Negotiating – It’s Not a Giveaway Program – It’s Like Trading

As I’ve often said, “If you make a mistake and don’t repeat it, then it becomes part of your experience base.” As a result, it should become one of the lessons you’ve learned. On the other hand, if you repeat the same mistake, then shame on you!

Here’s one lesson I’ll never forget. About twenty five years ago , I believe I made the biggest negotiating mistake of my career. I actually gave something away at the negotiating table without getting anything in return. I agreed to pay an extra year of licensing fees. As the fees were at a reduced rate, it really didn’t appear to amount to much in the context of the total agreement.

About one year later, I found out that what appeared to be a minor point during the negotiations, turned out to be a deal breaker for the other party. In fact, had the other party not gotten the additional licensing fees, irrespective of what they might have had to give in return, the bank would have withdrawn their offer to finance this party’s leveraged buyout of another division of the company. In essence, there would not have been any possibility of the other party consummating their buyout, and they “won” an enormous point without having to give anything in return.

While this is a simplistic overview of the negotiations leading up to this particular point, had our team had any information regarding the importance of this point for the other party, we could have gotten some concessions we wanted in return for the additional licensing fees. Another experience learned the hard way.

At the same time, you have to be careful not to take the information you’ve gathered about the other party’s situation and use it to hammer them into submission, as the other party probably will spend a significant amount of time and effort “getting even” at some time in the future. By way of example, early in my career, I negotiated a licensing agreement which was very favorable to the licensee in terms of the benefits versus the costs. About two years into the seven year agreement, the licensor had the opportunity to “level the playing field.” The licensor had developed the next generation raw material used in the process which offered significant cost savings opportunities in the manufacturing process. The licensee had no choice but to purchase their requirements from the licensor. You guessed it! The licensor charged a premium for the new raw material that more than made up for the shortfall he believed he had been forced to accept when the original license agreement was signed.

Lessons learned: You need to do your homework and obtain as much information as possible about the other party prior to the actual negotiations. Once at the negotiating table, ask open ended questions to get additional information. Never give anything away without getting something in return. At the same time, be careful not to hammer the other party into submission.