overbid.  The Google system is set up to reward the overbidders but providing a higher positioning.  This is exaserbated by the fact that there are always people floating into the market, overbidding – losing their shirt, floating away to be replaced by the next over-bidder.

A straight auction is even worse.  In a packed auction room, the highest overbidder wins.  Now, of course, when it comes to ad words, it all depends on how efficiently you convert, and it may be that the highest bidder has a new-fangled foolproof way of converting visitors at a higher rate than the others.  Odds are though, if you are a #1 ranked ad in adwords, you are paying too much.  We aim for position 3 – 4 which gets almost the same number of click throughs.

The first number matters

The first number that is mentioned in a negotiation matters.  Often times – know one really knows what the right price is (buyer or seller).  The first number that is mentioned anchors the discussion however.  That number doesn’t necessarily have to be brought up in the context of your fee.  You can do this explicitly or implicitly.  Something like “I quoted my last client €35,000 but we managed to come in €30,000″.  You could also just wear a really expensive watch or have the latest mac-book air with you in the meeting.  An ostentatiously expensive item in the room will get the client thinking in bigger numbers.  There is a great example of this in the podcast.

I’m OK, your OK

Sorry, what I mean is, cliched as it sounds, there is normally a win/win to be found.  Digging into what either party is looking for is the key to finding the underlying motivation for a bargaining position.  Sometimes, there will be posturing involved, but the basic advice here is to spend a lot of time on communication until both parties really understand what each is trying to get out of the deal.  This means trying to remember that ‘what is good for them, isn’t necessarily bad for me” and vice versa.  One study quoted found that 39% of deals are not done simply because both parties can’t get by this ‘you win, I lose’ type mindset and look for a third way.  Owen describes this as an ‘integrative bargain’.

Stepped so deep in blood, tis easier to go forward than back

Well Macbeth said it better but the idea is that people are twice as motivated by a fear of loss than by gain.  In particular, that means if you can get someone to spend a little with you, they are more likely to want to spend more.  I’ve seen this technique at play for a lot of training courses. An introductory €95 course upsells to a €1,500 course which upsells and upsells until your account is empty.  The implicit message used is ‘in order to get the most of this €95, you really need to go on the next course’ – or put another way “unless you go on the next course, you’ve just wasted €95″.

I’ve seen it a lot in software dev circles too.  The initial quote is competitive but changes (which always arise) are charged on less favourable terms.

Less maniacally, you can get people to spend a little with you at first, and then encourage them to spend more.  In our case, we send people some information on getting into voiceovers.  By spending time reading the book, they are in effect investing.  If they don’t want that time to be waisted, the next logical step is to go on our demo day, and so on.