Archive for Negotiations
Avoid the High Cost of Haggling – Have a Game Plan
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Get Rich Slowly has a post up on The High Cost of Laziness. They point out that you can lose a lot of money if you fail to negotiate when striking a deal. We think about negotiating all the time at WhichDraft.com, which is why we offer the ability to save, compare (red line) and comment on multiple versions of a contract. Try it out right here.
If you are going to haggle, it’s extremely important to improve your negotiating sophistication when handling a deal. Too often, people are not aware of where the biggest risks are. Even lawyers usually miss the key issues (as they tend to be overly focused on the possibility that the parties will sue each other, which is highly unlikely).
So what are the big risks? Pay close attention to the following:
(1) Description: What are you buying or selling? Make sure you include a clear, inarguable description of the good or service being sold or purchased.
(2) Price: What’s the cost? There should be no doubt as to the fee, and, if you are breaking it up into several payments, make sure you clearly indicate the due dates for each installment.
(3) Delivery: When do you get what you want? Have a clear statement as to when the seller has to supply the good or service at hand.
(4) Exit: How do you get out? If you are unhappy with an ongoing arrangement (typically a service), you need a termination right that will let you kill the deal and move on to another provider. The same is true for a seller, who may find a particular customer too unruly to continue to do business with.
Bear these key risks in mind next time you haggle, and you will greatly increase the chances that you will walk away a happy dealmaker.
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How to Implement Negotiation Planning
Posted by: | CommentsTiffany Kemp from Devant, Ltd. and I held an IACCM teleconference on May 19, 2009 about change management problems when implementing negotiation planning. Tiffany’s writeup is here. You can hear the entire call here.
We concluded that there are at least 4 key issues faced when trying to implement a global negotiation planning process in an organization:
(1) Gradient: People tend to fall along a gradient, with 1 pole reflecting the idea that everything is new (the “fly by the seat of your pants” approach), vs. the other pole where people tend to think that there is hardly anything new under the sun (the “knowledge management” approach). Most people are closer to the “everything is new” pole. This makes implementing a defined process and ensuring compliance quite challenging.
(2) Sales: A very good idea to get people to embrace a negotiating process is to make a business case as to how it would improve sales.
(3) Meme: Another good idea to advance implementation would be to come up with a unique cultural artifact that people can gravitate towards.
(4) Short Term vs. Long Term Efficiency: People naturally put off to tomorrow what they don’t want to focus on today, even if putting things off means more work in the long run. A major challenge in implementing a negotiation process is overcoming the omnipresent tendency to overvalue this short term efficiency (commonly stated as, “I don’t have time to plan.“).
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Where’s My Beer Money? Anheuser Busch InBev Goes to 120 Day Payment Contracts
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Our recent post “Float That Money! The Politics of Paying Contracts” turns out to be prescient. We talked about how large corporate customers are increasingly demanding longer and longer payment terms from their vendors (even sometimes as much as 135 days), while turning around and requiring their own customers to pay up much more quickly (usually 30 days) (check out our Q&A wizard and easy to understand legal explanations in our comprehensive sales agreement, comprehensive purchase agreement, and our other key contracts).
Believe it or not, right after our discussion on payment terms, a story on this topic hit the press. Apparently Anheuser Busch InBev is now paying its bills 120 days after receiving an invoice. Reportedly, Belgian governmental authorities are investigating the practice to determine its legality.
Since Emerson (Anheuser Busch InBev’s main supplier for brewing appliances), has little bargaining power to resist this change, it has publicly issued an edict that it will no longer serve its huge customer’s beers at any Emerson event.
“We suggest you use Coors, Miller, Modelo (Corona, etc.) or Heineken products,” the memo apparently goes on to say.
What Anheuser Busch InBev is doing, essentially, is turning each of its purchases into a 4 month financing contract.
I wonder how they would feel if their beer distributors tried to do the same?
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Apple’s App Approval Process: Like Dealing with the Federal Government?
Posted by: | CommentsThere have been many complaints about the Apple App approval process and how haphazard the decisions can be (to get a comprehensive understanding of software license agreements for apps, read here). TechCrunch notes:
We’ve seen dozens of apps that are approved the first time, but later rejected for a seemingly small update. And we’ve seen others that are rejected, make almost no change, yet get in the next time they’re submitted. It would seem the the life or death of an app is entirely in the hands of the App Store inspector who checks it out.
Apple’s App approval process reminds me of a similar application system: applying for a trademark registration from the US Patent and Trademark Office. When I used to represent clients in prosecuting their applications, I really had little idea what would happen, as trademarks that should have sailed through according to the law were rejected, and others that were “on the fence” might go right through. For WhichDraft.com, our recent application had been approved, but was then pulled and sat on a supervisor’s desk for 6 months. They couldn’t give me a reasonable explanation why.
Echoing TechCrunch, it would seem that the life or death of a trademark application is entirely in the hands of the U.S. trademark examining attorney who checks it out.
It’s not a good sign when a for-profit corporation’s performance mimics the quality level of the federal government.
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What Swine Flu Hysteria Tells Us About Cognitive Contracting Errors
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The tremendous fear and publicity right now about swine flu is out of proportion with the actual number of deaths (however sad these individual cases may be). Apparently, during the 1990s approximately 36,000 people died each year due to the flu in the United States. So the current number of deaths, which is in the low hundreds, pales in comparison. All of this hullabaloo makes me think about the nature of human cognition, and how it can lead us to not focus on the most important issues at hand (there is a great post on these issues here). To take a different approach in contracting, review our Q&A wizard and easy to understand legal explanations in our comprehensive sales agreement, comprehensive purchase agreement, and our other key contracts. In particular, we employ cognitive fallacies like “Contrast,” which makes us perceive an event as being more important or less important, not based on its merits, but based on contrasting the event with what we see occurring around it. Viewing reports about the horrific 1918 worldwide flu pandemic, for instance, triggers this Contrast problem.
Another problem is “Self Confirmation,” where we ignore data that does not support our fear, and only embrace data that does back our contentions. A good example would be the failure to think about the greater number of people who die from normal flu outbreaks instead of the swine flu.
Finally, we often engage in “Confirmity,” meaning that we go along with what everyone else is concerned about, following along with the mass hysteria as part of the chain reaction. Listening to nonstop reports about swine flu is certainly causing this confirmity error.
All 3 of these cognitive errors happen all the time when we contract. Let’s consider a few examples:
Contrast: We might not care about focusing on the riskiest contract terms, like the goods/services description, and instead focus on less risky terms, like limitation of liability, because in all of your past deals you focused on less risky terms each time.
Self Confirmation: In this vein, we might only think about what kinds of damages the other side might sue us for, so we again only hone in on limiting our liability, even though a dispute is much more likely to occur over whether or not the goods and services met expectations (which can be prevented through an excellent goods/services description in the contract).
Confirmity: Moreover, we might be focusing on the contract’s limitation of liability clause because we were trained to do so. We are simply following along with how more senior negotiators handle agreements, and, matching their approach, we fail to focus on other issues of greater importance.
Try looking for Contrast, Self Confirmation and Confirmity in your daily life.
Do you see it happening?
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Float That Money! The Politics of Paying Contracts
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During my legal career, I’ve represented both the sales side and the customer side in negotiating deals. While buyers and sellers argued over many issues, one provision always seemed to stay the same: the customer would pay a bill within 30 days. People refer to this kind of contract provision as the “payment terms.”
So color me surprised when I noticed one of my large clients insisting that it would only pay a bill within 45 days. They also pushed back on the seller’s right to terminate the contract for late payments, requiring the seller to give up to 90 days advance notice before it could do so. Floating your money for this extended time period gives you some great advantages when you’re the customer. A customer can use its levitating dollars during the extra time to garner interest or invest the money, money which, in the past, the seller would have had. Presto! Like magic, the extra time means extra dollars for the customer.
What happens to the seller? Think about it: 90 + 45 = 135 days to pay a bill. Most salespeople will tell you that waiting over 4 months for payment will clobber their cash flow and make it very hard for them to pay their own bills. The solution? The seller starts doing the same thing to its vendors. Now, when people negotiate the payment terms in a contract, they’re left in the rather disingenuous position of begging customers to pay within 30 days, then turning around and asking for much more time to pay when it comes to their own creditors.
Besides being a blatant violation of the golden rule (which we all want to follow, right?), the lack of reciprocity makes for an uncomfortable negotiating relationship and hits you with credibility and loyalty costs when it comes to your business partners.
A great example is playing out right now. Apple appears to be taking longer and longer to pay developers who create iPhone applications. Here we have a situation where Apple has tremendous power because it’s the gateway to the iPhone platform. Apple takes all the money users pay for developer’s apps and then relays the developer’s cut to them (minus Apple’s share), per the Apple contract agreed to by every developer. According to the copy of the Apple contract here, Section 3.5 requires Apple to pay the developer within 45 days after the end of the month that Apple received the developer’s payment from a user.
So if you buy my WhichDraft App (doesn’t exist yet, but I can dream, can’t I?) on March 1, Apple doesn’t have to relay your payment to me, the developer, until mid-May! While waiting over 70 days for my money is bad enough, according to this report Apple might be taking even longer. And since Apple controls access to the platform, the developer is left with a difficult choice: keep waiting while her own bills pile up, or threaten to sue Apple, which could provoke Apple into rejecting her apps entirely, effectively shutting the developer out of the entire platform’s market.
The situation makes me imagine Steve Jobs as the Soup Nazi: “No more millions of iPhone users for you!” Sure, there are laws against this kind of behavior, but if you’re a small developer, do you really have the time and money to litigate this kind of dispute? For most people, I think not.
That’s the power of a network access agreement. However, at some point, the pain could be so great that developers just move to a different platform.
Palm Pre, anyone?
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The Carbon Copy Breach: Shhhh . . . M&A Negotiations Are Confidential
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TechCrunch has a post up entitled “I Wish More People Bcc’d Us On Their Confidential Acquisition Emails.“ Apparently, a company named myYearbook had sent an offer to acquire a startup called FunAdvice. For some reason, the CEO of FunAdvice bcc’d TechCrunch with his response (which rejected the offer).
Now, airing this kind of laundry publicly is quite odd. Normally these kinds of offers are only made after the parties sign a confidentiality agreement which restricts them from disclosing any of their conversations (check out our confidentiality agreements here).
For your information, the type of confidentiality agreement which businesses normally use when they are negotiating mergers and acquisitions (M&A) is a Confidentiality and Standstill Agreement, which we have right here (with all of our legal explanations and question and answer wizard showing all the alternatives).
I don’t know if myYearbook and FunAdvice had a confidentiality agreement in place, but I would be surprised if they did not.
Regardless, when TechCrunch asked the CEO why on earth he would do such a thing, he apparently said:
“I won’t do that again, I thought techcrunch would find it interesting.”
Breaching confidentiality agreements, or, at the very least, showing bad form by making such an offer public, is not justified by a back handed attempt at garnering some publicity. Moreover, if you want a major site like TechCrunch to cover you, it’s probably not a good idea to fail to capitalize the capital letters in their site name. We wouldn’t like that at “whichdraft.com” either.
Very strange all around.
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Top 10 Sales Contract Deal Killing Mistakes Made By Sellers
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Here’s my list of mistakes sellers often make that torpedo sales deals. Check out our sales agreements here, or dive into our comprehensive sales agreement that covers almost every key sales contract issue here.
(1) Insufficient Understanding of Customer. Do not fail to take the time to understand the customer and the specific business needs the customer has, in particular, focusing only on explaining your products and services without trying to guide the customer as to how a particular product/service can solve her problem. As TechCrunch recently pointed out, make your sales explanations simple.
(2) Focus on Customer’s Budget, Not Customer’s Needs. Do not focus on how much the customer has in the budget or wants to spend. Instead, focus on the customer’s pain, and explain how your good/service will alleviate her business suffering. This will do a much better job of motivating the customer to meet your price.
(3) No Hard Deadlines. Do not show an unwillingness to agree to hard deadlines for delivering products and completing services, making it likely that the customer’s project will not come in on schedule.
(4) No Clear Fees. Do not show hesitance when asked to agree to a definite price that can’t be increased at a later date, making it likely the customer’s project will come in over budget.
(5) Unclear Customer Responsibilities. Do not do a poor job of explaining what the customer needs to do to be able to incorporate and fully use the goods/services (such as necessary platforms or site preparation).
(6) No Access to Key Stakeholders. Provide access to everyone on the seller’s side who needs to sign off on the deal. If you are missing your key people, this results in unnecessary emails, numerous contract versions, and fruitless meetings. The best situation is where all necessary stakeholders on both sides get on the phone, review the contract language, agree on revisions, and close the deal.
(7) Long Contracts. Do not send unnecessarily long contracts which mean more work for everyone in reading, revising and negotiating the language. Even the most complex deals can usually be covered in a relatively short number of pages.
(8) Unclear Contract Language. Do not send contracts full of ambiguous language which are not clear as to exactly what is being purchased, at what price, following what deadlines, and specifying the customer’s duties, if any.
(9) One Sided Contracts. Do not send contracts heavily weighted in favor of the seller, so that time has to be wasted and legal fees spent negotiating a compromise version.
(10) Not Moving the Ball Forward. If you send a customer an email, it should only be to elicit specific, necessary information, or to fully respond to a customer’s request for information. That’s it. Any other email wastes the customer’s time. If you have a conference call, you should have a prepared agenda acceptable to both parties and you should have everyone on the call ready to accomplish all agenda items. Too often, a key person is not available, or an essential stakeholder is unprepared to discuss and execute a key topic. Avoid this.
These mistakes make negotiations interminably long, or cause them to fail, mainly because the seller spends so much time creating complexity that the seller is unable to clearly describe the deal. By not answering key questions at the outset, the transaction costs for deals end up being too high. In particular, legal fees are greatly increased because the lawyers have to spend so much time tunneling through the complexity. Also, the more complex you are in describing your deal, the more you give the lawyers to argue over, which means more time and more money.
Instead, focus on keeping everything simple.
If you enjoy this content, add me at twitter.com/JasonAnderman, thank you.
Supply Excellence’s Justin Fogarty was kind enough to cover my recent presentation at the IACCM Americas conference entitled “Alternative Fees Meet Web 2.0: How to Cut Law Firm Cost and Make Clients Happy.” The presentation uses strategic sourcing principles for procuring legal services, but really explains how to rein in costs for any services that you might need. Check out the presentation slides here (which use the amazing Prezi.com presentation software). Also, read our previous post on alternative fees here.
To capture some of that spend and have better legal representation, Jason recommends negotiating “incentives that motivate people to do better”. Meaning, structure your relationship with outside counsel so that there are either caps on fees for specific, clearly defined projects OR include “efficiency bonuses” that reward the firm for coming in under budget.
Couldn’t have said it better myself.
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