The importance of negotiation in business is often overlooked by many young entrepreneurs. You shouldn’t wait to run out of cash before becoming a good negotiator.

In an entrepreneurial venture, you often don’t have negotiating leverage. You are anxious to get customers and even more anxious to complete an investment.

When it comes to vendors, you don’t represent a large volume of business. In these scenarios, you need them more than they need you. Unfortunately, this puts you at a disadvantage when it comes to negotiating.

You can’t let this limitation cause you to strike deals that are not in the best interest of the company.

Importance of Negotiation in Business

Of course, you need customers, vendors, and employees. What entrepreneur doesn’t? But you need to change your perspective to increase your chances of securing these important relationships.

Instead of negotiating from a position of weakness, you must come to the table with tools and insights that put you more in the driver’s seat. Think about the following:

Negotiate from a Position of Strength – Don’t allow any customer, investor, employee or vendor to hold your size or stage against you. Put differently, even though you really want (or need) a relationship, always negotiate from a position of strength. How do you do this when you have little leverage? It will require your entrepreneurial creativity to create leverage when little exists:

Easier said than done. You’ve got to bring all your creative juices to give yourself the influence and edge to negotiate with strength.

You may not realize you already have this strength or won’t discover it until you refuse to negotiate from a position of weakness, regardless of the circumstances.

Here are a few tips to help you negotiate from the right place:

• Influence Points. You often don’t need to have the leverage to create other influence points. On your own, you may be a small company that no one knows about. What if you tied your business to another influence point? For example, what if you are a customer of Valley Bank and you want to offer your solution to the bank. You might reach out to your relationship manager and express your desire to offer your solution to the bank. Your business with the bank will give you an improved chance with the opportunity.
• Align to Your Target’s Competitors. Sometimes companies create relationships because of the value. Other times companies take action to prevent or preempt your relationship with one of their competitors. Communicate that you will be offering your solution not only to them but that you believe that other similar companies (that they happen to compete with) would benefit from your solution.
• Attitude. Sometimes your attitude, body language, and tone can be compelling enough to create leverage. Shift your passion for your vision into a natural confidence. Communicate that the success of your business is not a matter of “if ” but “when.” Regardless of your stage, always negotiate from a position of strength. Pay attention to the principle of least interest even if your interest is greater and always behave like you want a relationship, not that you need a relationship.
• Never Let Anyone Be the Only Source. There will be times throughout the process of overseeing your company in which you will only have one source for a solution. This most often comes up with vendors and investors but may also apply to customers and employees. Ideally, you should always have several sources for a solution. In the early stages, this is not always possible. When it is not possible, the party that is your only solution should not know that they are your only source. In a perfect world, these relationships would appreciate that this venture is your vision and would never take advantage of the fact that they are the only source. Unfortunately, you must accept that some resources will leverage this knowledge to your disadvantage.

This is hard. In the early stages, you want to create relationships with companies that will ride the wave with you. Companies that will see your vision and take a flier on it.

Unfortunately, more often than not, companies understandably protect their self-interest. This is not to say that all constituents will do that. If you are fortunate enough to find constituents that share your common vision and are willing to invest in it, so be it. Until that happens, however, you must not expose your vulnerability.

While the preferred solution will always be to have a backup plan, you never should communicate that a potential relationship is your single source. Individuals and companies who understand that they are in a competitive environment are likely to perform better and provide better terms.

Take the example of a vendor. With vendors, you are often looking for partners who are willing to take below market or other creative compensation (e.g., equity) in exchange for performance. In these cases, you
develop a relationship with these vendors and share information with them.

You might have one company bidding to be your manufacturer. You might have one software vendor bidding for your technology business.

When your business matures, you will have the ability to mitigate your risk with multiple or backup vendors.

You’ll have the ability to create contingency plans. Early on, you don’t have the capital or management resources for that.

Many vendors who realize they are your single source will use that fact to extract a higher price or to put you in a position in which your negotiating leverage is minimal. We have all heard stories of the contractor working on your house, is 75 percent finished and suddenly communicates that the price is going to be 50 percent higher than expected.

You are left with two bad choices—pay the additional 50 percent or fire them—and end up with 75 percent of a house. It’s not a coincidence that despite having built hundreds of houses this major price issue didn’t arise until the job was 75 percent done. They understand that they are the single source of the solution.

What are some of the tools you can use to minimize this risk? Here are a few tips:

• Create a Bidding Process. Conduct a bidding process and communicate to your vendors that you will be considering their bid against other bids. The bidding process can be formal or informal. Communicating that you are accepting proposals from multiple vendors will cause vendors to act accordingly.
• Be Careful Sharing Information. When your balloon is full and you build a relationship with constituents like vendors, you tend to share the gory details of your business.

While this can let air out of your balloon, this can also be detrimental to the business. When vendors hear a sense of desperation or a risk to your business or know there is a customer deliverable in two months, some may use this information to alter pricing and terms or use this leverage to create relationships that are not balanced. Vendors should earn your trust by performing. At that future time, you can share more with them.

• Have Alternatives. Even when you hire vendors, make them aware that you are constantly looking for ways to improve and always keep alternative vendors on call. It is like having a bench when it comes to employees. This keeps vendors on their toes.

Understanding The Importance of Negotiation in Business

Your job is to act in the best interest of the business. Of course, you would like to strike a vendor relationship that turns into a close one in which you ride the tide together. This is rare, especially since the early vendors who make sacrifices expect to be treated differently as the business grows.

A good negotiator knows that securing important relationships for their business means changing their perspective from time to time.