Knowing When Negotiations Aren't Feasible
Looking at the desired outcomes of any negotiation, you notice one common trend. There's always give and take. There's always an area of middle ground and discussion around what each party brings to the table. To determine these, the negotiating parties investigate various factors, such as strengths and weaknesses, market share, cost structures, and financial viability.
So how do you know when the negotiation has reached a stalemate and a mutually beneficial outcome isn't possible? When is it time to walk away?
Develop a Risk Analysis Profile
Preparing a risk analysis profile gives you deep insight into the counterparty before you step into your first meeting. It highlights the potential risks, giving you a better understanding of the counterparty and whether a partnership with them is beneficial for you. Sometimes the deal looks good from the outside, but when you take a closer look, flaws and problems are revealed. A risk analysis profile can include:
Credit reporting. Check your counterparty's credit history, and analyze their credit ratings.
Financial statements. Scrutinize their financial statements, and query any anomalies.
Minutes of meetings. Carefully peruse minutes of all meetings to look for red flags. Read between the lines.
Market share and stocks. Find out if the company is listed on the stock exchange and how its stocks are trading.
Other partnerships and providers. What third parties are involved, and what role do they have?
The large private equity firm, Bridgepoint, is adept at doing strategic risk analysis. Its management walked away from a deal with Pernod Ricard, which looked highly attractive at first. However, when the due diligence team closely analyzed the market, consumers, and competitors, it found flaws that had the potential to cost Bridgepoint millions. “What we thought we knew turned out to be wrong,” said Benoit Bassi, a managing director of Bridgepoint.
Looking beyond the negotiation is imperative. This always uncovers interests you aren't aware of. Ask yourself the following questions:
What are they keeping hidden?
What other aspects are influencing the situation?
What other interests are involved?
Test a deal's strategic logic and conduct your own analysis of the counterparty. Don't just rely on the data they provide.
There's no shame in ending a negotiation if you can't agree on terms. It may actually be the best thing for your business. A bad deal has the potential to ruin your business. It can have a negative effect on your customers, employees, and financial position, and it can be detrimental to your public image. Maintaining your position and understanding your bottom line are key factors when it comes to knowing when to walk away.
Details matter and when you're trying to conclude a successful negotiation, it's impressive to present a professional, error-free contract to the counterparty in the correct business format. It’s also important to have a smaller, easily shareable document. You can compress a PDF online before sending.
If, however, you've investigated thoroughly and you can't reach an agreement about your nonnegotiables, it's best to walk away. Don't chase a low-value deal if you feel the counterparty is hiding something or being manipulative.
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This Hot Deal is promoted by Greater Royal Oak Chamber of Commerce.