I often am asked what is the most powerful element in a negotiation – and I always answer “leverage.” Bottom line: Your leverage more than anything else increases your ability to accomplish your goals.
First, let’s be clear, as leverage often is used loosely to describe different negotiation moves. Fundamentally, leverage is:
• How much you and your counterpart need a deal.
The more desperate you are, the weaker your leverage; the more desperate your counterpart, the stronger your leverage.
• The relative value of your and your counterpart’s Plan Bs (your alternatives if you don’t do the deal).
So the better your Plan B, the stronger your leverage and the better your counterpart’s Plan B, the weaker your leverage.
For many, this intuitively makes sense. After all, nobody wants to have to do a deal. And it’s good to have at least two potential buyers (your Plan B and C) if you’re selling your house or business.
But here’s where many don’t maximize their leverage – and where you can get a leg up in your next deal.
• Take concrete steps to create a better Plan B.
If you don’t have a strong Plan B, change it. It seems obvious, but many people accept weak leverage.
How can you change it? If you’re selling your business and only have one interested party, call others and create a bidding war.
Ever wonder why mergers and acquisitions investment bankers get paid huge fees? More than anything else, they bring leverage to the table in the form of Plan Bs you couldn’t find yourself (new bidders or new potential targets). In effect, they sell their Rolodexes.
• Limit the attractiveness of your counterpart’s Plan B.
We instinctively think about how much we need a deal and the value of our Plan B. But we often don’t consider our potential impact on our counterpart’s need level and Plan B.
How can you change your counterpart’s perception? Find out their Plan B and help them appreciate the advantages of your deal and the relative disadvantages of their Plan B.
Let’s say you’re negotiating with a supplier and no one else can reliably provide you with the same product and service. And you have a short deadline coming up and desperately need the deal.
My advice? Emphasize that you always pay on time – an unusual occurrence in your industry that distinguishes you from their other customers (their Plan Bs).
Also note that you represent 50 percent of their business (implicitly suggesting their longer-term Plan B may be to lose you).
• Tactically share your leverage-related information.
Negotiation is affected by what you communicate and what you don’t. Be strategic about it. If you’re desperate and have a weak Plan B and they don’t know it, mask it. Of course, don’t lie.
Likewise, lay out your good Plan B if you have one. Your counterpart will understand the message.
Published October 1, 2009 The Arizona Republic