I recently spoke with two very successful business professionals about the strategies they’ve used in almost 70 collective years of business negotiations. Here are some of their most effective negotiation strategies and lessons learned. We will all do better if we keep these front-and-center in our own negotiations.
First, some background on these master business negotiators. Steve Hilton is the Executive Chairman of Meritage Homes Corporation, a publicly-traded homebuilder with operations across the U.S. and a market capitalization in excess of $3.5 billion. He co-founded Meritage, now the 6th largest U.S. homebuilder, as a start-up in 1985 and has overseen its building of over 145,000 homes.
In his 35-year career, Steve has negotiated numerous billion dollar plus deals and engaged in thousands of negotiations (including several with me on the other side).
Nick Schacht is the Chief Global Development Officer for the Society for Human Resource Management (SHRM), the world’s largest HR professional society with over 300,000 members in 165 countries. He previously was the founder, CEO or president of several companies, including KnowCyber, a learning and development company, PetroSkills, a services provider to the petroleum industry, and Learning Tree International, a publicly traded provider of IT and management learning and development.
Nick has negotiated thousands of large and small deals, including the sale of significant-sized companies.
So what “pearls of wisdom” did they learn from their decades of successful negotiations, and what are my thoughts on them? Here in Part One are Steve Hilton’s. Next month’s column will describe Nick Schacht’s.
- Strike early” and “don’t lowball” sellers when buying assets, like land. Make a fair offer and “back it up with a deadline for acceptance with real meaning.” By doing this, you’re sending the signal that “you’re serious” and – critically – incentivizing the seller to “not shop it.”
- My thoughts: This strategy involves four strategically important elements to evaluate in most business negotiations. One, the timing issue – when you make your moves. Two, the aggressiveness of your first move. Three, the impact of real deadlines. And four, keeping a seller from shopping bids (a crucial strategy designed to maximize a buyer’s leverage).
- “Build several layers of acceptance” into a deal so you have the time and opportunity to analyze and possibly even re-trade elements if circumstances change and/or you find out new information. This could include a due diligence period for the deal or only empowering your front-line negotiators with limited authority so they must get another approval to close the deal.
- My thoughts: Building in reflection time and the opportunity to confirm negotiation representations and get more information are crucial to successfully closing many business deals.
- “Over the last 10 years of my career, the best deals were the ones I didn’t make.” Steve told me he “lost” some deals in which he had bid over $1 billion and yet he “ended up much better without them” than had he “won” them. Why? His competitors that “won” either a) overpaid due to the dynamics of the auction environment, b) underestimated the challenges involved in integrating the target to their company, or c) did not fully think through how the deal would impact their own corporate strategy.
- My thoughts: Auctions almost always favor sellers as many buyers get their ego involved in “winning” the auction and thus overpay (for more, see my column Guidelines for Getting What You Want Out of a Live Auction). Negotiations should not be about winning or losing, especially in auctions. Instead, measure success by 1) the extent you accomplished your business goals and satisfied your fundamental interests and needs, and 2) accurately evaluating when to stop and walk away (when you have a better Plan B). Steve’s Plan Bs in the deals he “lost” were much better than bidding up his Plan As and getting the deals!
Next month: Nick Schacht’s top business negotiation lessons.
Latz’s Lesson: Much of Steve Hilton’s business negotiation success depended on his strategic evaluations of 1) when and how aggressively to move, 2) real deadlines, 3) true leverage, 4) incorporating “layers of acceptance” and limited authority into deals, and 5) keeping his ego in check and walking away when he had better Plan Bs.