8. Negotiating Strategies

As promised last week, we’ll take a look at some negotiating strategies this week.  I don’t claim to be a professional negotiator but I have been involved in many successful negotiations over the past twenty years for hardware, software, and services.

While there are many principles that apply to all three types of contracts mentioned above there are some differences to keep in mind as well.   Consider a typical software negotiation:

• It may be the only transaction for that type of software you’ll do in twenty years.  This is very different from negotiating agreements for one to three years and then opening up a new agreement with a supplier change as a viable option.  The conversion costs for software mean that this is usually not possible.

• Pricing can be interesting because valuing intellectual property is very different from valuing a pump or a lift truck.

• Because it is normally a one-off purchase, market intelligence about pricing is often difficult to come by.

All that said, my focus here is more about what is in common.

You almost always need to view this and treat this for the long-term not the short-term.  You are signing up for a partnership – or normally should be.  This means always looking for a win-win outcome.  Consider both sides:

• As a vendor - if you are trusted, we will come back to you
• As a customer - vendor will often go out of their way to make us successful because we are a partner and we treat them as one.

Create a strategy before you start negotiations.  Decide who is playing what role (usually procurement is the “bad guy” - as I mentioned last week, include Procurement and Legal early in the process).

Be fair & honest.  This means being truthful, it doesn't always mean being exhaustive of the truth (as a former VP of Legal once told me before I gave a deposition).

Be willing to walk away – this is not always easy, but if possible it puts you in a position of strength.  There may not always be a possible common agreement – but make sure to explore all options before reaching that conclusion.  Years ago I had a senior vice president of a software company come back to me after I though we had reached an impasse.  He met just with me without Sales, Legal, or Procurement and shared with me his revenue recognition formulas and costs.  In less than an hour we structured a five-year deal that we could both live with.

This last point brings me to an important one – look at the TCO – Total Cost of Ownership – of any deal you do.  It is important to have the CFO aligned with the time horizon you are looking at.

Good luck!

Next week I will mention some contractual items I always look for.  That said, I will NOT be providing legal advice!