As a small business owner, being an effective negotiator can sometimes make the difference between running a profitable business and not. In part 5 of our 7-part series on Growing a Profitable Jewelry Business, we’ll provide you with the tactics to equip yourself for a negotiation from start to finish.
1. General Considerations Around a Negotiation
Before digging into the tactical preparation for your negotiation, a critical exercise is to take a step back and establish the high-level goals of the conversation. By consciously framing the negotiation and situation, you can be more aware of distractors that make you less effective as a negotiator.
Focus on building trust and relationships
A core tenant of small business negotiation in particular is to focus on building trust and relationships through the negotiation. Generally, you’re not only setting up a one-time deal, but also laying a foundation for how you are going to work with a partner into the future, whether that’s a supplier, a buyer, or a collaborator. Be conscious of actions which build trust and those that diminish it; be intentional and honest with your capabilities as well as your limitations; and above all, avoid just appealing to what you think the other party wants to hear. Good negotiation requires actual dialogue.
Keep your emotions and ego in check
During a negotiation, things can get heated and you may be reduced to your basic animalistic instincts in many ways. A common result of this is mental traps and assumptions, often referred to as cognitive biases. These biases cloud logical judgment and decision making by letting our emotions and egos get the best of us. Review the list below (via Business Insider) and try to think through potential biases you may encounter going into a discussion.
Being thoughtful about this list before a negotiation can make you aware of these biases when they happen and to prepare mental countermeasures. The first time you catch yourself and pivot on one of these is always a pat-yourself-on-the-back moment.
2. Preparing for a Negotiation
While the negotiation itself is obviously where the deal-making actually happens, much of the success or failure of a negotiation is determined by the tactical preparation that takes place beforehand. Having a game plan equips you with an arsenal of information to make insightful decisions and to control the conversation.
Establish your position
Before stepping into a negotiation, you’ll want to consider what you want to have when you step out of it, i.e., you need to determine what is the ideal outcome you’d like to achieve. In a negotiation with a buyer, for example, what order value or margin dollars are you aiming for? What’s the ideal production lead time or credit term agreement? As you consider the different variables at stake in the conversation, you’ll also want to rank them in order of importance to you and your business. Creating a list of these variables can help to establish your bargaining chips for the negotiation and help you define which are more or less expendable to you.
BATNA (Best Alternative to a Negotiated Agreement)
Once you have a good sense of the variables of the negotiation, you’ll want to establish your acceptable outcome ranges. In this sense, you’re considering the best case and worst case that you’re willing to take for each item you’re negotiating. The best-case scenario is the easy part. This likely includes the prices, lead times, etc. that you envisioned when creating the list of variables to begin with. The worst case scenario, or the BATNA (Best Alternative to a Negotiated Agreement), can be a bit more involved.
The BATNA is the absolute minimum agreement that you would be willing to accept in a negotiation. It is a jargon-y way of saying: “what would be your next best option or opportunity cost if you stepped away from a deal?”
BATNA (Best Alternative to a Negotiated Agreement)
Example: If you are negotiating over unit-pricing for a wholesale order where the cost to produce a ring is $25 and your wholesale markup is $40 (total WSP of $65), your BATNA would be $25.01. Any lower and you would be in the same position or worse than not selling the rings at all. One thing to note about this example is that it excludes considerations beyond price. In reality, your BATNA should account for less tangible items such as time and effort spent on producing the order rather than on other business activity. It should also take into account your target margin across all of your sales.
Calculating your BATNAs during the preparation phase of the negotiation can prevent you from agreeing to a deal which puts you into a position that’s actually worse than not having any deal at all.
Anticipate all potential scenarios
As with any debate or rhetorical speech intended to persuade, anticipating areas of concern or argument is also critical with negotiations. Although you can’t think of every possible scenario that could come up, try to anticipate the most likely ones and walk through how you would approach them. This works in conjunction with the cognitive bias exercise we discussed before, but helps to prepare for the more tangible aspects of the conversation. Identifying the most favorable potential scenarios can also help you to steer the conversation toward those scenarios.
Create an agenda
The last step of negotiation preparation is to create an agenda of the topics you want to cover and the order in which you want to cover them. Creating an agenda ensures you don’t miss discussing a major topic, but also helps to establish a framework for the conversation. Some items are inevitably more important to you than others and the same goes for your negotiating partner. Being strategic about when to ask for more of one thing or concede another is key to keep in mind within the larger conversation.
3. Navigating a Negotiation
Establish the agenda
Once the negotiation begins, the first thing you’ll want to do is establish the agenda that you created before the meeting. If there is any disagreement on the sequence, decide on an order of topics together — this can sometimes be a mini-negotiation in and of itself. Be clear on the ultimate objectives of the meeting, i.e., what items you want to have agreement on once you each walk away from the negotiating table.
ZOPA (Zone of Potential Agreement)
Next, you’ll want to find your way as quickly as possible into what’s called the ZOPA (Zone of Potential Agreement). ZOPA is another piece of negotiation jargon, which refers to the area between two parties’ BATNAs.
ZOPA (Zone of Potential Agreement)
As you’ll recall, the BATNA is the absolute minimum required by either party to reach agreement. If you’re looking at two parties’ outcome ranges, the area between a buyer’s and seller’s BATNA is where you would actually anticipate reaching an agreement. As you negotiate, you are trying to get as far as possible towards the outer limit of the ZOPA as possible.
The ZOPA does imply that there is actually overlap between the two BATNAs; sometimes this isn’t the case. In those situations, the best outcome for both parties is to walk away from the deal.
Dig into your partner’s interests and motivations
The only real way to determine the ZOPA is to ask questions. To get an idea of where your negotiating partner’s BATNA lies, you’ll need to understand their interests and motivations. On top of that, you’ll want to figure out which of those interests and motivations are most important to them. Just as you went through the exercise of establishing a ranking of your own interests before the meeting, you’ll want to work towards a similar ranking of important items for your partner as well. The discrepancy between what you find important and what your partner finds important is the critical information you need to move a negotiation in your favor. For example, if lead time is of primary importance to the buyer, but is less a factor for you, you know you can concede a bit to their lead time demands in exchange for something that’s more important to you.
People often believe that good negotiators simply make demands and play hardball, but the true masters of the art are those who simply know how to ask the right questions, and when. Focus on asking open questions — that is, questions without a binary ‘yes’ or ‘no’ answer — as these will open you to the most information.
Get to the core of why your partner is motivated to act in a certain way and what you have to offer to address those motivations. This calls to a focus on value creation, where you are scoping out your shared interests and how you can each benefit from working together.
Create solutions and trading packages
Taking into consideration what you learn from your exploration, start to create solutions and trading packages. Using “If…then” statements, you’re going to scope out what your partner is actually open to and move toward a resolution. Continuing on the lead time insight from the last example, you might propose: “If you’d like us to shorten our standard lead time to meet your holiday timeline, then we would request a revision of credit terms from n/30 to n/15. Is that something you would feel comfortable with?”
Creating theoretical packages like this decreases uncertainty and generates possible solutions without immediately committing to them.
Avoid compromise
The final critical tip for navigating the negotiation is to avoid compromise. Not every negotiation works out, and that’s okay. Don’t be afraid to walk away from a deal if it isn’t creating the value that you need it to. Be aware of your cognitive biases, keep your BATNA top of mind, and try to remain as objective as you can.
4. Closing the Deal
Assuming you do reach an agreement with one of the packages you created, the final step is to close the deal. First, you’ll want to lock down the order itself – when to expect it to be placed, the details of price and discounts, lead time, payment terms, etc. Next, establish any action items for moving forward, define the respective owner(s) of each item, and agree on its deadline. Finally, summarize, clarify, and document the discussion for both parties.
Any time a negotiation occurs, it’s best to send an email the same day with meeting minutes to ensure both sides are on the same page.
Stay tuned for the next part of our series, where we’ll sit down with Shapeways’ General Counsel, Michael Weinberg, to talk through legal considerations for transitioning from B2C to B2B.
Contact us if you have any questions on growing your jewelry business or have a bulk order that you’d like to scope out.
About the authors:
Ross Keong is a Strategic Sales Manager specializing in growth development for B2B users in the industries of jewelry, fashion, art, and design.
Virginia Gordon is the US Jewelry Community Manager, helping designers build a successful jewelry business using Shapeways and 3D printing